CMP* (Rs) 237 Upside/ (Downside) (%) 29 Bloomberg Ticker. APTY IN Market Cap. (Rs bn) 136 Free Float (%) 55.9 Shares O/S (mn) 509

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1 2QFY18 Result Update November 03, 2017 Market Cap. (Rs bn) 136 Free Float (%) 55.9 Shares O/S (mn) 509 Soft Performance Though Indian Operation Improves (ATL) has reported a dismal performance in 2QFY18 mainly led by subdued European business, which continued to witness pressure due to absence of volume up-tick and additional start-up cost for Hungarian operation. However, Indian operations reported a decent performance with 18% YoY revenue growth mainly supported by 10% YoY volume growth and 8% YoY up-tick in realisation. While consolidated sales grew by ~12% YoY and ~5% QoQ to Rs34.2bn broadly in-line with the estimate, a significant spike in raw material cost as a percentage of sales led to 27% YoY decline in EBITDA to Rs3.1bn. Raw material cost as a percentage of sales stood at 58% in 2QFY18 vs. 52% in 2QFY17. Notably, there has been a moderate sequential correction in raw material cost. Subdued operating performance along with higher interest and depreciation cost led to 46% YoY de-growth (+59% QoQ) in PAT to Rs1.4bn. We cut earnings estimate by 32% and 13% for FY18E and FY19E, respectively mainly to factor in higher raw material cost and subdued operational performance. Nonetheless, we expect ATL to witness decent traction, going forward as the Company is investing more in diversified and rapid growth areas. Thus, we maintain our recommendation on the stock with a downwardly revised Target Price of Rs305 (from Rs350 earlier). Decent Domestic Volume Aided Revenue Growth Consolidated revenue grew by 12% YoY to Rs34.2bn mainly aided by 18% revenue growth in India operations, which was primarily supported by 10% volume growth and 8% jump average realisation. Strong domestic volume growth can be attributed to stellar 40% volume growth in OEM segment, while volume growth from Replacement segment was in mid single digit. OEM volume growth was driven by a sudden jump in auto volume post the switch in emission standard to BS-IV from BS-III and transient impact of GST. Operational Performance Marred by European Biz ATL s Indian operations performed satisfactorily during the quarter. However, subdued operational performance of European operations due to start-up cost of Hungarian operations and higher cost continued to drag its consolidated operating performance. Its consolidated EBITDA declined by 27% YoY (+23% QoQ) to Rs3.1bn. Notably, sequential decline in input prices led to QoQ improvement in EBITDA. EBITDA margin stood at 8.9% compared to 13.7% and 7.6% in 2QFY17 and 1QFY18, respectively. Outlook & Valuation Despite dismal quarterly performance led by continued pressure witnessed in European operations, we envisage ATL s performance to improve, going forward owing to steady stabilisation in Hungarian operations and shifting to OEM segment. At CMP, the stock trades at 21.1x and 11.1x FY18E and FY19E earnings, respectively which appear to be attractive. We maintain our recommendation on the stock with a downwardly revised Target Price of Rs305 (12x June 19 EPS). Share price (%) 1 mth 3 mth 12 mth Absolute performance (3.9) (14.4) 17.1 Relative to Nifty (10.4) (17.8) (3.7) Shareholding Pattern (%) Jun'17 Sept 17 Promoter Public Year Stock Price Performance Nov-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Oct-17 Note: * CMP as on Nov 02, 2017 Key Financials (Rs mn) FY16 FY17 FY18E FY19E Sales 118, , , ,666 EBITDA 19,975 18,464 16,045 26,566 APAT 11,071 10,990 6,417 12,244 EPS (Rs) DPS (Rs) P/E (x) P/B (x) EV/EBIDTA (x) RoE (%) Div. Yield (%) Source: Company, RSec Research Research Analyst: Binod Modi Contact: binod.modi@relianceada.com 1

2 Risks to the View Intensifying competition. Sharp up-tick in the prices of natural rubber and other raw materials. Conference Call Key Takeaways Domestic Operations: Revenue from India witnessed a healthy 18% YoY growth in revenue to Rs24.2bn on account of: (a) 10% volume growth; and (b) 8% YoY increase in average realisation led by change in product-mix and price hike undertaken during the current year. EBITDA came in at Rs2.8bn, while EBITDA margin stood at 11%. Healthy volume growth is primarily supported by 40% YoY growth in OEM segment. However, volume growth in replacement segment stood at mid single digit, which is notable considering dismal replacement volume seen for last couple of quarters. European Operations: European operations remained dull during the quarter owing to absence of OEM contribution and start-up cost for Hungarian operation. Further, volume constraint owing to strong demand in India also deterred growth. Revenue declined by 5% YoY to 107mn and EBITDA at 9mn. Reifen s revenue stood at 20mn with negative operating profit. Hungarian Operation: Hungarian operation is currently having a daily production capacity of 2,000 tyres, which ATL plans to increase it to 5,000 by FY18-end. ATL expects this operation to turn EBITDA positive from 4QCY18 onwards and likely to contribute to earnings from next year onwards. This operation will initially supply to Replacement segment, while the supplies to the OEM segment can start from FY20E onwards. Capex: ATL is expected to incur Rs24bn (including Rs10bn for Chennai expansion) and Rs21bn for FY18E and FY19E, respectively. While two-wheeler production run-rate is higher by 50% YoY, it is still not meaningful. Thus, ATL does not intend to have its own manufacturing capacity for two-wheeler in the near-term. Price Hike: Industry has not taken any price hike since May 17. ATL does not envisage any price hike in the near-term. However, change in product-mix may aid it to see some meaningful up-tick in average realisation. f f Net Debt: Net debt stood at Rs41.4bn (increased by Rs7bn QoQ) due to ongoing capacity expansion. However, with the recent Rs15bn QIP, ATL does not expect any further increase in debt. 2

3 Exhibit 1: Quarterly Performance (Consolidated) 2QFY18 2QFY17 % YoY 1QFY18 % QoQ 1HFY18 1HFY17 % YoY Net Sales 34,180 30, , ,761 63, Cost of RMs Consumed 17,079 13, ,897 (4.6) 34,976 28, Purchase of Stock in Trade 2,999 2, ,170 (5.4) 6,168 5, Change in WIP (251) (317) (1,594) (1,845) (1,282) % Sales Employee Costs 4,903 4, , ,218 9, % Sales Other Expenses 6,392 6, , ,697 13,056 (2.7) % Sales Total Expenditures 31,123 26, , ,215 54, EBITDA 3,057 4,202 (27.2) 2, ,546 9,396 (41.0) EBITDA margin (%) Depreciation 1,385 1, , ,643 2, Finance Costs Other Income ,115 1, PBT before Excep. Items 2,054 3,488 (41.1) 1, ,275 7,824 (58.1) Share of Profit/(Loss) in JVs (1) PBT 2,054 3,486 (41.1) 1, ,275 7,823 (58.1) Tax (26.8) ,072 (52.2) % PBT PAT 1,402 2,595 (46.0) ,285 5,751 (60.3) Source: Company, RSec Research Exhibit 2: Revised vs. Old Estimates FY18E FY19E (Rs mn) Old Revised % change Old Revised % change Sales 154, , , , EBITDA ,045 (17.7) 29,057 26,566 (8.6) EBITDA Margin (%) PAT 9,379 6,417 (31.6) 13,987 12,244 (12.5) Net Margin (%) Source: RSec Research 3

4 Exhibit 3: Segemental Revenue 2QFY18 2QFY17 % YoY 1QFY18 % QoQ 1HFY18 1HFY17 % YoY APMEA 25,189 23, ,845 (2.5) 51,034 49, % Sales Europe 10,061 9, ,164 (1.0) 20,225 20,466 (1.2) % Sales Others 6,486 3, ,012 (7.5) 13,498 6, % Sales Total Segmental Revenue 41,737 37, ,021 (3.0) 84,757 76, Less: Intersegment Revenue 6,970 4, ,647 (8.9) 14,617 7, Net Revenue 34,767 33, ,374 (1.7) 70,140 68, Source: Company, RSec Research Exhibit 4: Segemental EBIT 2QFY18 2QFY17 % YoY 1QFY18 % QoQ 1HFY18 1HFY17 % YoY APMEA 2,108 3,073 (31.4) 1, ,255 6,688 (51.3) Margin (%) Europe (60.5) 243 (24.6) 426 1,396 (69.5) Margin (%) Others Margin (%) Source: Company, RSec Research 4

5 Profit & Loss Statement Y/E Mar (Rs mn) FY16 FY17 FY18E FY19E Income 118, , , ,666 % yoy growth Operting Expenses 98, , , ,100 EBIDTA 19,975 18,464 16,045 26,566 EBIDTA Margin (%) Depreciation & Amortization 4,268 4,618 5,984 7,334 Finance Cost 926 1,029 1,648 2,266 Other Income 680 1, PBT before excep items 15,461 14,359 8,913 17,491 Exceptional Item Share of Loss in JVs (32) (3) - - PBT 15,906 14,355 8,913 17,491 Tax 4,677 3,365 2,496 5,247 % Tax Net Profit- Reported 11,230 10,990 6,417 12,244 YoY Growth (%) (2.1) (41.6) 90.8 Net Profit- Adjusted 11,071 10,990 6,417 12,244 Net Profit Margin (%)

6 Balance Sheet Y/E Mar (Rs mn) FY16 FY17E FY18E FY19E Sources of Funds Share Capital Reserves & Surplus 65,537 72,390 92, ,515 Total Shareholder's funds 66,046 72,899 93, ,087 LT Borrowings 6,493 21,559 29,559 27,559 Other Financial Liabilities Deferred Tax Liabilities (Net) 7,012 7,661 7,661 7,661 Other NC Liabilities 1,629 5,217 5,979 7,133 LT Provisions Total NC Liabilities 16,019 35,286 44,172 43,514 ST Borrowings 7,399 10,886 12,886 12,386 Trade Payables 15,432 17,318 19,847 23,678 Other Fin. Liabilities 4,224 8,946 10,252 12,231 Other Curr. Liabilities 2,658 2,553 2,926 3,491 ST Provisions 3,292 4,043 4,633 5,527 Current Tax Liabilities (Net) 1,469 1,074 1,074 1,074 Current Liabilities 34,473 44,819 51,618 58,387 Total Liabilities 116, , , ,988 Application of Funds Gross Fixed Assets- Tangible 99, , , ,578 Less: Acc. Depreciation 54,302 55,196 61,180 68,514 Net Fixed Assets 45,559 60, , ,063 CWIP 9,694 28,723 5,000 4,000 Goodwill 1,982 1,774 1,774 1,774 Other Intangible Assets 4,594 4,760 4,855 4,952 Intangible Assets Under Dev Investment in JVs Other Investments LT Loans & Advances Other Fin. Assets 1, ,116 1,331 Deferred Tax Assets (net) Other NC Assets 6,357 5,199 5,959 7,109 Total NC Assets 70, , , ,355 Inventories 19,391 26,455 30,319 36,171 Sundry Debtors 10,843 11,275 12,922 15,416 Current Investment 5,018 3,944 4,142 4,349 Other Current Assets 3,504 4,601 5,273 6,291 Other Fin. Assets Cash Balances 5,900 3,309 13,427 12,730 Bank Balance ST Loans & Advances Toal Current Assets 45,545 50,095 66,658 75,632 Other Non-Current Assets Total Assets 116, , , ,988 6

7 Cash Flow Statement Y/E Mar (Rs mn) FY16 FY17E FY18E FY19E PBT 15,906 14,355 8,913 17,491 Depreciation 4,268 4,618 5,984 7,334 Finance Costs 926 1,029 1,648 2,266 Others (829) (958) - - Net Change in Working Capital 3,207 (6,755) (1,468) (2,224) Direct Tax (3,914) (3,264) (2,496) (5,247) Add: Exceptional Item 1, Net Cash from Operating Activities 21,225 9,025 12,581 19,620 Capex (16,213) (33,190) (24,380) (14,106) Sale / (Purchase) of Investments/Assets (6,734) 1,629 (198) (208) Others 119 2, Net Cash used in Investing Activities (22,828) (29,419) (24,578) (14,314) Proceeds from QIP ,000 - Inc/(Dec) in Borrowings (298) 20,841 10,000 (2,500) Dividend on Equity Shares paid (Including (1,302) (1,237) (1,237) (1,237) DDT) Interest Paid (947) (658) (1,648) (2,266) Net Cash used in Financing Activities (2,547) 18,946 22,116 (6,003) Eect of FXs out of consolidation 60 (640) - - NET INCREASE/ (DECREASE) IN CASH (4,089) (2,088) 10,118 (696) (4,089) (2,088) 10,118 (696) Key Ratio Y/E Mar (Rs mn) FY16 FY17 FY18E FY19E Valuation Ratio (x) P/E P/CEPS P/BV EV/EBIDTA EV/Sales Dividend Payout (%) Dividend Yield (%) Per Share Data (Rs) EPS (Basic) EPS (Diluted) CEPS DPS Book Value Returns (%) RoCE RoE Turnover ratios (x) Asset Turnover (Gross block) Inventory (days) Receivables (days) Payables (days) WCC (days) Solvency ratios (x) D/E (x) Current Ratio (x)

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