Apollo Tyres displayed resilience in December quarter defying weak demand headwinds with a robust show in its European operations, analysts noted.

The tyre maker reported a consolidated earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin that surpassed analyst estimates, driven primarily by its European business segment.

In December quarter, Apollo Tyres’ EBITDA margin surged to 18.3 per cent, marking 410 basis points (bps) increase year-on-year, outperforming the estimated 17.6 per cent.

Notably, the European arm spearheaded this growth, while the margins in the Indian segment fell short of expectations.

Despite facing subdued demand both in India and Europe, the Gurugram-based company managed to deliver a stellar operational performance, buoyed by industry-wide pricing discipline and favourable input costs. The company's focus on profitability and capital efficiency remains unwavering, brokerage firm Motilal Oswal highlighted in a note.

Revenue, EBITDA, and adjusted profit after tax (PAT) for the quarter witnessed strong growth of approximately 3 per cent, 4.1 times, and 3.3 times year-on-year respectively, standing at Rs 6,590 crore, Rs 1,210 crore, and Rs 510 crore. The performance was consistent with the company's focus on enhancing profitability and capital efficiency.

Gross margin expanded by 690 basis points year-on-year to 46.6 per cent, supported by favourable raw material costs. While there was a slight increase in raw material costs sequentially, it remained lower than anticipated, Motilal Oswal noted.

Meanwhile, the company's EBITDA grew 32 per cent year-on-year to Rs 1,210 crore, with a margin expansion of 410 basis points year-on-year.

The European segment witnessed a decline in revenue but marked an expansion in EBITDA margin by 490 basis points annually to 20.3 per cent, owing to favourable input costs.

Despite the challenging market conditions, Apollo Tyres managed to reduce its consolidated net debt considerably while improving free cash flow, the brokerage firm noted.

The company management remains cautiously optimistic about the demand outlook, expecting exports to pick up and foreseeing a better performance in the European segment in the second half of calendar year 2024 (CY24).

Apollo Tyres growth outlook

Apollo Tyres aims to sustain its healthy performance by focusing on product mix optimisation and cost efficiencies, leveraging its existing assets without major capital expenditure plans in the near term.

With sustained capital discipline and improved returns on capital employed (RoCE), Motilal Oswal analysts have reiterated a ‘buy’ recommendation with a revised target price of Rs 620 per share.

As of 12:51 pm, Apollo Tyres shares traded 6.3 per cent to Rs 505, underperforming the Sensex which was trading on a flat note.