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Recommendations India

Goodyear India 1QCY2014 performance highlights and results update

May 20, 2014, Tuesday, 07:24 GMT | 02:24 EST | 10:54 IST | 13:24 SGT
Contributed by Angel Broking


For 1QCY2014, Goodyear India (GIL) reported a strong set of numbers. Its top-line surged by 15% yoy to Rs.387cr, 10.6% higher than our estimate of Rs.350cr. The EBITDA came in higher at Rs.40cr, up 30.4% yoy; while margins expanded by 120bp yoy to 10.2%, mainly due to lower employee costs and other expenses (as a percentage of sales). On the back of efficient operating performance coupled with a 57.1% yoy increase in other income to Rs.11cr, the net profit for the quarter grew 34.9% yoy to Rs.28cr, in-line with our estimates.

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 CY2012. As per industry reports, tractor sales are likely to grow in the range of 7-9% over CY2014-15E. Thus, we expect GIL to register a 6.3% CAGR in revenue over CY2013-15E.

Outlook and valuation: On the back of strong growth in tractor tyre market and decline in rubber prices, earnings are expected to grow at a CAGR of ~11.9% over CY2013-15E to Rs.118cr in CY2015E. Moreover, we forecast GIL’s CY2015E cash reserves to be at Rs.439cr, which is ~47% of its current market capitalization. At the current levels, the stock is trading at a PE of 8.0x its CY2015E earnings and P/BV of 1.6x for CY2015E. We recommend a Buy rating on the stock with a target price of Rs.510 based on SOTP valuation.