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14 Dec

Multiple growth drivers for the Indian tyre industry – Apollo Tyres

Update on the Indian Equity Market:

The benchmark index NIFTY 50 declined for the 3rd straight session on Tuesday and closed at 17,325 (-0.3%). Investors’ will focus on the Fed policy decision due Wednesday which could induce volatility, amid concerns over elevated inflation and a delay in the economic recovery due to omicron strain.

Among the sectoral indices, MEDIA (+1.6%), PHARMA (+1.1%), and METAL (+0.4%) led the gainers, while FINANCIAL SERVICES 25/50 (-0.8%), AUTO (-0.7%), and REALTY (-0.6%) led the laggards. Among the NIFTY50 components, POWERGRID (+3.9%), DIVISLAB (+2.5%), and AXISBANK (+1.4%) were the top gainers while ITC (-2.7%), BAJFINANCE (-2.0%), and TATACONSUM (-1.9%) led the laggards.

Excerpts of an interview with Mr. Onkar Kanwar, Chairman, Apollo Tyres (APOLLOTYRE) published in Business Standard on 14th December 2021:

  • There are multiple growth triggers for the Indian tyre industry, apart from the ones arising due to import curbs on China. The National Infrastructure (NIP) for FY19-25 for which the government has allocated ₹ 111 tn is expected to have a multiplier effect. He believes there is enough research that indicates the multiplier effect due to the creation of road infrastructure in a country. The significant increase in the movement of goods and people via road is beneficial for the tyre industry.
  • There has been a revival in the truck side original equipment manufacturers (OEMs), which will result in repeat demand in the replacement segment as well. The growth in the replacement segment is a mixed bag, some months witness growth in bias-ply tyres demand while some others witness growth in radials.
  • The Company is hoping that the push on infrastructure development and increased consumer spending will further drive demand in the CV segment.
  • The only challenge facing the company now is the relentless inflation which has been and is expected to be a pain point in the near future as well. The price hikes taken lag the raw material inflation, which adversely impacts the margins.
  • The company has decided to specialise in the Enschede plant in the Netherlands to be cost-competitive in the European manufacturing operations. It has shuffled the manufacturing mix such that loss-making units (due to high costs of manufacturing in the Netherlands) were shifted to Hungary and India. With the successful execution of Dutch plant specialisation, there has been a significant improvement in the European operations’ performance.
  • The share of high margins passenger car sales mix has increased to over 30 percent and is expected to rise to 40% in the next 2-3 years.
  • The current focus is on ramping the facility in Andhra Pradesh. This unit along with Chennai and Hungary units services the demands of all geographies. Hence, the company is not looking at any acquisitions.

 Asset Multiplier Comments

  • The CV industry was one of the most ravaged by the pandemic. With a turnaround expected in the CV cycle in India, and pent-up demand in passenger vehicles, the entire tyre industry is likely to be a beneficiary.
  • The Indian business of APOLLOTYRE is expected to benefit from operating leverage and an increasing share of the Andhra plant. The European operations are likely set for a turnaround led by strategic initiatives at the front end (product side) and restructuring in the Netherlands.

Consensus Estimate: (Source: market screener website)

  • The closing price of APOLLOTYRE was ₹ 217/- as of 14-December-2021.  It traded at 18x/ 13x/ 11x the EPS estimates of ₹ 12/ 17/ 20/- for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 258 implies a P/E Multiple of 13x on FY24 EPS estimate of ₹ 20/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

By Apollo Tyre, Auto Ancillary , 0 Comments Read more...
08 Mar

Disbursement growth will be higher than AUM growth– CHOLAFIN

Update on the Indian Equity Market:

 

On Monday, Nifty closed 0.1% higher at 14,956. Within NIFTY50, UPL (+7.1%), GAIL (+4.3%), and LT (+3.4%) were the top gainers, while INDUSINDBK (-2.2%), SHREECEM (-2.2%), and BAJFINANCE (-2.1%) were the top losing stocks. Among the sectoral indices, PSU BANK (+1.6%), MEDIA (+1.0%), and METAL (+0.8%) were the top gainers while REALTY (-1.1%), FMCG (-0.5%), and FINANCIAL SERVICES (-0.4%) were the top losers.

 

Disbursement growth will be higher than AUM growth– CHOLAFIN

 

Excerpts of an interview with Mr. D Arul Selvan, Executive VP and CFO, Cholamandalam Investment and Finance (CHOLAFIN), aired on CNBC-TV18 on 4th March 2021:

  • Commercial Vehicles (CV) replacement has been delayed by about 2 years now due to a series of factors such as axle load norms, BS6 implementation, and covid-19 impact. Mr. Selvan expects the replacement demand to kick in as CVs have to be replaced sooner or later. February 2021 itself saw good growth across CV segments.
  • Disbursements will have good growth in FY22E, but the AUM growth will not be the same. During the moratorium period, disbursements dropped but AUM was not impacted in the absence of repayments. Now as repayments also happen, disbursement growth will be higher while the AUM growth will be lower.
  • CHOLAFIN is adequately provided and won’t see higher credit costs. The collections are also improving. February as a 28-day month generally has lower absolute collections. However, collections in February 2021 have been marginally higher than January 2021.
  • Selvan is seeing that the earning potential of customers is improving and they are now able to service loans comfortably.
  • CHOLAFIN’s 4QFY21E RoE should be significantly better than FY20 reported numbers and directionally, the RoE would now improve.
  • Mr Selvan expects that the NIMs will be stable. NIMs could have marginally improved but CHOLAFIN is now scaling up on M&HCV segment which has lower NIMs. M&HCV lending business has a lower yield but it is compensated by much lower operating expenses and lower loan losses.

 

Asset Multiplier Comments:

  • CV cycle recovery has been a matter of debate between industry players for some time now. Some companies seem to be banking on the hope that CV recovery is here, while some players think we are still some time away from the upcycle.
  • Lenders across board have been witnessing improvement in collection efficiency. This is attributable to opening up of the economy post lockdown.

 

Consensus Estimate (Source: investing. com and market screener websites)

  • The closing price of CHOLAFIN was ₹ 537 as of 8-March-2021. It traded at 4.5x/ 3.8x/ 3.1x the consensus BVPS estimate of ₹ 119/142/171 for FY21E/ FY22E/ FY23E respectively.
  • The consensus target price of ₹ 444/- implies a PB multiple of 2.6 on FY23E BVPS of ₹171/-.

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

By Cholamandalam Investment & Finance, NBFC , , , 0 Comments Read more...