Apollo Tyres (Better days ahead, BUY):
- Apollo Tyres's (ATL) 4QFY11 result surpassed our expectation. Revenues beat our estimate on account of higher-than-expected volumes and higher growth in realisation; higher growth in realisation was on account of improvement in the product mix.
- PAT surpassed our expectation thanks to higher other income (boosted by profit from sale of fixed assets) and lower tax rate.
- While we expect the demand-supply scenario to be unfavourable for tyre producers for another year (as increase in demand trails that in supply), we believe margins have largely bottomed out, and the recent pricing discipline is likely to stay on account of unviable margins for few of ATL's peers.
- We raise ATL's earnings estimates for FY12 and FY13 by 28-36% to factor in improved pricing scenario and lower tax rate assumption. Accordingly we upgrade our target price from Rs57 to Rs84, and our recommendation from REDUCE to BUY
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