Analysing Current Projections for Appollo Tyres by performing Market Approaach method with Rubber companies in India

1. Market Approach for Valuation of Apollo Tyres
OBJECTIVE – To projectthe price of ApolloTyresusingTradingComparables
From Researchreportswe foundforvaluationsP/Eratioof companiesisusedinvariousreports
Hence comparingP/E ratiosof trade comparables
Sr.No. Tyre Companies 12 month trainling P/E ratio
1 MRF 11.23
2 Apollo 12.96
3 Balkrishna Industries 13.75
4 Ceat Tyres 8.46
5 JK Tyres 7.81
6 GoodYear 13.39
7 Dunlop N.A (no results for last 4 quarters)
8 TVS Srichakra 12.46
9 PTL Enterprises 15.37
10 Modi Rubber 49.09
Furthercomparingthe Assets, RevenuesandEBITDA of these companiessothatwe can analyse which
companiesApolloTyresismostcomparable to
Sr.No. Tyre Companies Assets In Rs.Crore
Revenue from
Operations 2014-15
in Rs.Crore
Operating
Profit in
Rs.Crore
1 MRF 6332 13,197 1927
2 Apollo 3634 8711 1098
3 Balkrishna Industries 4228 3576 907
4 Ceat Tyres 1964 5354 628
5 JK Tyres 3056 5951 595
6 GoodYear 495 1579 185
7 Dunlop
8 TVS Srichakra 468 1670 123
9 PTL Enterprises 125 40 35
10 Modi Rubber 138 4.47 -14

2. Conclusions
 If we see AssetTurnoverratiowe canfindCeatTyres,TVSSrichakra,GoodYear,MRFcan be
comparable
 For Revenue fromOperations,JKtyres,Ceat Tyres,BalkrishnaIndustriesandMRFare comparable
 We are thus eliminatingPTLEnterprisesandModi Rubberdue tothe misfitin the above
parameters
Classifyingthese companies furtherintoMatrix form
Sr.No. Tyre Companies Revenue growth
Asset
Turnover
Ratio
Historical(CAGR 3
YEARS)
Projected as
RM prices are
stable
1 MRF 2.08 9.58 9.5
2 Apollo 2.40 14.32 14.3
3 Balkrishna Industries 0.85 21.20 21.2
4 Ceat Tyres 2.73 14.31 14.3
5 JK Tyres 1.95 5.47 5.5
6 GoodYear 3.19 2.31 2.3
7 TVS Srichakra 3.57 12.56 12.6
Sr.No. Tyre Companies EBITDA growth YOY in percent
Historical( CAGR 3
YEARS) Projected
1 MRF 33.91 30
2 Apollo 22.31 20
3 Balkrishna Industries 34.71 30
4 Ceat Tyres 54.89 50
5 JK Tyres 18.45 15
6 GoodYear 10.87 10
8 TVS Srichakra 6.44 6

3. Sr.No. Tyre Companies
RM /sales from
Operationsin
Percentage
R.M expenses
growth
Historical Projected
1 MRF 65.20 4.28 5
2 Apollo 68.23 12.00 15
3
Balkrishna
Industries 52.05 13.47 15
4 Ceat Tyres 65.99 9.33 10
5 JK Tyres 69.30 2.83 3
6 GoodYear 68.72 -0.44 0
7 TVS Srichakra 68.14 6.20 7
Conclusionsand Inferences
 As per Global Reports RubberPrices which amount for 60-70 percent ofexpenditure
will be stable till 2017
FinalizingP/E ratio
1. P/e RATIO in comparison with MRF- MRF beingan assetheavycompanygetsa competitive
advantage due to the size andinvestmentsinRubberIndustry.Ithasperformedexceptionally
well onthe basisof EBITDA marginsand stablitlyof RMcostsbut Revenue growthrate has not
beensignificant.Sowe have takenaP/Eratiowhichwill be herthanthat of MRF comparedto
Apolloi.e greaterthan11.23
2. P/e Ratio in comparison with Balkrishna Industries- EbitdaGrowth,Revenue Growthof
BalkrishnaIndustriesishigherthanApollo tyresalsotheyhave maintainedthisgrowtheven
thoughtheirRM expensesare high.P/Eratioshouldbe slightlylessthan13.47 for ApolloTyres
3. P/e Ratio in comparison with Ceat- Ceat *******
4. P/e ratio in comparison with JK tyre& Goodyear – JK tyres and Goodyearcannotbe
comparedat all as it has lowergrowthrates,lowersalesbothEBITA andRevenue Wise.

4. 5. P/e ratio in comparison with TVS Srichakra
Althoughlowersalesturnoverbutrevenuegrowthrate ishigherlow EBITDA marginsas their
RM expenseshave rose significantly.P/Eratioof Apollowillbe definitelyhigherthanthatof TVS
Srichakrai.e.12.46
Since only Balkrishna Industriescan be compared to Apolli tyres and with the steadyprices of Rubber
in Indonesianand other exportingmarkets we have consideredthe P/E ratio of ApolloTyres as 13
ApolloTyres – NewP/e ratio= 13
EPS for Apollo Tyres
Now usingthe Projectedrates-
Dividendper Share for FY2014-2015: Rs. 2
EPS ( TTM) : 12.70 For FY 14-15
Market Price of ApolloTyres= Projected P/e RATIO * EPS
= 13*12.70
= Rs. 165.1
Current Market Price of ApolloTyres =164.20 onNSE
Recommendation
Apollois valuedcorrectly andthe projectedprice matches market price