Angel Broking recommends Accumulate on Goodyear India with a Target Price of Rs 472 (12 months)

For 4QCY2013, Goodyear India (GIL) reported a top-line of Rs. 406cr, in-line with our expectations, and 5.7% higher on a yoy basis. This is mainly due to ~20% yoy growth in tractor volumes during the quarter. Also, the EBITDA came in line with our expectation at Rs. 39cr. The EBITDA margin expanded by 343bp yoy from 6.2% in 4QCY2012 to 9.6% in 4QCY2013, against our estimate of 9.1%. This expansion in margin was mainly led by a 357bp yoy decline in raw material cost as a percentage of net sales. Consequently, the net profit grew by 71.3% yoy to Rs. 28cr in 4QCY2013, 14% higher than our estimate, due to higher-than-expected other income.

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. During CY2013 domestic tractor sales volume grew by ~17% yoy due to good monsoon. As per industry reports, tractor sales are likely to grow in the range of 8-10% in CY2014E. 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 in CY2013 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, GIL has cash reserves of Rs. 316cr as of December 2013, which is ~33% of its total market capitalization. At the current levels, the stock is trading at a PE of 8.2x its CY2015E earnings and P/BV of 1.6x for CY2015E. We recommend an Accumulate rating on the stock with a target price of Rs. 472 based on SOTP valuation.

Source : Equity Bulls

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