Company Update on Goodyear India. ::Angel Broking

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Company Update on Goodyear India.

For 4QCY2011, Goodyear India Ltd. (GIL) reported lower-than-expected top line at `395cr as against our expectation of `441cr. However, the company’s EBITDA margin remained flat on a yoy basis despite higher raw-material cost, which was offset by lower other expenses. Net profit for the quarter came in at `20cr, 8.8% lower than our estimate of `22cr. We maintain our Buy view on the stock.

Branded business and tractor tyre demand to drive future growth: GIL is a market leader in the tractor tyre industry. Tractor tyres accounted for ~60% of the company’s tonnage offtake in CY2010. The tractor industry witnessed growth of 27% in 2010 and is expected to grow at the same pace going forward, helping the company to register a ~17% CAGR in revenue over CY2011-13E. Moreover, GIL caters to high-end brands such as Audi, BMW, Land Rover, Mitsubishi and Porscheand has a brand name in the commodity business with stupendous ROIC of 1,022.7% for CY2011 in comparison to less than 30% of other listed peers. Furthermore, the company is debt free with cash reserves of `249cr for CY2011.

Outlook and valuation: We expect GIL’s revenue to post a 17.2% CAGR over CY2011-13E along with a 239bp expansion in its EBITDA margin on account of easing rubber prices, which is evident from a 29% decline from the high of `243/kg in April 2011 to `188 as on February 27, 2012. In addition, we expect the company’s net profit to witness a 37.5% CAGR over CY2011-13E to `122cr. At `358, the stock is trading at PE of 6.8x its CY2013E earnings. We maintain our Buy recommendation on the stock with a revised target price of `484, based on a target P/E of 8.0x for CY2013E earnings.

  

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Company Update - Goodyear India