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Goodyear India Ltd Research Report - 09th Feb 2016

Tyre | Published on Feb 09th 2016


For 4QFY2016, Goodyear India (GIL)’s numbers have come in lower than our estimates. The top-line reported a marginal growth of 1.7% yoy to `366cr. However, the company performed well on the operational front, reporting an EBITDA margin expansion of 214bp yoy to 10.5% while its EBITDA grew by 27.7% yoy to `39cr. On the back of lower operating expenses and higher other income, which grew by 43.7% yoy to `10cr, the net profit grew by 37.5% yoy to `26cr. Expansion drive to lead to recovery in top-line: GIL has laid out plans to significantly grow its presence in the passenger car segment in India over the next five years. The company aspires to be one of the top players in the mid to premium and SUV segments of passenger cars. It is also evaluating an entry into newer segments; in order to reach its goal, the company is weighing organic as well as inorganic growth options to expand in India. We believe that this increased focus on growing its presence in the passenger car segment as well entry into newer segments will lower the impact of poor performance of the tractor industry. Strong balance sheet with high RoIC: GIL is a debt free-cash rich company with RoIC estimated at ~68% for FY2017. The company’s cash and equivalents are expected to be at `515cr by FY2017-end, which amount to ~46% of the current market cap. More importantly, GIL is one of the cheapest MNCs available to invest in, in the similar market cap range. Outlook and valuation: We expect the company’s top-line to be at `1,800cr and `1,600cr in FY2016E and FY2017E respectively. Raw material cost is expected to remain stable over FY2016E-17E resulting in EBITDA margin of 11.7% in FY2016E and 11.5% in FY2017E. Consequently, we estimate the net profit to be at `122cr in FY2017E. At the current market price, the stock is trading at a PE of 9.2x its FY2017E earnings. On a TTM basis, GIL is one of the cheapest MNCs available as it trades at a PE of 11.0x while other MNCs (having market cap in the range of `1,000cr-`5,000cr) trade above the 20.0x mark (with a median of 27.7x). We maintain our Buy rating on the stock and assign a target price of `582 based on a target PE of 11.0x for FY2017E.

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CMP 487
Target Price 582
Investment Period12 Months

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Shareholding Pattern (%)

Public & Others19.0
Grand Total100.0

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