Technology

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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