Mr. Arjumand Farheen Siddiqui
Please do not send blank reply messages to the group
Today there are too many of them
Thanks in anticipation
Sharetrading Moderator
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> ----- Forwarded Message ----
> From: ekam ber <ekamber@...
> To: Undisclosed-
> Sent: Sun, 20 December, 2009 6:50:19 PM
> Subject: [sharetrading] Tyre Sector [1 Attachment]
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>
> [Attachment(
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> Tyre> Sector
> >Pricing discipline -
> > The differentiator
> >
> ____________
>
> >We expect a
> > re-rating of the tyre sector over the next few quarters, as concerns on the
> > earnings front are put to rest. The current valuations of tyre companies
> > indicate expectations of a sharp earnings decline (atleast 40%) in FY11E due
> > to concerns on rising raw material prices (rubber prices only 7% below its
> > previous peak) and capacity additions (affecting pricing power). The markets
> > seem to be factoring in a repeat of the FY03-05 period, where profitability
> > was significantly affected due to the above factors. EBIDTA margins declined
> > by 410 bps to 6% and net profits declined by a CAGR of 22% during
> > FY03-05.
> >While we share
> > concerns on the rising raw material prices, we believe that pricing discipline
> > will be the biggest differentiator. The industry has shown good pricing
> > discipline since FY06. It should be noted that during FY06-FY08, the EBIDTA
> > margins expanded by 500 bps to 11% and net profits increased at a 77% CAGR.
> > This was despite a sharper increase (1.1x) in the rubber and oil prices during
> > FY06-FY08 vis- -vis FY03-FY05. Even in FY09, when there was a drop in volumes,
> > (resulting in lower capacity utilization) , pricing witnessed an
> > uptrend.
> >We do not expect
> > the ambitious capex plans during FY09-FY13 (gross block to increase by ~58%)
> > to adversely impact tyre pricing as the expansion is more of a necessity than
> > an option. Capacity addition during FY09-FY13 is mirroring long term growth
> > trends. More importantly, capacity additions will happen in a phased manner
> > and can be curtailed if the situation so
> > warrants.
> >We consider
> > 1HFY10 profitability as abnormal and hence, are factoring in a drop in
> > earnings of 15% to 25% for domestic business in FY11. Barring a further spike
> > in rubber prices, we believe that earnings would surprise
> > positively.
> >While all the
> > tyre companies will benefit from pricing discipline, we expect Apollo Tyres
> > (ATL) and JK Tyre (JKT) to outperform as the contribution from their recent
> > international acquisitions become more visible in FY11 and FY12. We are
> > initiating coverage on ATL (BUY) and JKT (BUY). We like ATL for its thirst for
> > market leadership with a clear focus on profitability. We like JKT purely from
> > a valuation view.
> >Reco Company CMP
> > (Rs)* TP
> > (Rs
> >BUY Apollo
> > Tyres Ltd. 49 60
> >BUY JK Tyre
> > & Industries Ltd. 150 192
> >* CMP as on
> > 14th Dec-2009
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>
>
> The INTERNET now has a personality. YOURS! See your Yahoo! Homepage. http://in.yahoo.
>
Happy Trading,
United we grow!!!
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