3QFY2013 Result Update | Auto Ancillary

February 6, 2013

Apollo Tyres
Performance highlights
Y/E March (consolidated ` cr) 3QFY13 3QFY12 Net sales EBITDA EBITDA Margin (%) Adjusted PAT
Source: Company, Angel Research

ACCUMULATE
CMP Target Price
% chg (yoy) 2QFY13 (0.3) 14.9 158bp 40.7 3,375 367 10.9 152 % chg (qoq) (4.7) 4.2 101bp 17.8

`85 `97
12 Months

Investment Period
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code

3,217 382 11.9 180

3,228 333 10.3 128

Tyre 4,276 2,377 1.3 102/71 412,377 1 19,640 5,959 APLO.BO APTY@IN

Subdued results due to weak demand: Apollo Tyres (APTY) results for 3QFY2013 were subdued as the consolidated top-line performance across the three geographies remained weak mainly on account of sluggish demand amid weak economic environment. The consolidated top-line stood flat (down 4.7% yoy) at `3,217cr, lower than our estimate of `3,559cr on account of a 2.7% and 0.5% yoy decline in revenues in India and Europe respectively. Nonetheless, the consolidated EBITDA margin expanded ~100bp sequentially (~160bp yoy) to 11.9%, led by receding raw-material cost pressures. However, higher advertisement expenses towards brand building restricted further margin expansion. The EBITDA margins in India, Europe and South Africa expanded by 200bp, 160bp and 200bp to 10.1%, 4.8% and 20.1% respectively. Further, higher other income (on forex gains and insurance proceeds) and lower tax rate resulted in a 40.7% yoy (17.8% qoq) growth in the adjusted net profit to `180cr. Lower-than-expected standalone performance: APTYs standalone results were impacted by a significant decline in the OEM demand for medium and heavy commercial vehicle (MHCV) tyres (volume down ~40% yoy) which led to a 2.7% yoy (10.8% qoq) decline in the top-line. The EBITDA margin too remained under pressure on a sequential basis as it expanded by a modest ~20bp (strong 200bp yoy) to 10.1%, despite the decline in raw-material expenses. However, led by higher other income, sequential decline in the bottom-line was restricted to 1.8%. Outlook and valuation: We lower our volume estimates for FY2013/14 to account for the subdued demand scenario in the key geographies of India and Europe. Nonetheless, our earnings estimates for FY2013 are revised upwards as we factor in the higher other income during the quarter. We remain positive on the tyre industry in view of the structural shift that the industry is witnessing and also due to the softening of natural rubber prices. However, we remain watchful of the capital expenditure plans of the company in the absence of proper clarity on the quantum and usage of funds. Further, raising of funds through QIP and issue of warrants to promoters is also likely to remain an overhang on the stock as it will result in equity dilution of ~20%. Nevertheless, due to attractive valuations we maintain our Accumulate rating on the stock with a revised target price of `97.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 43.4 18.3 24.4 13.9

Abs. (%) Sensex Apollo Tyres

3m 4.4 0.0

1yr 10.9 16.2

3yr 23.4 60.7

Key financials (Consolidated)

Y/E March (` cr) Net Sales % chg Net Profit % chg EBITDA (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2011 8,868 9.2 429 (27.8) 11.0 8.5 9.7 1.8 19.6 15.6 0.7 6.5

FY2012 12,153 37.1 411 (4.3) 9.4 8.1 10.4 1.5 15.7 14.9 0.5 5.8

FY2013E 13,066 7.5 656 59.8 11.5 13.0 6.5 1.2 21.0 17.8 0.5 4.2

FY2014E 14,503 11.0 729 11.0 11.8 14.5 5.9 1.0 19.4 18.3 0.4 3.6

Yaresh Kothari
022-3935 7800 Ext: 6844 yareshb.kothari@angelbroking.com

Please refer to important disclosures at the end of this report

Apollo Tyres | 3QFY2013 Result Update

Exhibit 1: Quarterly financial performance (Consolidated)

Y/E March (` cr) Net Sales Consumption of RM (% of Sales) Staff Costs (% of Sales) Purchase of traded goods (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM (%) Interest Depreciation Other Income PBT (excl. Extr. Items) Extr. Income/(Expense) PBT (incl. Extr. Items) (% of Sales) Provision for Taxation (% of PBT) Share in profit/(loss of asso. Minority interest Reported PAT Adjusted PAT Adj. PATM Equity capital (cr) Reported EPS (`) Adjusted EPS (`)
Source: Company, Angel Research

3QFY13 3,217 1,842 57.3 356 11.1 168 5.2 469 14.6 2,835 382 11.9 81 92 27 236 236 7.3 56 23.6 (1) 0 180 180 5.6 50.4 3.6 3.6

3QFY12 3,228 2,002 62.0 351 10.9 138 4.3 405 12.5 2,896 333 10.3 75 82 (2) 172 29 143 4.4 44 31.1 (0) 0 98 128 4.0 50.4 1.9 2.5

% chg (yoy) (0.3) (8.0) 1.4 22.0 15.9 (2.1) 14.9 6.9 11.6 (1,212.0) 37.1 65.3 25.7

2QFY13 3,375 2,048 60.7 353 10.5 185 5.5 422 12.5 3,008 367 10.9 83 91 14 207 0 207 6.1 53 25.9 (1) 0

% chg (qoq) (4.7) (10.0) 0.8 (9.2) 11.2 (5.7) 4.2 (2.8) 0.8 91.8 14.4 14.4 4.4

9MFY13 9,757 5,668 58.1 1,097 11.2 533 5.5 1,359 13.9 8,656 1,101 11.3 239 277 51 636 636 6.5 163 25.7 (2) 0

9MFY12 8,922 5,471 61.3 1,033 11.6 456 5.1 1,157 13.0 8,117 805 9.0 209 235 16 377 29 347 3.9 93 26.8 (1) 0 253 283 3.2 50.4 5.0 5.6

% chg (yoy) 9.4 3.6 6.2 16.8 17.4 6.6 36.7 14.1 17.6 216.1 68.9 83.2 75.8

82.7 40.7

152 152 4.5 50.4

17.8 17.8

471 471 4.8 50.4

86.0 66.7

82.7 40.7

3.0 3.0

17.8 17.8

9.3 9.3

86.0 66.7

Exhibit 2: 3QFY2013 Actual vs Angel estimates

Y/E March (` cr) Net Sales EBITDA EBITDA margin (%) Adj. PAT
Source: Company, Angel Research

Actual 3,217 382 11.9 180

Estimates 3,559 408 11.5 166

Variation (%) (9.6) (6.2) 43bp 8.4

Lower-than-expected growth in net sales: For 3QFY2013, APTYs consolidated top-line stood flat at `3,217cr (down 4.7% qoq) which was lower than our expectations of `3,559cr, mainly on account of lower-than-expected top-line performance across the three geographies. The company registered a volume decline of 3%, 1% and 3% yoy in India, Europe and South Africa operations respectively during the quarter. As a result, top-line in India and Europe posted a decline of 2.7% (down 10.8% qoq) and 0.5% yoy (modest growth of 2.6% qoq) respectively. While Indian operations were impacted by significant slowdown in the medium and heavy commercial vehicle (MHCV) segment; Europe operations were

February 6, 2013

Apollo Tyres | 3QFY2013 Result Update

under pressure due to the weak macroeconomic environment in the region. South Africa operations too posted a modest growth of 5.8% yoy (3.6% qoq) as sales continue to be impacted due to the availability of cheaper imports in the country.

Exhibit 3: Top-line stood flat

(` cr) 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 3.2 2,369 Net sales 55.0 47.3 2,871 2,730 2,822 27.3 36.3 18.4 12.1 17.5 (0.3) % chg 3,228 3,231 3,165 3,375 3,217 (%) 60.0 50.0 40.0 30.0 20.0 10.0 0.0 (10.0)

Exhibit 4: Revenue-mix Geography-wise

(` cr) 2,500 2,000 1,500 1,000 500 300 0 354 280 302 383 339 393 391 406 1,432 820 795 816 1,762
India South Africa Europe

1,961

2,093 1,845

2,259

2,152

2,283 2,036

649

623

604

749

677

650

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

Source: Company, Angel Research

3QFY13

Source: Company, Angel Research

Exhibit 5: Segmental performance

Y/E March Revenue (` cr) India SA Europe Others EBIT (` cr) India SA Europe Others EBIT margin (%) India SA Europe
Source: Company, Angel Research

3QFY13 2,036 406 816 53 169 5 141 4 8.3 1.2 17.2

3QFY12 2,093 383 820 35 123 (30) 129 (2) 5.9 (7.8) 15.8

% chg (yoy) (2.7) 5.8 (0.5) 50.1 37.3 8.8 -

2QFY13 2,283 391 795 49 179 (4) 113 5 7.9 (1.1) 14.2

% chg (qoq) (10.8) 3.6 2.6 7.7 (5.5) 24.2 -

9MFY13 6,471 1,190 2,261 152 520 6 347 9 8.0 0.5 15.3

9MFY12 5,899 965 2,172 76 327 (32) 268 (4) 5.5 (3.3) 12.3

% chg (yoy) 9.7 23.2 4.1 99.1 59.3 29.6 -

Margins improve to 11.9% on receding cost pressures: On the operating front, EBITDA margins expanded across the geographies led by receding raw-material cost pressures (average natural rubber prices down by 14.5% yoy and 4% qoq). As a result, the raw-material expenses declined by 6.1% qoq (10% yoy) during the quarter. The consolidated EBITDA margin expanded ~100bp sequentially to 11.9%, against our expectations of 11.5%. The EBITDA margins in India, Europe and South Africa expanded by 200bp, 160bp and 200bp to 10.1%, 4.8% and 20.1% respectively. However, higher advertisement expenditure towards brand building led to a 210bp yoy and qoq increase in other expenses as a percentage of sales which restricted further margin expansion.

February 6, 2013

3QFY13

Apollo Tyres | 3QFY2013 Result Update

Exhibit 6: Average natural rubber price trend

(`/kg) 250 200 150 100 50 0
78 98 102 72 142 119 165 177 195 225 229 211 203 191 193

Exhibit 7: EBITDA margin improves to 11.9%

(%) 75.0
181 174

EBITDA margin 58.7 64.5 66.0 67.0

Raw-material cost/sales 66.3 64.8 61.8 66.2 62.5

65.0 55.0 45.0 35.0 25.0 15.0 5.0

11.5

11.3

8.2

8.3

10.3

11.1

11.1

10.9

11.9

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY09

1QFY10

3QFY10

1QFY11

3QFY11

1QFY12

3QFY12

1QFY13

3QFY13

Source: Company, Angel Research

Source: Company, Angel Research

Adjusted net profit growth boosted by high other income and lower tax rate: APTYs adjusted net profit registered a strong growth of 40.7% yoy (17.8% qoq) to `180cr as against our expectations of `166cr. The bottom-line growth was boosted by higher other income (on forex gains and insurance proceeds) and lower tax rate (23.6% as against 31.1% in 3QFY2012 and 25.9% in 2QFY2013).

Exhibit 8: High other income and lower tax-rate aids net profit
(` cr) 250 200 150 100 50 0 121 193 77 78 98 157 138 152 181 2.7 2.7 3.0 7.1 5.1 5.6 4.9 4.4 4.5 Net profit Net profit margin (RHS) (%) 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

Source: Company, Angel Research

February 6, 2013

3QFY13

3QFY13

Apollo Tyres | 3QFY2013 Result Update

Exhibit 9: Quarterly financial performance (Standalone)

Y/E March (` cr) Net Sales Consumption of RM (% of Sales) Staff Costs (% of Sales) Purchase of traded goods (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM (%) Interest Depreciation Other Income PBT (excl. Extr. Items) Extr. Income/(Expense) PBT (incl. Extr. Items) (% of Sales) Provision for Taxation (% of PBT) Reported PAT Adjusted PAT Adj. PATM Equity capital (cr) Reported EPS (`) Adjusted EPS (`)
Source: Company, Angel Research

3QFY13 2,036 1,373 67.5 110 5.4 71 3.5 277 13.6 1,831 205 10.1 67 55 19 103 103 5.0 29 28.0 74 74 3.6 50.4 1.5 1.5

3QFY12 2,093 1,537 73.4 96 4.6 63 3.0 228 10.9 1,924 169 8.1 64 47 1 60 60 2.9 17 28.8 43 43 2.0 50.4 0.8 0.8

% chg (yoy) (2.7) (10.7) 15.1 12.3 21.3 (4.8) 21.3 5.1 16.7 1,388.2 71.6 71.6 67.0 73.4 73.4

2QFY13 2,283 1,636 71.7 107 4.7 67 2.9 247 10.8 2,057 226 9.9 69 55 8 110 110 4.8 35 31.5 75 75 3.3 50.4

% chg (qoq) (10.8) (16.0) 2.7 6.3 11.8 (11.0) (9.1) (3.8) 126.2 (6.6) (6.6) (17.1) (1.8) (1.8)

9MFY13 6,471 4,514 69.8 327 5.1 202 3.1 776 12.0 5,819 652 10.1 198 164 33 322 322 5.0 98 30.4 224 224 3.5 50.4

9MFY12 5,899 4,345 73.7 274 4.6 185 3.1 642 10.9 5,447 452 7.7 175 134 8 152 152 2.6 43 28.2 109 109 1.8 50.4 2.2 2.2

% chg (yoy) 9.7 3.9 19.3 8.9 20.8 6.8 44.2 13.4 23.1 310.9 112.0 112.0 128.3 105.6 105.6

73.4 73.4

1.5 1.5

(1.8) (1.8)

4.4 4.4

105.6 105.6

Net sales down on 3% yoy decline in volumes: On a standalone basis, APTY posted a 2.7% yoy (10.8% qoq) decline in the top-line to `2,036cr, which was lower than our expectations of `2,328cr. The top-line performance was mainly impacted due to the slowdown in the OEM demand for MHCV tyres which led to a ~3% yoy (~11% qoq) decline in standalone volumes. Nonetheless, the company witnessed a healthy demand in the replacement segment. The net average realization remained flat on a yoy as well as qoq basis led by better product-mix.

February 6, 2013

Apollo Tyres | 3QFY2013 Result Update

Exhibit 10: Top-line down due to slowdown in demand

(`cr) 2,500 2,000 1,500 1,000 8.2 500 0 9.8 (2.7) 1,432 1,762 34.2 1,961 74.9 1,845 56.9 28.2 23.7
Net sales yoy change (RHS)

2,093 46.2

2,259

2,152

2,283 2,036

(%) 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 (10.0)

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

Source: Company, Angel Research

Operating margin remains under pressure: On a sequential basis, APTYs EBITDA margin improved by a modest ~20bp to 10.1% despite the decline in raw-material expenses, owing to the sharp increase in other expenditure. The other expenditure as a percentage of sales jumped by 280bp sequentially as the company increased its advertisement expenses in an attempt to enhance the brand visibility. However, raw-material expenditure registered a decline of 16% qoq primarily due to decline in natural rubber prices. On a yoy basis though, margins expanded 200bp driven largely by easing of natural rubber prices.

Exhibit 11: Average raw-material cost trend

Particulars Natural rubber Nylon tyre cord fabric Carbon black
Source: Company, Angel Research

3QFY13 190 235 80

3QFY12 250 223 73

% chg (yoy) (24.0) 5.4 9.6

2QFY13 210 250 80

3QFY13

% chg (qoq) (9.5) (6.0) 0.0

Standalone net profit at `74cr: For 3QFY2013, the standalone net profit declined marginally by 1.8% qoq to `74cr largely due to the fall in the top-line. Higher other income (at `19cr vs `8cr in 2QFY2013) also benefited the profitability during the quarter. On a yoy basis, net profit witnessed a strong growth of 73.4% driven by a strong operating performance.

February 6, 2013

Apollo Tyres | 3QFY2013 Result Update

Exhibit 12: EBITDA margin at 10.1%

(%) 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 10.4 7.6 7.6 7.3 8.1 9.5 10.3 9.9 10.1 69.3 EBITDA margin 75.3 77.0 77.0 76.5 Raw material cost/sales 75.5 72.9 74.6 70.9

Exhibit 13: Net profit declines sequentially

( ` cr) 80 70 60 50 40 30 20 10 0 54 66 44 22 43 72 75 75 74 1.2 2.3 2.0 Net profit 3.8 3.8 3.2 Net profit margin (RHS) 3.5 3.3 3.6 (%) 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

Source: Company, Angel Research

Source: Company, Angel Research

Conference call Key highlights

According to the Management, the demand outlook remains weak across the three geographies. The domestic demand continues to remain weak due to the sharp decline in OEM truck sales. However double digit growth in the replacement market has supported growth. Further, the demand in Europe is also expected to remain sluggish in the near term. Industry volumes in Europe have posted a 13% yoy decline in CY2012. APTY has indicated that it will continue with production cuts across all its plants given the poor demand. The company has indicated that the capacity utilization level remains in the range of 70-80% across the three geographies. The Management expects raw-material prices to remain stable in the near term led by slowdown in demand in the global markets. At the Chennai plant, the company has ramped up capacity to ~400TPD; however, due to weak demand the Chennai plant is currently operating at a capacity of ~300TPD. The company has deferred the QIP issue of US$150mn until announcement of 4QFY2013 results due to the pricing issue. APTY intends to raise money primarily to fund its capacity expansion plans. The Management stated that product prices have not been reduced despite the decline in raw-material prices. The European operations during the quarter were impacted due to late onset of the winter season and also due to higher dealer inventory. The company intends to increase the capacity at the Netherlands plant by 20% over the next two years by incurring an expenditure of ~EUR50mn. The consolidated net debt came down from `2,900cr to `2,700cr currently. Regarding the new plant in Thailand for passenger car tyres, the company is close to finishing the due diligence exercise with respect to land acquisition. It is planning to set up an initial capacity of 16,000 tyres/day at an investment of US$250mn. The plant is likely to commence production by end of CY2014.

February 6, 2013

3QFY13

Apollo Tyres | 3QFY2013 Result Update

Investment arguments
Tyre industry set for a structural shift: Currently, manufacturing radial tyres is far more capital intensive than manufacturing cross-ply tyres. The investment required for radial tyres per tpd is 3.2x that of cross-ply tyres at `6.1cr/tpd. On the other hand, the selling price of radial tyres is ~20% higher than that of cross-ply tyres. Thus, to generate a similar RoCE and RoE, tyre companies would need to earn EBITDA margin of ~21% compared to ~9% earned on cross-ply tyres, considering the difference in capital requirements and the consequent impact on asset turnover, interest cost and depreciation. Therefore, higher capital requirements will help protect margins from upward-bound input costs, as the business model evolves, bearing in mind final RoEs rather than margins. With the sector set for a structural shift and the apparent pricing flexibility, RoCE and RoE of tyre manufacturers are expected to improve going forward. Riding on high domestic demand: The Indian tyre industry is currently witnessing a slowdown in demand from the replacement as well as OEM markets, primarily due to macro-economic concerns. However the demand scenario in the long term remains encouraging which will aid APTY to operate at optimal capacities. Strategic overseas investment offers synergies in the long term: Acquisitions done by the company in the past two-three years are increasingly contributing to its revenue. We estimate Vredestein Banden combined with Dunlop SA to contribute close to ~35% to the companys overall consolidated revenue, helping it to further strengthen its foothold in the Indian tyre industry. Acquisitions offer synergies by way of access to radial tyre technology, wider product portfolio and presence in newer geographies.

Outlook and valuation

We lower our volume estimates for FY2013/14 to account for the subdued demand scenario in the key geographies of India and Europe. Nonetheless, our earnings estimates for FY2013 are revised upwards as we factor in the higher other income during the quarter.

Exhibit 14: Change in estimates

Y/E March (` cr) Net sales OPM (%) EPS (`) Earlier Estimates FY2013E 13,713 11.2 12.5 FY2014E 15,341 11.2 14.8 Revised Estimates FY2013E 13,066 11.5 13.0 FY2014E 14,503 11.8 14.5 % chg FY2013E (4.7) 30 bp 4.3 FY2014E (5.5) 55 bp (2.5)

Source: Company, Angel Research

We remain positive on the tyre industry in view of the structural shift that the industry is witnessing and also due to the softening of natural rubber prices. However, we remain watchful of the capital expenditure plans of the company in the absence of proper clarity on the quantum and usage of funds. Further, raising of funds through QIP and issue of warrants to promoters is also likely to remain an

February 6, 2013

Apollo Tyres | 3QFY2013 Result Update

overhang on the stock as it will result in equity dilution of ~20%. Nevertheless, at `85, the stock is trading at an attractive valuation of 5.9x FY2014E. We therefore maintain our Accumulate rating on the stock with a revised target price of `97. Key downside risks to our call: A sharp rise in input costs from current levels, slower growth in international business and lower-than-anticipated domestic replacement demand pose downside risks to our estimates.

Exhibit 15: Angel vs consensus forecast

Angel estimates FY13E Net sales (` cr) EPS (`) 13,066 13.0 FY14E 14,503 14.5 Consensus FY13E 13,517 12.1 FY14E 14,281 13.9 Variation (%) FY13E (3.3) 8.0 FY14E 1.6 4.0

Source: Company, Angel Research

Exhibit 16: One-year forward P/E band

(`) 180 160 140 120 100 80 60 40 20 0 Share Price (`) 2x 5x 8x 11x

Exhibit 17: One-year forward P/E chart

(x) 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 One-yr forward P/E Five-yr average P/E

Dec-05

Dec-10

Jan-08

Jun-08

Aug-07

Mar-07

Nov-08

May-06

May-10

Dec-05

Aug-08

Source: Company, Angel Research

Source: Company, Angel Research

Exhibit 18: One-year forward EV/EBITDA band

(` cr) 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 EV (`cr) 2.0 4.0 6.0 8.0

Exhibit 19: One-year forward EV/EBITDA chart

(x) 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 One-yr forward EV/EBITDA Five-yr average EV/EBITDA

Jan-04

Jan-07

Jan-10

Apr-03

Apr-06

Apr-09

Oct-04

Oct-07

Oct-10

Apr-12

Jan-13

Jul-05

Jul-08

Jul-11

May-11

Sep-11

Jul-05

May-12

Dec-06

Dec-08

Jan-11

Mar-12

Feb-04

Feb-12

Sep-07

Aug-12

Oct-06

Apr-09

Feb-10

Sep-09

Jan-05

Jun-09

Apr-03

Oct-06

Apr-11

Jan-13

Oct-11

Aug-07

Aug-09

Apr-06

Apr-08

Source: Company, Angel Research

Source: Company, Angel Research

February 6, 2013

Apr-10

Jan-13

Jan-13

Jul-05

Jul-10

Apollo Tyres | 3QFY2013 Result Update

Exhibit 20: Auto Ancillary Recommendation summary

Company Apollo Tyres* Ceat JKI* Reco. Accumulate Buy Buy CMP (`) 85 103 114 Tgt. price (`) 97 163 165 Upside (%) 14.1 58.2 44.3 P/E (x) FY13E 6.5 3.8 3.1 FY14E 5.9 2.5 2.8 EV/EBITDA (x) FY13E 4.2 3.3 5.2 FY14E 3.6 2.8 4.2 RoE (%) FY13E 21.0 13.2 18.8 FY14E 19.4 17.2 17.8 FY12-14E EPS CAGR (%) 33.2 279.5 -

Source: Company, Angel Research; Note: *Consolidated

Company background
Apollo Tyres (APTY) is India's second largest tyre manufacturer with an overall tyre market share of ~18%. The company has a leadership position in the heavy and light commercial vehicle tyre segments, with a 23% and 26% market share respectively. APTY acquired Dunlop's South African operations in 2006 and Vredestein Branden BV (Netherlands) in May 2009. These acquisitions now account for ~35% of APTY's consolidated revenue. The company has eight manufacturing plants located across India (1,125TPD), South Africa (175TPD) and Europe (170TPD), with a total installed capacity of 1,470TPD. APTY's main brands include Apollo (India); Dunlop (South Africa); and Maloya, Regal and Vredestein (Europe).

February 6, 2013

10

Apollo Tyres | 3QFY2013 Result Update

Profit and loss statement (Consolidated)

Y/E March (` cr) Total operating income % chg Total expenditure Net raw material costs Other mfg costs Employee expenses Other EBITDA % chg (% of total op. income) Depreciation & amortization EBIT % chg (% of total op. income) Interest and other charges Other income Recurring PBT % chg Extraordinary items PBT (reported) Tax (% of PBT) PAT (reported) Minority interest PAT (reported) ADJ. PAT % chg (% of total op. income) Basic EPS (`) Adj. EPS (`) % chg FY2009 FY2010 FY2011 FY2012 4,995 6.4 4,573 3,411 337 415 410 422 (29.3) 8.5 129 294 (37.2) 5.9 112 31 213 (47.5) (1) 213 74 34.8 139 0 139 140 (48.1) 2.8 2.8 2.8 (49.7) 8,121 62.6 6,936 4,581 539 1,088 727 1,185 180.7 14.6 254 931 216.9 11.5 134 177 973 357.3 59 914 261 28.5 653 0 653 594 325.3 7.3 13.0 11.8 325.3 8,868 9.2 7,895 5,322 629 1,134 810 972 (18.0) 11.0 272 700 (24.8) 7.9 204 62 558 (42.6) 11 547 106 19.4 441 1 440 429 (27.8) 4.8 8.7 8.5 (27.8) 12,153 37.1 11,007 8,037 746 1,335 889 1,146 17.9 9.4 326 821 17.2 6.8 297 32 556 (0.5) (1) 556 144 25.9 412 2 410 411 (4.3) 3.4 8.1 8.1 (4.3) FY2013E 13,066 7.5 11,564 8,297 823 1,450 993 1,503 31.1 11.5 375 1,128 37.5 8.6 319 75 884 59.1 884 225 25.5 659 2 656 656 59.8 5.0 13.0 13.0 59.8 FY2014E 14,503 11.0 12,799 9,173 914 1,624 1,088 1,704 13.4 11.8 391 1,313 16.4 9.1 348 50 1,015 14.9 1,015 284 28.0 731 2 729 729 11.0 5.0 14.5 14.5 11.0

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Apollo Tyres | 3QFY2013 Result Update

Balance sheet statement (Consolidated)

Y/E March (` cr) SOURCES OF FUNDS Equity share capital Reserves & surplus Shareholders Funds Minority Interest Total loans Deferred tax liability Other long term liabilities Long term provisions Total Liabilities APPLICATION OF FUNDS Gross block Less: Acc. depreciation Net Block Capital work-in-progress Goodwill Investments Long term loans and advances Other noncurrent assets Current assets Cash Loans & advances Other Current liabilities Net current assets Total Assets 2,284 882 1,402 281 24 5 1,423 362 206 855 700 723 2,435 5,563 3,120 2,443 536 118 6 2,439 349 310 1,780 1,614 824 3,926 6,895 3,501 3,394 358 125 11 264 3,154 191 258 2,705 2,227 928 5,079 8,034 4,011 4,024 331 134 16 221 3,667 173 349 3,145 2,467 1,200 5,925 8,515 4,385 4,130 350 134 16 221 4,388 490 457 3,441 2,516 1,871 6,722 9,091 4,776 4,315 374 134 16 221 5,239 776 508 3,955 2,657 2,582 7,641 2,435 3,926 50 1,299 1,350 891 194 50 1,917 1,968 1,707 251 50 2,362 2,413 1 2,222 316 21 107 5,079 50 2,782 2,833 1 2,550 403 45 94 5,925 50 3,379 3,429 1 2,750 403 45 94 6,722 50 4,048 4,099 1 3,000 403 45 94 7,641 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E

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Apollo Tyres | 3QFY2013 Result Update

Cash flow statement (Consolidated)

Y/E March (` cr) Profit before tax Depreciation Change in working capital Others Other income Direct taxes paid Cash Flow from Operations (Inc.)/Dec. in fixed assets (Inc.)/Dec. in investments Other income Cash Flow from Investing Issue of equity Inc./(Dec.) in loans Dividend paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in cash Opening Cash balances Closing Cash balances FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E 213 129 32 212 (31) (74) 480 (517) 0 31 (486) 46 245 27 (234) 83 77 284 362 973 254 (115) 637 (177) (261) 1,312 (3,627) (1) 177 (3,452) 816 44 1,266 2,126 (13) 362 349 558 272 (261) 16 (62) (106) 416 (1,161) (5) 62 (1,105) 515 29 (14) 530 (158) 349 191 556 326 (291) 345 (32) (144) 759 (1,121) (5) 32 (1,094) 328 29 (59) 299 (18) 191 173 884 375 (390) (75) (225) 568 (500) 75 (425) 200 29 171 317 173 490 1,015 391 (457) (50) (284) 615 (600) 50 (550) 250 29 221 286 490 776

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Apollo Tyres | 3QFY2013 Result Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.) 0.4 1.2 2.6 0.7 1.1 6.9 0.8 2.1 3.4 0.8 2.1 2.8 0.7 1.5 3.5 0.5 1.3 3.8 2.4 49 20 47 28 2.1 36 23 41 19 1.4 57 36 65 25 1.6 56 31 59 26 1.6 63 33 58 34 1.8 66 33 55 40 13.2 14.2 11.0 29.3 26.0 35.8 15.6 14.3 19.6 14.9 14.3 15.7 17.8 18.1 21.0 18.3 19.1 19.4 5.9 0.7 2.6 10.1 9.5 0.3 10.3 11.5 0.7 2.9 23.6 7.4 0.6 32.7 7.9 0.8 2.1 13.3 8.4 0.8 17.1 6.8 0.7 2.3 11.4 9.2 0.8 13.3 8.6 0.7 2.2 14.0 9.0 0.7 17.7 9.1 0.7 2.2 14.4 8.7 0.6 17.8 2.8 2.8 5.3 0.4 26.8 13.0 11.8 16.8 0.7 39.0 8.7 8.5 13.9 0.5 47.9 8.1 8.1 14.6 0.5 56.2 13.0 13.0 20.4 0.5 68.0 14.5 14.5 22.2 0.5 81.3 30.7 16.0 3.2 0.5 1.0 11.4 2.0 6.5 5.0 2.2 0.9 0.7 4.8 1.4 9.7 6.1 1.8 0.6 0.7 6.5 1.2 10.4 5.8 1.5 0.6 0.5 5.8 1.1 6.5 4.1 1.2 0.6 0.5 4.3 1.0 5.9 3.8 1.0 0.6 0.4 3.8 0.8 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E

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Apollo Tyres | 3QFY2013 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Apollo Tyres No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

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