Goodyear 3QCY2012RU

7/30/2019 Goodyear 3QCY2012RU

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Please refer to important disclosures at the end of this report 1

EBITDA 24 28 (14.8) 25 (3.7)

EBITDA margin (%) 6.5 7.1 (63)bp 6.2 28bp

Source: Company, Angel Research

For 3QCY2012, Goodyear India Ltd (GIL) reported a top-line at`369cr, lower by

6.5% yoy from `395cr in 3QCY2011. This led to a contraction in the EBITDA

margin by 63bp yoy to 6.5% from 7.1% in 3QCY2011. Consequently, the netprofit declined by 5.8% yoy to `15cr in 3QCY2012 from `16cr in the same

quarter previous year.

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 during 9MCY2012.

However, a fall in the price of rubber has led to contraction in raw material cost

as a percentage of sales by 109bp on a sequential basis for 3QCY2012 in spite

of a sequential decline in revenue by 7.9%. Thus, even a modest improvement in

tractor tyre sales would result in an overall increase in the profitability.

We expect GIL to post a 1.4% yoy decline in topline to

`1,494cr in CY2012E and rebound with a 7.6% growth to `1,607cr in CY2013E

owing to a pick-up in volume of farm equipments. This would result in expansion of

EBITDA margin by 142bp yoy to 7.8% in CY2013E after a contraction of 105bp in

CY2012E. Consequently, the net profit is expected to witness a recovery of 38.0% in

CY2013E to `76cr from a 14.5% yoy decline to `55cr in CY2012. At the current

market price, the stock is trading at 9.9x its CY2013E earnings. Due to improvement

in the overall market sentiment, we have revised our target PE to 10x for CY2013E.

Key financials

% chg 27.6 16.9 (1.4) 7.6

% chg 2.3 (13.7) (14.5) 38.0

EBITDA (%) 8.7 7.4 6.4 7.8

P/E (x) 10.1 11.7 13.7 9.9

P/BV (x) 2.8 2.4 2.2 1.9

RoE (%) 30.8 22.0 16.5 20.1RoIC (%) 573.4 475.9 171.4 228.3

EV/Sales (x) 0.4 0.3 0.3 0.2

EV/EBITDA (x) 4.8 4.5 4.6 3.0


CMP `327

Target Price `360

Investment Period 12 Months

Stock Info

Sector

Net Debt (` cr)

Bloomberg Code

Shareholding Pattern (%)

Promoters 74.0

MF / Banks / Indian Fls 7.1

FII / NRIs / OCBs 2.0

Indian Public / Others 16.9

Abs. (%) 3m 1yr 3yr

Sensex 7.3 7.3 16.6

Goodyear (1.5) 7.8 37.1

Tyres

Market Cap (` cr) 755

(226)

Beta 0.7

52 Week High / Low 413/269

Avg. Daily Volume 14,195

Face Value (Rs) 10

BSE Sensex 18,846

Nifty 5,739

Reuters Code GDYR.BO

GDYR IN

+91- 22- 3935 7800 Ext: 6849

[email protected]

Performance Highlights

3QCY2012 Result Update | Tyres

November 8, 2012


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Goodyear | 3QCY2012 Result Update

November 8, 2012 2

Exhibit 1:3QCY2012 performance

Net raw material 275 294 (6.5) 303 (9.3) 821 840 (2.2)(% of Sales) 74.4 74.4 75.5 74.6 75.0

Staff Costs 19 18 5.7 20 (4.7) 61 53 15.2

(% of Sales) 5.2 4.6 5.1 5.5 7.3

Other Expenses 51 55 (6.1) 53 (3.6) 150 150 0.4

(% of Sales) 13.9 13.8 13.3 13.7 13.4

EBITDA margin (%) 6.5 7.1 (63)bp 6.2 28bp 6.2 10.7 (448)bp

Interest 1 2 1 3 4

Depreciation 6 5 6 18 14

Other Income 6.4 2.6 3.1 13 6

(% of Sales) 6.3 6.0 5.3 5.5 9.1

Tax 8 8 7.7 7 19.6 20 22 (6.2)

(% of PBT) 35.4 32.4 32.6 33.7 32.9

PATM 4.1 4.0 3.6 3.7 6.1

Equity capital (cr) 23 23 23 23 23


Exhibit 2:Actual vs Angel estimates (3QCY2012)Total Income 369 404 (8.7)

PBIDT 24 27 (11.0)

PBIDTA margin (%) 6.5 6.6 (17)bp

Adjusted PAT 15.0 15.6 (3.4)


Top-line disappoints, EBITDA margin & bottom-line broadly in-line

For 3QCY2012, GIL reported a lower than expected top-line of `369cr, 8.7%

lower than our estimate of `404cr, while the EBITDA margin at 6.5%, was

marginally lower than our estimate of 6.6%. This led to a slight variation of -3.4%

in net profit to`15cr from our estimates.


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November 8, 2012 3

Investment rationale

Branded business in the commodity industry

GIL caters to high-end brands such as Audi, BMW, Land Rover, Mitsubishi andPorsche and has a brand name in the commodity business with a stupendous RoIC

of 475.9% for CY2011 in comparison to less than 30% in case of other listed

peers.

Focus on the replacement market to improve EBITDA margin

The replacement segment accounts for ~63% of the total tyre industry and absorbs

~57% of total tyre production (in tonnage terms) in India. In addition, price

realizations are the highest in the replacement market, followed by the export

market and the original equipment manufacturer (OEM) segment. Since the

company majorly caters to the tractor tyre market, where replacement demand is

high, GIL has charted out an aggressive plan to expand its network of retail outlets

in an attempt to garner a larger share of the replacement market. The company is

in the process of increasing its outlets across cities with a total count exceeding 35

cities. We believe a higher contribution from the replacement market will help GIL

report superior EBITDA margin going forward.

New capacity to be driven by strong balance sheet

GIL is a debt free company with cash reserves of `226cr as on June 2012. Since

the company has terminated the process of sale of its land in Ballabgarh, it may

utilize the excess cash in its books to build new capacity. This capacity expansion

would be a long term revenue driver for GIL.


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November 8, 2012 4

Financials

Exhibit 3:Key assumptionsChange in tyre volume sales (5.2) 3.5

Change in tyre realization 3.0 4.0

Change in rubber price - (4.0)

Source: Angel Research

Exhibit 4:Change in estimates

OPM (%) 6.5 7.3 6.4 7.8 (11)bp 44bp


Auto industry slowdown to result in subdued revenue growth

A slowdown in the auto industry has impacted the tyre industry which led to a

subdued revenue growth during 9MCY2012. We expect GIL to post a 1.4% decline

in revenue in CY2012, post which a slight recovery to 7.6% in CY2013 is

expected; thus leading to a 3.0% CAGR over CY2011-13E to `1,607cr in

CY2013E.

Exhibit 5:Muted revenue growth


920

1,0

16

1,2

97

1,5

16

1,4

94

1,6

07

3.4

10.5

27.6

16.9

(1.4)

7.6

(5)

0

5

10

15

20

25

30

0

300

600

900

1,200

1,500

1,800

CY2008 CY2009 CY2010 CY2011 CY2012E CY2013E

(%)

(`

cr)

Revenue (LHS) Revenue growth (RHS)


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November 8, 2012 5

EBITDA margin and Net profit to recover in CY2013E

Rubber prices have seen a declining trend since November 2011 from an average

of`200/kg to the level of`176/kg currently. We expect rubber price to hover at

these levels, thus resulting in EBITDA margin expansion of 142bp to 7.8% in

CY2013E after witnessing a contraction of 105bp in CY2012E. This in turn would

lead to a recovery in net profit to `76cr in CY2013E, post an expected decline of

14.5% in CY2012 to`55cr.

Exhibit 6:EBITDA margin to recover


Exhibit 7:Profit growth to improve


Outlook and valuation

We have revised our revenue estimates marginally downwards on the back of

slowdown in tractor tyre market; while the earnings estimates have been revised

upwards for CY2013E owing to a decline in rubber prices which would result in

better EBITDA margin. At the current levels, the stock is trading at a PE of 9.9x its

CY2013E earnings and P/BV of 1.9x for CY2013E.

Exhibit 8:One-year forward PE band


53 123 113 112 95 125

5.8

12.1

8.77.4

6.4

7.8

4

6

8

10

12

14

0

20

40

60

80

100

120

140

CY2008 CY2009 CY2010 CY2011 CY2012E CY2013E

(%)

(

`

cr)

EBITDA (LHS) EBITDA margin (RHS)

32 73 75 65 55 76

3.5

7.2

5.8

4.3

3.7

4.7

0

2

4

6

8

0

20

40

60

80

CY2008 CY2009 CY2010 CY2011 CY2012E CY2013E

(%)

(`cr)

PAT (LHS) PAT margin (RHS)

0

100

200

300

400

500

Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12

(`)

Price 2x 6x 10x 14x


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November 8, 2012 6

Exhibit 9:Relative valuation

Apollo FY2014E 15,341 11.2 747 14.8 18.3 5.7 1.0 3.6 0.4

MRF SY2013E 12,727 10.5 607 1,431.2 17.7 7.1 1.3 4.2 0.4


Risks

The domestic tractor volume sales growth has been

declining over the past three years, i.e. from 32% yoy in FY2010 to 11% yoy in

FY2012. This continuing trend in the tractor industry may have an impact on the

companys growth as it is a market leader in the tractor tyre segment (accounting

for ~60% of the companys total tonnage offtake).

Exhibit 10:Slowdown in domestic tractor industry


175

226

263

318

302

304

400

480

535

9.4

29.1

16.4 20.9

(5.0)

0.7

31.6

20.0

11.5

(10)

0

10

20

30

40

0

100

200

300

400

500

600

FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12

(%)

(000's)

Tractor volume (LHS) yoy growth (RHS)


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November 8, 2012 7

Volatile rubber prices: Rubber constitutes ~65% of the total raw-material cost

in the manufacture of tyres. Rubber prices have declined from a level of `200/kg

in November 2011 to`175/kg currently. Increased volatility in rubber prices would

have an impact on the companys EBITDA margin and consequently its profit.

Exhibit 11:Rubber price trend

Source: Rubber Board

Company background

GIL is a subsidiary of Goodyear Tire and Rubber Company, USA, which holds a

74% stake in the company. GIL is the sixth largest tyre manufacturing company in

India, with an overall market share of 5.5%. The company majorly caters to thetractor tyre segment, with a market share of ~22.3% in tractor front tyres and

35.9% in tractor rear tyres. In the passenger car tyres segment, which is the second

major revenue contributor, GIL has a market share of 13.4%.

GIL is in an off-take agreement (on a non-exclusive basis and can be terminated

by either party with a four-month notice) with Goodyear South Asia Tyres Pvt Ltd,

from which it procures passenger vehicle tyres. This constituted about 22% of net

sales in CY2011.

150

170

190

210

230

250

Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12

(`/kg)


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November 8, 2012 8

Profit & Loss Statement

Less: Excise duty 52 81 94 93 100Net Sales 1,016 1,297 1,516 1,494 1,607

Other operating income - - - - -

% chg 10.5 27.6 16.9 (1.4) 7.6

Net Raw Materials 696 942 1,131 1,116 1,185

Other Mfg costs 46 48 50 51 51

Personnel 49 56 73 81 87

Other 103 139 150 150 159

Total Expenditure 893 1,184 1,404 1,399 1,482

% chg 131.6 (8.2) (0.5) (15.4) 31.7

(% of Net Sales) 12.1 8.7 7.4 6.4 7.8

Depreciation 13 15 20 24 25

% chg 163.3 (11.6) (5.1) (23.2) 40.5

(% of Net Sales) 10.9 7.5 6.1 4.8 6.2

Interest & other charges 4 4 5 4 4

Other Income 5 17 9 15 18

(% of sales) 0.5 1.3 0.6 1.0 1.1

% chg 112.9 (0.4) (13.2) (14.4) 38.0

Tax 38 36 32 27 38

(% of PBT) 34.4 32.6 32.9 33.0 33.0

Extraordinary (Exp)/Inc. (0) 0 0 - -

% chg 127.0 2.3 (13.7) (14.5) 38.0

(% of Net Sales) 7.2 5.8 4.3 3.7 4.7

% chg 127.0 2.3 (13.7) (14.5) 38.0


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November 8, 2012 9

Balance Sheet

Equity Share Capital 23 23 23 23 23Preference Capital - - - - -

Reserves& Surplus 192 248 293 328 383

Minority Interest - - - - -

Total Loans - - - - -

Deferred Tax Liability 11 10 11 11 11

Other Long Term Liabilities - - - - -

Long Term Provisions - - 16 16 16

Gross Block 277 304 335 369 387

Less: Acc. Depreciation 157 166 185 209 234

Capital Work-in-Progress 36 59 59 15 20

Goodwill - - - - -

Investments - - - - -

Long Term Loans and adv. - - 14 14 14

Other non-current assets - - - - -

Cash 159 218 249 316 373

Loans & Advances 16 18 10 10 11

Inventory 52 61 86 84 94

Debtors 99 98 131 113 121

Current liabilities 257 312 354 332 352

Misc. Exp. not written off - - - - -


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November 8, 2012 10

Cash Flow Statement

Profit before tax 111 111 96 82 114

Depreciation 13 15 20 24 25Change in Working Capital 79 45 (7) (2) 0

Other income (5) (17) (9) (15) (18)

Direct taxes paid (38) (36) (32) (27) (38)

Others (15) 27 13 - -

(Inc.)/Dec. in Fixed Assets (37) (50) (31) 11 (23)

(Inc.)/Dec. in Investments - - - - -

(Incr)/Decr In L.T. loan and adv - - 14 - -

Other income 5 17 9 15 18

Others 10 (32) (18) - -

Issue of Equity - - - - -

Inc./(Dec.) in loans - - - - -

Inc./(Dec.) in L.T. Provisions - - (16) - -

Dividend Paid (Incl. Tax) (19) (21) (21) (21) (21)

Others (0) 0 14 - -

Inc./(Dec.) in Cash 104 59 31 67 58


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November 8, 2012 11

Key Ratios

P/E (on FDEPS) 10.3 10.1 11.7 13.7 9.9P/CEPS 8.8 8.4 9.0 9.6 7.5

P/BV 3.5 2.8 2.4 2.2 1.9

Dividend yield (%) 2.1 2.5 2.5 0.2 0.2

EV/Sales 0.6 0.4 0.3 0.3 0.2

EV/EBITDA 4.8 4.8 4.5 4.6 3.0

EV / Total Assets 2.6 1.9 1.5 1.2 0.9

EPS (Basic) 31.7 32.4 28.0 23.9 33.0

EPS (fully diluted) 31.7 32.4 28.0 23.9 33.0

Cash EPS 37.2 39.1 36.5 34.3 43.9

DPS 7.0 7.0 7.0 8.0 8.0

Book Value 93.1 117.4 137.2 152.1 176.0

EBIT margin 10.9 7.5 6.1 4.8 6.2

Tax retention ratio 0.7 0.7 0.7 0.7 0.7

Asset turnover (x) 15.1 76.2 77.9 36.0 36.7

ROIC (Post-tax) 107.7 386.8 319.4 114.9 153.0

Cost of Debt (Post Tax) - - - - -

Leverage (x) (0.7) (0.8) (0.8) (0.9) (0.9)

Operating ROE 28.1 75.4 68.0 11.5 12.3

ROCE (Pre-tax) 55.6 38.5 29.7 19.7 24.6

Angel ROIC (Pre-tax) 164.2 573.4 475.9 171.4 228.3

ROE 39.0 30.8 22.0 16.5 20.1

Asset Turnover 3.8 4.5 4.7 4.0 4.2

Inventory / Sales (days) 22 16 18 21 20

Receivables (days) 36 28 28 28 28

Payables (days) 92 88 87 87 87

WC (ex-cash) (days) (18) (32) (32) (31) (29)

Net debt to equity (0.7) (0.8) (0.8) (0.9) (0.9)

Net debt to EBITDA (1.3) (1.9) (2.2) (3.3) (3.0)

Interest Coverage 28.2 25.8 17.8 19.1 24.9


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November 8 2012 12

Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investmentdecision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make

such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies

referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and

risks of such an investment.

Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make

investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this

document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and

trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's

fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliablesources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as thisdocument is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any wayresponsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report .Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify,nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. WhileAngel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory,compliance, or other reasons that prevent us from doing so.

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Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or

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Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in

connection with the use of this information.

Disclosure of Interest Statement Goodyear India

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors

Goodyear 3QCY2012RU

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