Goodyear India - 2QCY2012 Result Update - Angel Broking

For 2QCY2012, Goodyear India Ltd (GIL) reported a better than expected top-line at Rs.401cr, 21.2% higher on a sequential basis, after posting a disappointing top-line in 1QCY2012 at Rs.331cr. However, on a y-o-y basis, the revenue growth was muted at 3.0% from Rs.389cr in 2QCY2011. The EBITDA margin contracted by 30bp yoy to 6.2% from 6.5% in 2QCY2011 owing to high employee cost. Consequently, the net profit came in at Rs.14.3cr, marginally lower than Rs.14.6cr in 2QCY2011.

Slowdown in auto industry to result in muted performance: GIL is a market leader in the tractor tyre industry. A slowdown in the auto industry has impacted the tractor tyre segment which witnessed a sluggish performance in 1HCY2012. Moreover, in spite of declining rubber prices, there has been no significant improvement in the EBITDA margin which is a cause for concern. Due to these reasons, we have been conservative in our estimates and expect the company to post a muted performance on the top-line as well as the bottom-line front over CY2011-13E.

Outlook and valuation: We expect GIL to post a subdued 4.5% CAGR in revenue to Rs.1,654cr over CY2011-13E owing to a slowdown in the farm equipment segment. We expect the EBITDA margin to contract in CY2013E to 6.5% due to increased expenses (as percentage of sales) on a lower volume growth and recover to 7.3% in CY2013E. Thus, the net profit is expected to post a CAGR of 5.4% over CY2011-13E to Rs.72cr in CY2013E. At the current market price, the stock is trading at 10.8x its CY2013E earnings. Due to expensive valuations, we recommend a Neutral view on the stock.

Source : Equity Bulls

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