>APOLLO TYRES

• Apollo Tyres is India’s second largest tyre producer with subsidiaries in Europe & South Africa. Improving South African operations and stable demand in Europe would in our view drive volumes for Apollo Tyres and easing rubber prices coupled with a pick-up in the domestic replacement market would help sustaining EBIDTA margins of 10%

• We like the business model of Apollo Tyres having an ROCE of 30% and despite the present subdued demand from domestic OEM’s in the Truck & Bus Radial segment, we believe that the capex cycle has peaked and with the ramp up of its Chennai facility slated for December 2012, the company would be in a position to bring down its gearing from present levels of 0.75x to 0.35x next fiscal by virtue of its robust free cash generation.

• Apollo Tyres by virtue of its timely capacity expansion and brand image is ideally positioned to leverage the potential in export markets. Buy Apollo Tyres trading at 6.5x one-year forward earnings with a price target of Rs115

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RISH TRADER