Apollo Tyres, one of India’s leading tyre manufacturers, has recently unveiled its financial results for the first quarter of FY25. The announcement reveals a significant drop in net profit, sparking interest among investors and market analysts.
As a major player in the automotive sector, Apollo Tyres’ performance offers valuable insights into the current economic climate and industry trends. In this article, we’ll explore the key highlights of Apollo Tyres’ Q1 results, delve into the reasons behind the profit decline, and discuss what the future might hold for this prominent company.
Net profit falls by 24%
For the first quarter of FY25, Apollo Tyres reported a net profit of ₹302 crore. This marks a notable 24% decrease compared to ₹397 crore in the same quarter last year. The decline is substantial, particularly when considering that the previous quarter saw a net profit of ₹354 crore.
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Why does the profit decline?
The sharp drop in net profit can be attributed to several factors. The primary reasons include:
- Higher raw material costs: The cost of raw materials, including rubber, has risen significantly, impacting profit margins.
- Weaker sales: Despite an increase in revenue, the overall sales performance has been weaker than expected, affecting profitability.
These factors have combined to put pressure on the company’s margins, resulting in a notable decline in net profit.
Revenue shows marginal increase
On a more positive note, Apollo Tyres’ revenue from operations for Q1 FY25 increased by 1.4% to ₹6,335 crore, up from ₹6,244 crore in the same period last year. This marginal increase in revenue indicates that the company has been able to boost its top line, despite the challenges affecting profitability.
Revenue vs. operating performance
While revenue saw a slight increase, the company’s operating performance, measured by EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation), took a hit. EBITDA for Q1 FY25 was ₹909.4 crore, down 13.5% from ₹1,051.4 crore in the same quarter last year.
This decline in EBITDA suggests that while revenue is growing, the company’s efficiency in converting revenue into profit is weakening.
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Stock market reaction
Apollo Tyres’ stock has been in the news following the release of its Q1 results. The share price fell by 3% to ₹504.9 on the day of the announcement, reflecting investor concerns over the company’s declining profitability.
This drop came after the stock had closed at ₹520.75 the previous day.
Historical stock performance
The stock has had a mixed performance over the past year. It reached a record high of ₹567.90 on July 30, 2024, but also experienced a low of ₹365.50 in the past year. Despite the recent dip, Apollo Tyres’ stock has delivered a 12.34% return this year and an impressive 121% return over the past two years.
Analyst insights
Morgan Stanley has maintained an equal-weight rating on Apollo Tyres with a target price of ₹472. The brokerage noted that the Q1 results fell short of its expectations, leading to modest reductions in the 12-month consensus EPS estimates.
The firm highlighted that Apollo Tyres’ EBITDA margin decline was steeper compared to its peers, but the company’s performance in the replacement and export markets is expected to improve in the coming quarters.
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Quarterly results (Amount in Rs. Cr):
| Quarterly | Mar 2024 | Dec 2023 | Sep 2023 | Jun 2023 | Mar 2023 |
| Sales | 4,591 | 4,387 | 4,331 | 4,406 | 4,413 |
| Other Income | 30 | 61 | 12 | 32 | 28 |
| Total Income | 4,622 | 4,449 | 4,344 | 4,439 | 4,441 |
| Total Expenditure | 4,240 | 3,974 | 3,790 | 3,803 | 3,865 |
| EBIT | 382 | 474 | 553 | 635 | 576 |
| Interest | 87 | 88 | 99 | 105 | 109 |
| Tax | 102 | 174 | 158 | 185 | 163 |
| Net Profit | 191 | 211 | 295 | 344 | 302 |
Management’s perspective
Onkar Kanwar, Chairman of Apollo Tyres, expressed optimism about the company’s future. He highlighted that the replacement and export markets in India are showing positive growth and expects this trend to continue.
Despite facing challenges like weak domestic demand and higher costs, Kanwar remains hopeful about the company’s prospects.
Strategic focus
Apollo Tyres is focusing on strengthening its position in the replacement and export markets, which could help mitigate some of the domestic challenges. The European market continues to perform well, providing a counterbalance to the weaker domestic performance.
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What lies ahead?
Looking ahead, Apollo Tyres faces several key challenges and opportunities:
Challenges
- Rising costs: The ongoing increase in raw material costs could continue to pressure profit margins.
- Domestic demand: Weak domestic demand for tyres could impact overall sales performance.
- Operational efficiency: The need to improve operational efficiency and manage costs effectively will be crucial.
Opportunities
- Export growth: Growth in export markets presents an opportunity for the company to offset domestic challenges.
- Market expansion: Expanding its footprint in emerging markets could provide additional revenue streams.
- Product innovation: Investing in new products and technologies could help Apollo Tyres maintain a competitive edge.
Conclusion
Apollo Tyres’ Q1 FY25 results paint a mixed picture. While the company has managed to increase its revenue slightly, the significant decline in net profit and weaker operating performance raise concerns.
Investors will need to weigh the challenges, such as rising costs and weaker domestic demand, against the opportunities presented by export growth and market expansion.
As always, staying informed about both short-term fluctuations and long-term potential is key when evaluating stock investments. Apollo Tyres’ future performance will likely depend on how well it can navigate these challenges and capitalise on growth opportunities.
