PINC Research has maintained buy rating on Apollo Tyres Ltd with a price target of Rs 97 in its report dated Dec 15, 2010.

Lock-outs at Apollo Tyres' Cochin facility and Dunlop (South Africa) operations took a toll on its H1FY11 results. Further, high natural rubber prices impacted margins. Rubber supply has been disrupted due to unseasonal weather in India and South East Asia, driving prices to an all-time high of Rs200/kg. Domestic tyre manufacturers have undertaken 3-4 rounds of price increases and another round is expected soon. The demand momentum is expected to continue, however ability to take price increases seems to be limited.

1) Re-rating of the sector on the back of radialisation in the truck-bus radial (TBR) segment. 2) Ramp-up at the Chennai facility and commencement of production of TBR tyres. 3) Correction in natural rubber prices due to production growth or reduction in import duty on natural rubber as demanded by the tyre industry. 4) Germany, the largest European automobile market, passed a legislation making it mandatory for motorists to use winter tyres. This will benefit Apollo Tyres' European subsidiary, VBBV, which specializes in this segment. With cold weather conditions becoming severe across Europe, demand for winter tyres is expected to be robust. Subsidiaries are expected to contribute Rs1.9bn in profit in FY11.

The FY11 and FY12 consolidated earnings estimates are Rs 7.8 and Rs 9.7 respectively.

The FY11 consolidated earnings estimate is 11.9% higher than consensus expectation of Rs 6.9.