Goodyear India - 1QCY2012 Result Update - Angel Broking

For 1QCY2012, Goodyear India Ltd. (GIL) reported top line of Rs.331cr, marginally lower than Rs.336cr for 1QCY2011. EBITDA margin contracted by 125bp yoy to 6.0% during the quarter on the back of higher employee expenses. Consequently, net profit declined by 20.8% yoy to Rs.11cr from Rs.14cr in 1QCY2011. We recommend an Accumulate rating on the stock.

Easing raw-material prices to drive bottom-line growth: GIL is a market leader in the tractor tyre industry. Although the tractor segment has witnessed muted growth during the quarter impacting GIL's revenue, it is expected to pick up during CY2013E. However, easing raw-material prices especially rubber, which constitutes 65-68% of the total raw-material cost, would result in better performance on the operating front, resulting in a 21.4% CAGR in net profit over CY2011-13E.

Outlook and valuation: We expect GIL to post a subdued 5.6% CAGR in revenue to Rs.1,692cr over CY2011-13E, owing to slowdown in the farm equipment segment. Easing raw-material prices are expected to expand the company's margin by 156bp to 9.0% in CY2013E from 7.4% in CY2011. Hence, we expect the company's net profit to witness a 21.4% CAGR over CY2011-13E to Rs.95cr. At the CMP, the stock is trading at PE of 7.9x its CY2013E earnings. We recommend an Accumulate rating on the stock with a revised target price of Rs.374, incorporating surplus cash of Rs.386 (discounted by 50%) in our valuations and a target P/E of 8.0x for CY2013E earnings.

Source : Equity Bulls

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