Positive surprises to continue, Not rated
NOT RATED
CMP: Rs 55 Target Price: NA
Apollo (APL) 2QFY10 results were significantly ahead of our expectations at standalone as well as consolidated level. APL reported a standalone profit of Rs 1 bn against our expectation of Rs 776 mn driven by strong volume growth and operational performance. EBIDTA margins stood at 16.4% (flat QoQ) despite a higher QoQ raw material cost. At consolidated level, APL reported a profit of Rs 1.3 bn (against our expectation of Rs 776 mn).
Going forward, we have factored in pressure on EBIDTA margins in 2HFY10 due to rising raw material cost. We expect standalone EBIDTA margins at 13.5% and 12.5% in 3QFY10 and 4QFY10 respectively. Our sensitivity analysis indicates 7% change in EPS for every 1% change in realizations.
We are upgrading our standalone FY10 EPS estimates by 21% to Rs 7 per share. We were expecting subsidiaries to break even in FY10 and contribute to earnings in FY11. However, post the strong 2QFY10 subsidiary performance, we expect subsdiaries to contribute Rs 0.5 to FY10 EPS (net profit of Rs 250 mn). At Rs 55, the stock trades at attractive valuations of PER of 7.8x and 7.3x our FY10 standalone and consolidated earning estimates respectively. We maintain our positive view on the stock. Currently, we do not have rating on the stock.
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