Apollo Tyres Ltd is grappling with acute margin stress amid weak demand. Elevated uncooked materials bills and higher-cost stock harm the December quarter (Q3FY25) earnings. Uncooked materials value rose 15% year-on-year (y-o-y) and a couple of% sequentially in Q3 to ₹175 per kilogramme. Thus, the consolidated Ebitda margin fell 465 foundation factors y-o-y to 13.7%, lacking consensus estimates.
Uncooked materials value is anticipated to be sequentially flat in This fall, the administration mentioned, including that pure rubber costs have barely eased. Some a part of the high-cost stock was consumed in Q3, and the remaining can be utilized in This fall. Nevertheless, demand and the aggressive setting in home enterprise aren’t at the moment beneficial sufficient to take extra value hikes.
Earlier value hikes in truck and bus radial (TBR) and passenger automobile radial (PCR) segments and an bettering product combine might help margin restoration. Right here, Apollo Tyres is exiting the low-margin 12-13-inch OEM (unique gear producer) tyre section and stays centered on the high-margin 16-inch+ class.
Word that the earnings of tyre firms are extra delicate to margin motion as they don’t normally go on the complete influence of the rise/lower in uncooked materials prices within the alternative market. “We’ve minimize our FY25-27 consolidated earnings per share estimates by 3-4% as a consequence of decrease income development (India) and Ebitda margin (India and Europe) assumptions,” mentioned a Kotak Institutional Equities report on 8 February.
Margin name
Whereas margins are anticipated to recuperate from This fall as a consequence of correction in home and worldwide rubber costs and normalization of stock prices, Apollo’s margin efficiency might stay beneath Avenue expectations, as it’s going to deal with recovering the misplaced market share within the alternative section, Kotak cautioned. The administration has reiterated its stance on balancing development and profitability, however aggressive pricing by opponents is a priority.
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The demand outlook in This fall is bettering in India and Europe. Substitute demand rose 5% on-year in Q3 however was offset by a ten% drop in OEM. India’s enterprise alternative momentum is anticipated to proceed, and the European Union outlook is robust for each passenger automobiles and truck alternative segments.
Towards this backdrop, Apollo’s shares have been down nearly 17% up to now 12 months, versus the 20% acquire within the Nifty Auto. Underperformance in standalone income versus friends in current quarters because it faces market share loss in PCR and TBR segments has been a fear for the inventory. At FY26 price-to-earnings, the inventory is buying and selling at a a number of of 14.5X, confirmed Bloomberg information, which doesn’t provide consolation given present enterprise situations.
