Apollo Tyres has boosted pricing to combat cost inflation, which is likely to improve margin performance in the coming days.
The shares of Apollo Tyres Ltd hit a fresh 52-week high on the National Stock Exchange in early trade on Tuesday. The stock had risen by more than 4%. One explanation for the optimism could be because results in the September quarter (Q2FY23) exceeded expectations. The combined net profit of the tyre producer increased by over 12% year on year (y-o-y) to nearly Rs195 crore. A smaller tax bill aided net profit growth.
Earnings before interest, taxes, depreciation, and amortization (Ebitda) margin fell by roughly 61 basis points (bps) year on year in Q2 to nearly 12%, somewhat ahead of estimates. A basis point is equal to one tenth of a percentage point. Nonetheless, Ebitda margin has increased by around 35 basis points from the June quarter.
Apollo Tyres stated that cost-cutting strategies and quick pricing changes enabled them sustain profitability during a quarter when raw material prices were at their highest.
Furthermore, year on year, the standalone Ebitda margin remained constant, while revenue climbed by 16.5%. According to Motilal Oswal Financial Services, the Ebitda margin in Europe fell by 220 basis points to 16.1%, while revenues increased by 19.4%. Apollo Tyres stated that their growth in Europe outpaced the market.
“We anticipate volume growth in the future quarters on both the replacement and original equipment manufacturer sides of the India business, which will help overall revenue and profitability.” Furthermore, the European company would continue to gain pace with new products and market share gains,” wrote Reliance Securities analysts in a first cut note.
Furthermore, with raw material prices falling, there is some relief. The company has boosted pricing to combat cost inflation, which is expected to help margin performance in the coming days. Indeed, optimism on this front bodes good for tyre stocks in general, and Apollo is no exception. So far this calendar year, Apollo Tyres shares are up 36%, handily outperforming the larger Nifty 500 index, which is up 4%.