Technically, ATL need to sustain above 185-190 & 200-210 zone for further rally up to 250-270 area; otherwise it may face selling pressure and sustain below 177-167 will again fall towards 151-127 zone in the near term.
Transition phase in EU operations and cheap Chinese imports may be some of the headwinds for ATL in the days ahead despite recent foray into 2-W tyre segment.
Transition phase in EU operations and cheap Chinese imports may be some of the headwinds for ATL in the days ahead despite recent foray into 2-W tyre segment.
Trading Idea: Apollo Tyres
CMP: 178
Either sell below 185-190 or on rise around: 198-205;
TGT: 172/167*-151-143-137-127 (1-3/6M)
TSL> 210
Note: Consecutive closing (3 days) above 210 for any reason, ATL may further rally up to 230-250 & 270 in the near to long term (alternative bullish case scenario).
Q3FY16 result of ATL was much below street expectations mainly due to dismal EU performance, discontinue of African operations and domestic tough competition from relatively cheaper (30%) Chinese tyres & slower OEM demand. EBITDA margin was down as ATL passed on the benefit of lower raw material costs to the consumers.
There was subdued demand from EU owing to "delayed & mild winter" season and also planned shut down of plant for maintenance affected overall scale along with unfavorable FX volatility (weak EUR).
ATL is planning to introduce an "all weather" type of tyre in EU in lieu of the present "winter tyre" with upgraded technology from the proposed new plant in Hungary in the next 4-5 years with a capex of around EUR 500 mln. ATL also need to upgrade its existing plants in EU/Netherlands for the new stringent regulatory requirement. All these will take considerable time (2-3 more quarters) and till that EU business of ATL may be in some kind of transition phase and continue to be subdued due to capacity constraints.
ATL also expect that from 2016 onwards, the negative impact of FX movement will be neutralized (market will look into actual Q4FYQ6 result for any visible impact as weak EUR/INR has affected its revenue in INR by around 24%). But going forward, EUR is expected to be weak against USD for growing monetary policy divergence.
Domestic tyre industry was continued to be affected by Chinese imports (up by 90% YOY) and in the local TBR replacement market, Chinese tyres hold around 30% market share. Although domestic tyre industry is looking for some extra protection from the the Govt on the import of Chinese tyres (in the line of MIP/extra safe guard duty as on steel products), Govt may be in no mood to oblige as of now.
Domestic tyre prices are at least 30% dearer than Chinese imported tyres (which has also no warranty in India) and there will be some negative effect on the automobile industry because of possibility of further price hikes by domestic tyre makers.
They are also in good/fair profit margin (OPM for ATL IS AROUND 18%) and the top five tyre makers (Apollo/Ceat/MRF/JK/Birla) are itself accused of cartelisation and price manipulation by AITDF and under the scanner of CCI (for the CY:2011-14). Also US is actively considering ADD on imports of certain types of tyres from India & Sri Lanka in the coming days.
Thus the possibility of imposing ADD/MIP on the imported Chinese tyres looks remote as of now unless the domestics tyre companies starts to show some losses and began defaulting on its debt obligation or the Govt will bring some kind of stimulus in the form of ADD to safeguard the interest of rubber plantation industry in Kerala ahead of sate election there !!
Recently, ATL also forayed into 2-W tyre segment (contract manufacturing) to make itself a composite manufacturer/supplier to its dealers offering all types of tyres (from trucks to motorcycles/scooters) under one roof. ATL is now supplying around 1.20 lacs tyres/month (2-W) and is basically looking for at least 5 lacs/month volume in the next 2-3 years (10% market share). Then they will manufacture of their own and are expecting a overall contribution of 10% revenue with around 16% OPM from this 2-W tyre venture.
Looking ahead, ATL is optimistic about its growth on the back of radial tyres , specially for trucks/buses and OEM demand in India. Its relying on strong branding/marketing and reliability/safety wrt Chinese tyres. ATL is also expanding their capacity in its existing Chennai and upcoming Hungary plants with capex of around Rs.4000 cr. They will double the capacity for its truck & bus radial tyres (TBR) from its Chennai plant (from 6000 to 12000 per day) in the coming days.
2016 Budget may not be good for automobile industry (PV/CV), but the overall thrust on the construction & expansion of roads may be helpful for MHCV and along with that, replacement & regulatory changes demand in MHCV segment may be good for TBR also.
But, having said that, ATL may be behind the curve as these demands may be now at near saturation point and if there will be no real economic/industrial revival in India in the coming quarters, then incremental demands for MHCV will be limited going forward.
Also OEM demand for tyres (PV/CV) may be tepid as automobile manufactures are expressing some reservation about the negative effect of the 2016 budget, although there are some hopes for 7PC/OROP induced buying.
Now going by the price action for the ATL, it rallied almost 43% from its mid Jan'16 low and all the above sets of news may be already discounted by the scrip. Technically, its now in a strong supply zone and sustain below 185-190 zone, the scrip may correct towards 155-143 zone in the near term.
Q3FY16 PAT (Cons) was at Rs.279.52 cr against estimate of Rs.318.4 cr (YOY: 184.24; QOQ: 278.74).
Q3FY16 EBITDA was at Rs.505.61 cr against street estimate for Rs.547.6 cr (YOY: 490.53; QOQ: 482.77).
Q3FY16 OPM was at 17.18% against estimate for 17.7% (YOY: 15.80%; QOQ: 16.11%).
Q3FY16 reported EPS was at 5.47 against consensus of 6.25 (YOY: 3.63; QOQ: 5.48).
Q3FY16 result of ATL was much below street expectations mainly due to dismal EU performance, discontinue of African operations and domestic tough competition from relatively cheaper (30%) Chinese tyres & slower OEM demand. EBITDA margin was down as ATL passed on the benefit of lower raw material costs to the consumers.
There was subdued demand from EU owing to "delayed & mild winter" season and also planned shut down of plant for maintenance affected overall scale along with unfavorable FX volatility (weak EUR).
ATL is planning to introduce an "all weather" type of tyre in EU in lieu of the present "winter tyre" with upgraded technology from the proposed new plant in Hungary in the next 4-5 years with a capex of around EUR 500 mln. ATL also need to upgrade its existing plants in EU/Netherlands for the new stringent regulatory requirement. All these will take considerable time (2-3 more quarters) and till that EU business of ATL may be in some kind of transition phase and continue to be subdued due to capacity constraints.
ATL also expect that from 2016 onwards, the negative impact of FX movement will be neutralized (market will look into actual Q4FYQ6 result for any visible impact as weak EUR/INR has affected its revenue in INR by around 24%). But going forward, EUR is expected to be weak against USD for growing monetary policy divergence.
Domestic tyre industry was continued to be affected by Chinese imports (up by 90% YOY) and in the local TBR replacement market, Chinese tyres hold around 30% market share. Although domestic tyre industry is looking for some extra protection from the the Govt on the import of Chinese tyres (in the line of MIP/extra safe guard duty as on steel products), Govt may be in no mood to oblige as of now.
Domestic tyre prices are at least 30% dearer than Chinese imported tyres (which has also no warranty in India) and there will be some negative effect on the automobile industry because of possibility of further price hikes by domestic tyre makers.
They are also in good/fair profit margin (OPM for ATL IS AROUND 18%) and the top five tyre makers (Apollo/Ceat/MRF/JK/Birla) are itself accused of cartelisation and price manipulation by AITDF and under the scanner of CCI (for the CY:2011-14). Also US is actively considering ADD on imports of certain types of tyres from India & Sri Lanka in the coming days.
Thus the possibility of imposing ADD/MIP on the imported Chinese tyres looks remote as of now unless the domestics tyre companies starts to show some losses and began defaulting on its debt obligation or the Govt will bring some kind of stimulus in the form of ADD to safeguard the interest of rubber plantation industry in Kerala ahead of sate election there !!
Recently, ATL also forayed into 2-W tyre segment (contract manufacturing) to make itself a composite manufacturer/supplier to its dealers offering all types of tyres (from trucks to motorcycles/scooters) under one roof. ATL is now supplying around 1.20 lacs tyres/month (2-W) and is basically looking for at least 5 lacs/month volume in the next 2-3 years (10% market share). Then they will manufacture of their own and are expecting a overall contribution of 10% revenue with around 16% OPM from this 2-W tyre venture.
Looking ahead, ATL is optimistic about its growth on the back of radial tyres , specially for trucks/buses and OEM demand in India. Its relying on strong branding/marketing and reliability/safety wrt Chinese tyres. ATL is also expanding their capacity in its existing Chennai and upcoming Hungary plants with capex of around Rs.4000 cr. They will double the capacity for its truck & bus radial tyres (TBR) from its Chennai plant (from 6000 to 12000 per day) in the coming days.
2016 Budget may not be good for automobile industry (PV/CV), but the overall thrust on the construction & expansion of roads may be helpful for MHCV and along with that, replacement & regulatory changes demand in MHCV segment may be good for TBR also.
But, having said that, ATL may be behind the curve as these demands may be now at near saturation point and if there will be no real economic/industrial revival in India in the coming quarters, then incremental demands for MHCV will be limited going forward.
Also OEM demand for tyres (PV/CV) may be tepid as automobile manufactures are expressing some reservation about the negative effect of the 2016 budget, although there are some hopes for 7PC/OROP induced buying.
Now going by the price action for the ATL, it rallied almost 43% from its mid Jan'16 low and all the above sets of news may be already discounted by the scrip. Technically, its now in a strong supply zone and sustain below 185-190 zone, the scrip may correct towards 155-143 zone in the near term.
Q3FY16 PAT (Cons) was at Rs.279.52 cr against estimate of Rs.318.4 cr (YOY: 184.24; QOQ: 278.74).
Q3FY16 EBITDA was at Rs.505.61 cr against street estimate for Rs.547.6 cr (YOY: 490.53; QOQ: 482.77).
Q3FY16 OPM was at 17.18% against estimate for 17.7% (YOY: 15.80%; QOQ: 16.11%).
Q3FY16 reported EPS was at 5.47 against consensus of 6.25 (YOY: 3.63; QOQ: 5.48).
As par BG metrics and current market scenario :
Cons. TTM EPS: 22.71 (FY:15/TTM)
Projected FWD EPS: 22.35-25.80-29.90 (FY:16-18)
Avg PE:10
Current median valuation may be around: 195 (FY:15-16)
Projected fair valuation might be around: 210-225 (FY:17-18)
| SCRIP | EPS(TTM) | BV(Act) | P/E(AVG) | Low | High | Median | 200-DEMA | 10-DEMA |
| APOLLOTYRE | 22.71 | 99 | 10 | 194.87 | 196.92 | 195.90 | 167.22 | 170.75 |
| APOLLOTYRE | 22.35 | 117.35 | 10 | 193.32 | 195.35 | 194.34 | 167.22 | 170.75 |
| APOLLOTYRE | 25.8 | 139.05 | 10 | 207.71 | 209.89 | 208.80 | 167.22 | 170.75 |
| APOLLOTYRE | 29.9 | 164.85 | 10 | 223.60 | 225.95 | 224.78 | 167.22 | 170.75 |
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