Stock Views on APOLLO TYRES, AUROBINDO PHARMA

BANK OF AMERICA on AUROBINDO PHARMA

Bank of America initiates coverage on Aurobindo Pharma with a Buy' rating and target price of 262. Bank of America is upbeat on Aurobindo's transformation into a global formulations player and believes concerns over USFDA import alert at its cephalosporin facility are overblown. ARBP's supplies to Pfizer have been instrumental in scaling up US sales. Bank of America expects ARBP's EBITDA margins to expand 160 bps cumulatively by FY13E. Surge in formulation sales aided by MNC alliances, traction from niche portfolio and operating leverage should be key drivers for 23% core EBITDA CAGR. Bank of America expects high base of FY11, cost pressure and FCCB premium in Q1FY12 to result in earnings pick-up from H2FY12. Current valuations at 10x FY12E P/E and 40% discount to the sector are undemanding given the business transformation, improving returns profile, reduction in leverage and potential upside from MNC alliances.

UBS on APOLLO TYRES

UBS maintains `Buy' rating on Apollo Tyres with a price target of Rs 78. Tyre maker Michelin announced a 12% increase in truck tyre prices in Africa and India. Apollo Tyres is present in both these geographies. As per an article, Yokohama Tyre raised truck tyre prices by 8%. This sets the stage for price increases by other tyre manufacturers and bodes well for the fundamentals of the tyre industry. Over the past two weeks, natural rubber prices in India have declined from 240/kg to 220/kg. UBS assumes a natural rubber cost of 225/kg for Apollo Tyres over FY11. UBS has also analysed the potential for substitution of natural rubber usage in the glove industry and believes that higher rubber prices would lead to substitution of natural rubber by synthetic rubber in the industry. UBS values the company's India business at 4.5x the average of FY12-13E EV/EBITDA and its international business at 5.5x. Apollo Tyres is trading at 7.2x March 2012E PE.