Street cheers Apollo Tyres’ robust earnings, debt repayment; stock up 10%

Apollo Tyres

Tyre companies have been on investors’ radar screens for their impressive December quarter earnings. Following, the strong operational performance in Q3FY21, shares of key tyre makers have seen sharp rallies in recent trading sessions.

Joining the party is Apollo Tyres Ltd. On a year-on-year (y-o-y) basis, the company saw over two-fold jump in its consolidated net profit to ?443.8 crore. Consolidated operating income rose 17% y-o-y to ?5,154 crore. The company said that it’s consolidated margins at 19.2%, up almost 300 basis points sequentially, were a decadal high. It said that margin performance was helped by recovery in topline, subdued raw material cost, and control over costs.

Apart from the strong topline and the bottom-line numbers, there were some other positives as well. Aided by reduction in capital expenditure and better handle on working capital, on a consolidated basis, its free cash flow stood at ?1,200 crore in FY21 year-to-date. Further, it reduced it’s net debt from ?6,000 crore at the start of FY21 to ?3,800 crore. Key debt metric, net debt/Ebitda improved from 3.2 times in FY20 end to 1.6 times in the December quarter. Ebitda is short for earnings before interest, tax, depreciation and amortization.

Excited by this performance, the stock rose around 10% in opening trade on Thursday on the NSE. With that strong up move, the stock hit it’s fresh 52-week high of ?255.70. Investors should note that many other tyre stock have scaled to fresh highs following their Q3FY21 earnings.

Going ahead, investors’ in these stocks need to watch out for the impact of rising input prices on margins. The costs of key inputs such as natural rubber and crude derivatives have risen sharply in the past quarter and could weigh on margins in January-March quarter, analysts caution.

News Source:- Livemint

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