Rating Rationale

June 11, 2018 | Mumbai

Apollo Tyres Limited

Ratings Reaffirmed

Rating Action
Total Bank Loan Facilities Rated Rs.1600 Crore (Reduced from Rs.1725 Crore)
Long Term Rating CRISIL AA+/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)

Rs.100 Crore Non Convertible Debentures CRISIL AA+/Stable (Withdrawn)

Rs.450 Crore Non Convertible Debentures CRISIL AA+/Stable (Reaffirmed)
Rs.300 Crore Non Convertible Debentures CRISIL AA+/Stable (Reaffirmed)
Rs.325 Crore Non Convertible Debentures CRISIL AA+/Stable (Reaffirmed)
Rs.900 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities

Detailed Rationale
CRISIL has withdrawn its rating on the Rs 100 crore non-convertible debentures of Apollo Tyres Limited (Apollo) on receipt of a
request from Apollo and confirmation of redemption from the debenture trustee. CRISIL has also withdrawn its ratings on Rs 125
crore bank loan facility following a request from the client and on receipt of a 'no dues certificate' from the banker. The rating action is
in line with CRISIL's policy of withdrawal of credit ratings. The ratings on the remaining bank facilities and debt instruments have been
reaffirmed at 'CRISIL AA+/Stable/CRISIL A1+'.

The ratings continue to reflect a strong financial risk profile, despite large capital expenditure (capex) plans as well as a strong
business risk profile, driven by a sustained market position in the domestic and European markets along with a diversified revenue
profile. These strengths are partially offset by exposure to cyclicality in the tyre industry, to volatility in raw material prices, and to
implementation risks in greenfield capacity expansions.
Analytical Approach
For arriving at its ratings, CRISIL has combined the business and financial risk profiles of Apollo and all its wholly owned subsidiaries,
including Apollo Vredestein BV (Vredestein) and Apollo [Mauritius] Holdings Pvt Ltd.
Key Rating Drivers & Detailed Description
Strengths:
* Strong position in the domestic tyre industry, with leading market share in the truck and bus (T&B) segment: The company
is the leading manufacturer of radial tyres for the domestic T&B segment (over 25% market share), and has established its position in
the light commercial vehicles (LCV), tractors, and passenger car radial (PCR) segments as well. A pan-India distribution network,
comprising 5,000 dealerships, including exclusive outlets that operate under the Apollo brand, further strengthen its market position.
Despite intense competition, the company should be able to sustain a healthy market share, given its leadership position, significant
ramp-up in radial tyre capacity at the Chennai plant, strong operating efficiencies, and a wide distribution network.

* Diversified revenue profile, driven by a presence in different geographies and segments: Operations are spread across India
and Europe, and the product mix is diversified. Besides a strong foothold in the domestic T&B segment, the company also has
presence in the European PCR market through Vredestein. In fiscal 2018, Indian operations accounted for around 60% of the
consolidated revenue, while Vredestein operations accounted for 26%. The remaining contribution came from various subsidiaries in
the United Arab Emirates, Thailand, and South Africa. In terms of segmental diversity, the replacement market accounts for a
significant portion of the consolidated revenue, thereby providing revenue stability. This diversity is expected to continue to protect
revenue and profitability from unfavourable conditions in any particular segment or geography and add stability to cash flows over the
medium term.

* Strong financial risk profile, despite large capex plans: The consolidated gearing was low at about 0.5 time as on March 31,
2018, and the interest coverage ratio high at 11 times for fiscal 2018. Furthermore, liquidity was healthy, driven by a large
consolidated cash and bank balance of about Rs 1,900 crore as on March 31, 2018. The substantial ongoing capex of Rs 6,200 crore
over fiscals 2018-20, includes the recently announced Rs 1,800 crore capex in Andhra Pradesh. Nonetheless, given the healthy cash
accrual over this period and qualified institutional placement of Rs 1,500 crore in October 2017, the gearing should remain below 0.5
time and debt protection metrics strong, over the medium term. The qualified institutional placement executed in October 2017, led to
an equity inflow of Rs 1,500 crore. Timely completion and stabilisation of the ongoing expansion, and any debt-funded inorganic
expansion or larger-than-expected capex will remain key rating sensitivity factors.

Weaknesses:
* Exposure to cyclicality in the tyre industry and vulnerability to volatility in raw material prices: Revenue and profitability
remain vulnerable to the cyclicality in the tyre industry, primarily driven by fluctuating demand from end-user CV players, especially in
the T&B segment. Demand in the tyre industry is also dependent on economic growth and infrastructure development. Furthermore,
raw material costs account for more than 70% of the operating costs. While the price of natural rubber is dependent on global
demand, area under cultivation, and yield factor, the prices of carbon black and other materials are based on crude oil prices. The
operating margin reduced to 11.1% in fiscal 2018 from 14.3% and 16.9% in fiscals 2017 and 2016, respectively, due to a sharp uptick
in rubber prices. Operating performance is likely to remain susceptible to cyclicality in the tyre industry and volatility in raw material
prices over the medium term.

* Implementation risk in the ongoing expansion: The company is undertaking large capacity expansion of around Rs 8,000 crore
across Chennai, Andhra Pradesh, and Hungary, half of which is expected to be funded through debt. This exposes it to risks related to
project implementation, particularly in Hungary, which is a new geography for the company. However, progress of both Indian and
European expansion is as per schedule, which mitigates these risks to a large extent. Timely commissioning and stabilisation of these
capacities will be closely monitored.
Outlook: Stable
CRISIL believes Apollo is likely to maintain its healthy operating performance, leading to a continued strong financial risk profile
despite large capex plans, over the medium term.
Upside scenario:
* Significant and sustainable increase in the operating margin
* Stabilisation of newer capacities ahead of schedule, leading to substantial improvement in the financial risk profile

Downside scenario:
* A significant decline in the operating margin
* Large, debt-funded acquisition, weakening of the capital structure
* Significant time and cost overruns in the expansion project.
About the Company
Set up in 1972, Apollo manufactures automotive bias and radial tyres, and tubes. It has plants in Kochi, Vadodara, Pune, and
Chennai. The product profile includes prominent tyre brands in the T&B, light truck, passenger car, and farm vehicle segments in
India, catering to both original equipment manufacturers and the replacement market. In February 2013, the company sold its South
African operations to Sumitomo Tire for USD 60 million.

In May 2009, Apollo acquired Vredestein, a niche player in the premium, high-speed PCR tyre segment in Europe. Vredestein was
set up in 1946 as a joint venture between Vredestein Banden BV and BF Goodrich Tires. In 1977, the Dutch government acquired
51% stake in the company, which was later acquired by Amtel NV in 2005. Vredestein has a manufacturing facility in Enschede, near
Amsterdam (The Netherlands), with capacity of 5.5 million tyres per annum. The company owns two brands, Vredestein (premium)
and Maloya (mid-range). In fiscal 2016, Apollo acquired, Reifencom GmbH, a distributor which operates 37 stores in Germany, for
EUR 45.6 million.
Key Financial Indicators (CRISIL adjusted numbers)
Particulars Unit 2018* 2017
Revenue Rs crore 14674 13063
Profit after tax (PAT) Rs crore 724 1099
PAT margin % 4.88 8.34
Adjusted debt/Adjusted networth Times 0.6 0.6
Interest coverage Times 10.7 17.2
*Provisional

Any other information: Not applicable

Note on complexity levels of the rated instrument:

CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on
www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment.
Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

Coupon Issue Size

Date of Maturity Rating Assigned
ISIN Name of Instrument Rate (Rs.
Allotment Date with Outlook
(%) Cr)

NA Cash credit** NA NA NA 1000.0 CRISIL AA+/Stable

NA Long-term loan NA NA 27-Sep-17 50.0 Withdrawn
INE438A07086 Non-convertible debentures 30-May-16 8.65% 30-Apr-24 105.0 CRISIL AA+/Stable
INE438A07094 Non-convertible debentures 30-May-16 8.65% 30-Apr-25 105.0 CRISIL AA+/Stable
INE438A07102 Non-convertible debentures 30-May-16 8.65% 30-Apr-26 115.0 CRISIL AA+/Stable
INE438A07110 Non-convertible debentures 21-Oct-16 7.50% 21-Oct-21 105.0 CRISIL AA+/Stable
INE438A07128 Non-convertible debentures 21-Oct-16 7.50% 21-Oct-22 105.0 CRISIL AA+/Stable
INE438A07136 Non-convertible debentures 21-Oct-16 7.50% 21-Oct-23 90.0 CRISIL AA+/Stable
INE438A07144 Non-convertible debentures 31-May-17 7.80% 29-Apr-22 150.0 CRISIL AA+/Stable
INE438A07151 Non-convertible debentures 31-May-17 7.80% 28-Apr-23 150.0 CRISIL AA+/Stable
INE438A07169 Non-convertible debentures 31-May-17 7.80% 30-Apr-24 150.0 CRISIL AA+/Stable
NA Commercial paper NA NA 7-365 days 900.0 CRISIL A1+
NA Letter of credit^ NA NA NA 600.0 CRISIL A1+
Proposed long-term bank
NA NA NA NA 75.0 Withdrawn
loan facility
**Interchangeable with working capital demand loan/foreign currency non-repatriable(B)/buyer's credit/overdraft/foreign bill discounting/export bill receivables
^Interchangeable with bank guarantee/letter of undertaking or acceptances for buyer's credit/packing credit

Annexure - Rating History for last 3 Years

Start of
Current 2018 (History) 2017 2016 2015
2015
Outstanding
Instrument Type Rating Date Rating Date Rating Date Rating Date Rating Rating
Amount

Commercial CRISIL CRISIL CRISIL CRISIL CRISIL CRISIL

ST 900.00 30-05-18 24-05-17 12-10-16 22-12-15
Paper A1+ A1+ A1+ A1+ A1+ A1+
CRISIL CRISIL
09-05-16 09-12-15
A1+ A1+
CRISIL
21-04-15
A1+
Non
1075.00 CRISIL CRISIL CRISIL CRISIL CRISIL CRISIL
Convertible LT 30-05-18 24-05-17 12-10-16 22-12-15
31-05-18 AA+/Stable AA+/Stable AA+/Stable AA+/Stable AA+/Stable AA/Stable
Debentures
CRISIL CRISIL
09-05-16 09-12-15
AA+/Stable AA+/Stable
CRISIL
21-04-15
AA/Positive
Fund-based
CRISIL CRISIL CRISIL CRISIL CRISIL CRISIL
Bank LT/ST 1000.00 30-05-18 24-05-17 12-10-16 22-12-15
AA+/Stable AA+/Stable AA+/Stable AA+/Stable AA+/Stable AA/Stable
Facilities
CRISIL CRISIL
 09-05-16 AA+/Stable 09-12-15 AA+/Stable
CRISIL
21-04-15
AA/Positive
Non Fund-
CRISIL CRISIL CRISIL CRISIL CRISIL CRISIL
based Bank LT/ST 600.00 30-05-18 24-05-17 12-10-16 22-12-15
A1+ A1+ A1+ A1+ A1+ A1+
Facilities
CRISIL CRISIL
09-05-16 09-12-15
A1+ A1+
CRISIL
21-04-15
A1+
All amounts are in Rs.Cr.

Annexure - Details of various bank facilities

Current facilities Previous facilities
Amount Amount
Facility Rating Facility Rating
(Rs.Crore) (Rs.Crore)
CRISIL CRISIL
Cash Credit** 1000 Cash Credit** 1000
AA+/Stable AA+/Stable
Letter of Credit^ 600 CRISIL A1+ Letter of Credit^ 600 CRISIL A1+
CRISIL
Long Term Loan 50 Withdrawn Long Term Loan 50
AA+/Stable
Proposed Long Term Bank Proposed Long Term CRISIL
75 Withdrawn 75
Loan Facility Bank Loan Facility AA+/Stable
Total 1725 -- Total 1725 --
**Interchangeable with working capital demand loan/foreign currency non-repatriable(B)/buyer's credit/overdraft/foreign bill discounting/export bill receivables
^Interchangeable with bank guarantee/letter of undertaking or acceptances for buyer's credit/packing credit

Links to related criteria

CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Auto Component Suppliers
CRISILs Criteria for rating short term debt

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