December 31, 2013

ICICI Securities Ltd | Retail Equity Research

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ANALYST CERTIFICATION We /I, Nishant Vass MBA Venil Shah MBA research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.

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Let’s get back to fundamentals “deal’s off”! The protracted merger between Apollo (ATL)-Cooper Tire (CTB) has been finally called off by CTB who have said they have been notified that the financing for the transaction is no longer available. CTB has said it will now work towards resuming normal focus on the business. CTB also said it remains profitable for H2CY13 for which financials have yet to be released as CTB was unable to file 10-Q (Quarterly financials) in SEC due to lack of relevant financials from the China JV. CTB said they would actively try to resolve the issue with the China JV and feel the issue came up due to the proposed merger with ATL. Now that the same is off the China JV would be more cooperative. Key highlights from CTB conference call

• The immediate issue at hand before filing financials or working towards any new acquisition is to get the China JV financials

• The management said Apollo never discussed a price cut or deal revision, which had some kind of committed financing or did not create additional risk for Cooper shareholders

• Cooper will look for any potential possible damages but will not focus on it too much so as to disrupt normal business anymore. Cooper has said it terminated the deal as it wanted to go ahead with the normal business

• The Delaware Chancery Court would be passing judgment on remaining issues. These include whether Apollo owes any reverse termination fees or Cooper owes termination fees and whether Apollo did its best with USW Steel workers to sign the agreement

What now for Apollo Tyres? Termination of the deal is positive for Apollo as the debt overhang over the deal had become highly bitter due to lack of trust between managements. Now we believe the stock will run back as per fundamentals though we still await the judgement from Sam Glasscock III on remaining issues. Apollo is looking to get a declaratory judgment that would essentially clear it from paying financial penalty of any form. Consequently, we upgrade our target price to | 119 with a BUY rating valuing it at a base case upgraded multiple of 7x FY15E.

Apollo Tyres (APOTYR)| 101

Rating matrix Rating : Buy

Target : | 119

Target Period : 12-15 months

Potential Upside : 18%

Key Financials

| Crore FY12 FY13 FY14E FY15ENet Sales 12,153 12,794.6 13,365.0 13,895.7 EBITDA 1,166.1 1,456.7 1,724.0 1,714.7 Net Profit 409.9 612.6 918.6 858.1 EPS (|) 8.1 12.2 18.2 17.0

Valuation summary FY12 FY13 FY14E FY15E

P/E(x) 12.5 8.3 5.6 6.0 Target P/E(x) 14.7 9.8 6.5 7.0 EV / EBITDA(x) 6.4 4.8 3.8 3.6 P/BV (x) 1.8 1.5 1.2 1.0 RoNW(%) 14.5 18.0 21.5 16.8 RoCE(%) 15.6 18.7 20.5 18.3

Stock data Market Capitalization | 5108 CroreTotal Debt (FY13) | 2282 Crore

Cash (FY13) | 335 CroreEV | 7056 Crore52 week H/L 100 / 56Equity capital | 50.4 CroreFace value | 1MF Holding (%) 8.0FII Holding (%) 33.5

Analyst’s name

Nishant Vass nishant.vass@icicisecurities.com

Venil Shah venil.shah@icicisecurities.com