1QCY212 Result Update Tyres June 6, 212 Goodyear India Performance Highlights Y/E December (` cr) 1QCY212 1QCY211 % chg (yoy) 4QCY211 % chg (qoq) Net sales 331 336 (1.6) 395 (16.2) EBITDA 2 24 (18.6) 34 (42.3) EBITDA margin 6. 7.2 (125)bp 8.7 (271)bp Adjusted PAT 11 14 (2.8) 2 (46.2) For 1QCY212, Goodyear India Ltd. (GIL) reported top line of `331cr, marginally lower than `336cr for 1QCY211. EBITDA margin contracted by 125bp yoy to 6.% during the quarter on the back of higher employee expenses. Consequently, net profit declined by 2.8% yoy to `11cr from `14cr in 1QCY211. 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 CY213E. 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 CY211-13E. Outlook and valuation: We expect GIL to post a subdued 5.6% CAGR in revenue to `1,692cr over CY211-13E, owing to slowdown in the farm equipment segment. Easing raw-material prices are expected to expand the company s margin by 156bp to 9.% in CY213E from 7.4% in CY211. Hence, we expect the company s net profit to witness a 21.4% CAGR over CY211-13E to `95cr. At the CMP, the stock is trading at PE of 7.9x its CY213E earnings. We recommend an Accumulate rating on the stock with a revised target price of `374, incorporating surplus cash of `386 (discounted by 5%) in our valuations and a target P/E of 8.x for CY213E earnings. Key financials Y/E December (` cr) CY21 CY211 CY212E CY213E Net Sales 1,297 1,516 1,511 1,692 % chg 27.6 16.9 (.3) 12. Net Profit 75 65 73 95 % chg 2.3 (13.7) 12.5 31. EBITDA margin 8.7 7.4 7.9 9. EPS (`) 32.4 28. 31.5 41.3 P/E (x) 1.1 11.6 1.4 7.9 P/BV (x) 2.8 2.4 2. 1.7 RoE 3.8 22. 21.2 23.5 RoIC 412.8 1,22.8 41.8 335.9 EV/Sales (x).4.3.3.2 EV/EBITDA (x) 4.7 4.5 3.6 2.4 ACCUMULATE CMP Target Price Investment Period `326 `374 12 Months Stock Info Sector Market Cap (Rs cr) Tyres 752 Beta.7 52 Week High / Low 413 / 269 Avg. Daily Volume 19,351 Face Value (Rs) 1 BSE Sensex 16,454 Nifty 4,997 Reuters Code GDYR.BO Bloomberg Code GDYR IN Shareholding Pattern Promoters 74. MF / Banks / Indian Fls 6.1 FII / NRIs / OCBs 5.2 Indian Public / Others 14.8 Abs. 3m 1yr 3yr Sensex (4.2) (1.7) 12.2 GOODYEAR (9.2) 8.2 178.6 Shareen Batatawala +91-22- 3935 78 Ext: 6849 shareen.batatawala@angelbroking.com Please refer to important disclosures at the end of this report 1
Exhibit 1: 1QCY212 performance Y/E December (` cr) 1QCY12 1QCY11 yoy chg 4QCY11 qoq chg CY211 CY21 % chg Net Sales 331 336 (1.6) 395 (16.2) 1516 1297 16.9 Net raw material 244 252 (3.2) 291 (16.1) 1131 942 2.1 (% of Sales) 73.7 74.9 73.6 74.6 72.6 Staff Costs 21 16 34.9 2 8.1 73 56 3.9 (% of Sales) 6.5 4.7 5. 4.8 4.3 Other Expenses 46 44 3.8 5 (8.5) 2 186 7.1 (% of Sales) 13.9 13.2 12.7 13.2 14.4 Total Expenditure 311 312 (.3) 361 (13.7) 144 1184 18.6 Operating Profit 2 24 (18.6) 34 (42.3) 112 113 (.5) EBITDA margin 6. 7.2 (125)bp 8.7 (271)bp 7.4 8.7 (13)bp Interest 1 1 (11.4) 2 (49.7) 5 4 37.8 Depreciation 6 4 33.3 5 8.1 2 15 28.4 Other Income 2.9 1.8 65.5 2.7 8.1 9 17 (48.6) PBT 16 21 (22.6) 3 (46.3) 96 111 12.6 (% of Sales) 4.9 6.2 7.6 6.3 8.6 Tax 5 7 (26.) 1 (46.4) 32 36 (12.4) (% of PBT) 32.6 34.2 32.7 32.9 32.6 Reported PAT 11 14 (2.8) 2 (46.2) 65 75 (13.7) PATM 3.3 4.1 5.1 4.3 5.8 Equity capital (cr) 23 23 23 23 23 EPS (`) 4.7 6. (2.8) 8.8 (46.2) 28. 32.4 (13.7) Exhibit 2: Actual vs. estimates (1QCY212) Actual (` cr) Estimate (` cr) Var Total Income 331 38 (12.9) EBIDTA 2 33 (4.) EBIDTA margin 6. 8.7 (27)bp Adjusted PAT 11 19 (42.) Slowdown in farm equipment volumes plunge top line and bottom line For 1QCY212, GIL reported lower-than-expected top line at `331cr, 12.9% lower than our expectation of `38cr owing to slowdown in farm equipment volumes, which impacted the tractor tyre segment s volumes. Higher employee expenses (as a percentage of sales) led to contraction of EBITDA margin by 125bp yoy to 6.% (27bp below our expectation of 8.7%). Consequently, net profit came in at `11cr, 42% lower than our expectation of `19cr. June 6, 212 2
Investment rationale Branded business in the commodity industry GIL caters to high-end brands such as Audi, BMW, Land Rover, Mitsubishi and Porsche and has a brand name in the commodity business with stupendous ROIC of 1,22.8% for CY211 in comparison to less than 3% of other listed peers. Focus on the replacement market to improve EBITDA margin The replacement segment contributes ~63% to 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 OE 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 increased its outlets in 16 more cities during CY21, taking the total count to 36 cities. We believe higher contribution from the replacement market will help GIL report superior EBITDA margin going forward. Land sale: An upside trigger GIL had made an announcement in June 211 to the BSE for the sale of a piece of land located in Ballabgarh, Faridabad, after it obtains the necessary approvals. With regards to the above announcement, the company has updated that the government s approval is still pending. Any progress on the same may give an upside trigger to the stock. June 6, 212 3
Financials Exhibit 3: Key assumptions CY212E CY213E Change in tyre volume sales (3.8) 8. Change in tyre realization 3. 4. Change in rubber price (2.) (1.) Source: Angel Research Exhibit 4: Change in estimates Y/E December Earlier estimates Revised estimates % chg CY212E CY213E CY212E CY213E CY212E CY213E Net sales (` cr) 178 282 1511 1692 (15.1) (18.7) EBITDA margin 8.5 9.8 7.9 9. (51)bp (83)bp EPS (`) 38. 52.9 31.5 41.3 (17.) (22.) Source: Angel Research Declining tractor volumes to result in muted sales growth The tractor industry in India has witnessed a slowdown in the past few months, reporting a decline of ~5% in 1QCY212. Since GIL caters majorly to the tractor tyre segment, we expect the company to post a muted CAGR of 5.7% over CY211-13E to `1,692cr in CY213E from `1,516cr in CY211. Exhibit 5: Low tractor volumes to impact revenue growth (` cr) 1,8 1,5 1,2 9 6 3 CY29 CY21 CY211 CY212E CY213E 3 25 2 15 1 5 (5) Revenue (LHS) Revenue growth (RHS) June 6, 212 4
Rubber prices to aid in margin expansion and improved net profit Rubber prices have declined by ~24% from their high of `243/kg in April 211 to a low of `184/kg in February 212. Rubber prices have witnessed some stability in the past two months at `193-2/kg, which is expected to sustain going forward. This would result in lower raw-material cost and, hence, margin expansion of 156bp from 7.4% in CY211 to 9.% in CY213E. Consequently, we expect net profit to post a 21.4% CAGR over CY211-13E to `95cr in CY213E. Exhibit 6: EBITDA margin to recover Exhibit 7: Profit growth on an uptrend 2 14 1 15 (` cr) 15 1 5 12 1 8 6 (` cr) 8 6 4 2 12 9 6 3 CY29 CY21 CY211 CY212E CY213E 4 CY29 CY21 CY211 CY212E CY213E (3) EBITDA (LHS) EBITDA margin (RHS) PAT (LHS) PAT growth (RHS) Outlook and valuation We have revised our revenue and earnings estimates downwards for CY212E and CY213E owing to slowdown in the tractor tyre market. At current levels, the stock is trading at PE of 7.9x its CY213E earnings and P/B of 1.7x for CY213E. We recommend Accumulate on the stock with a revised target price of `374, incorporating surplus cash of `386cr (discounted by 5%) in our valuations and a target P/E of 8.x for CY213E earnings. Exhibit 8: Valuation CY213E (` cr) Cash reserves 386 Discounted cash reserves (by 5%) 193 Recurring PBT (excluding other income) 124 Net profit (excluding other income) 84 Target PE 8. Target market cap 863 No of shares 2.3 Target price (`) 374 Upside 13.6 Exhibit 9: One-year forward PE chart (`) 6 5 4 3 2 1 May-7 May-8 May-9 May-1 May-11 May-12 Price 2x 6x 1x 14x June 6, 212 5
Exhibit 1: Relative valuation Year end Sales (` cr) OPM PAT (` cr) EPS (`) ROE P/E (x) P/BV (x) EV/EBITDA (x) Apollo FY214E 15,184 1.1 671 13 18.4 6.3 1.3 4..4 MRF SY213E 14,4 11.3 695 1,638 21.8 6.6 1.3 4.6.5 Goodyear CY213E 1,692 9. 95 41 23.5 7.9 1.7 2.4.2 Source: Company EV/Sales (x) Risks Slowdown in the tractor industry: Domestic tractor volume sales growth has been declining over the past three years from 32% in FY21 to 11% in FY212. This continuing trend in the tractor industry may have an impact on the company s growth as it is a market leader in the tractor tyre segment with ~6% of the company s total tonnage offtake. Exhibit 11: Slowdown in the domestic tractor industry 6 4 ('s) 5 4 3 2 1 3 2 1 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 FY12 (1) Tractor volume (LHS) yoy growth (RHS) June 6, 212 6
Volatile rubber prices: Rubber constitutes ~65% of the total raw-material cost in the manufacture of tyres. Rubber prices have been volatile through the last year, with a high of `243/kg in April 211 and a low of `184/kg in February 212. Increased volatility in rubber prices would have a direct impact on the company s EBITDA margin and consequently its profit. Exhibit 12: Rubber price trend 3 25 2 15 1 5 12 9 6 3 (3) (6) (9) Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 (`/kg) Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Rubber price (LHS) Change in price (RHS) Source: Rubber Board Company Background GIL is a subsidiary of Goodyear Tire and Rubber Company, U.S., 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%. Exhibit 13: Market share (India) 25 2 15 1 5 23-4 24-5 25-6 26-7 27-8 28-9 29-1 Apollo tyres MRF Ltd JK tyres Ceat tyres Goodyear Tyres Source: Industry, CRISIL Research The company majorly caters to the tractor 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 offtake 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 tyres. This constituted about 22% of net sales in CY211. June 6, 212 7
Profit & Loss Statement Y/E December (` cr) CY28 CY29 CY21 CY211 CY212E CY213E Gross sales 1,2 1,69 1,377 1,61 1,65 1,797 Less: Excise duty 82 52 81 94 94 15 Net Sales 92 1,16 1,297 1,516 1,511 1,692 Other operating income - - - - - - Total operating income 92 1,16 1,297 1,516 1,511 1,692 % chg 3.4 1.5 27.6 16.9 (.3) 12. Net Raw Materials 77 696 942 1,131 1,98 1,28 Other Mfg costs 49 46 48 5 51 63 Personnel 42 49 56 73 91 98 Other 69 13 139 15 151 172 Total Expenditure 867 893 1,184 1,44 1,391 1,54 EBITDA 53 123 113 112 12 152 % chg (25.8) 131.6 (8.2) (.5) 6.8 26.5 (EBITDA margin) 5.8 12.1 8.7 7.4 7.9 9. Depreciation 11 13 15 2 24 25 EBIT 42 11 98 93 96 127 % chg (3.2) 163.3 (11.6) (5.1) 3.6 31.9 (% of Net Sales) 4.6 1.9 7.5 6.1 6.4 7.5 Interest & other charges 3 4 4 5 3 3 Other Income 14 5 17 9 14 17 (% of sales) 1.5.5 1.3.6 1. 1. PBT 52 111 111 96 18 141 % chg (19.2) 112.9 (.4) (13.2) 11.8 31. Tax 2 38 36 32 35 46 (% of PBT) 38.5 34.4 32.6 32.9 32.5 32.5 PAT (reported) 32 73 75 65 73 95 Extraordinary (Exp)/Inc. () () - - ADJ. PAT 32 73 75 65 73 95 % chg (18.9) 127. 2.3 (13.7) 12.5 31. (% of Net Sales) 3.5 7.2 5.8 4.3 4.8 5.6 Basic EPS (`) 14. 31.7 32.4 28. 31.5 41.3 Fully Diluted EPS (`) 14. 31.7 32.4 28. 31.5 41.3 % chg (18.9) 127. 2.3 (13.7) 12.5 31. June 6, 212 8
Balance Sheet Y/E December (` cr) CY28 CY29 CY21 CY211 CY212E CY213E SOURCES OF FUNDS Equity Share Capital 23 23 23 23 23 23 Preference Capital - - - - - - Reserves& Surplus 138 192 248 293 345 419 Shareholders Funds 161 215 271 317 368 442 Minority Interest - - - - - - Total Loans - - - - - - Deferred Tax Liability 11 11 1 - - - Total Liabilities 172 226 281 317 368 442 APPLICATION OF FUNDS Gross Block 264 277 34 337 37 388 Less: Acc. Depreciation 149 157 166 185 21 235 Net Block 115 12 139 151 161 153 Capital Work-in-Progress 13 36 59 59 15 2 Goodwill - - - - - - Investments - - - - - - Current Assets 24 325 395 487 558 67 Cash 55 159 218 249 314 386 Loans & Advances 12 16 18 22 24 27 Inventory 71 52 61 86 75 86 Debtors 12 99 98 131 145 172 Current liabilities 196 257 312 382 366 41 Net Current Assets 44 69 83 16 192 269 Mis. Exp. not written off - - - - - - Total Assets 172 226 281 317 368 442 June 6, 212 9
Cash Flow Statement Y/E December (` cr) CY28 CY29 CY21 CY211 CY212E CY213E Profit before tax 52 111 111 96 18 141 Depreciation 11 13 15 2 24 25 Change in Working Capital (15) 79 45 8 (21) (5) Other income (14) (5) (17) (9) (14) (17) Direct taxes paid (2) (38) (36) (32) (35) (46) Others 15 (15) 27 (2) - - Cash Flow from Operations 3 145 146 82 61 98 (Inc.)/Dec. in Fixed Assets (2) (37) (5) (32) 11 (23) (Inc.)/Dec. in Investments - - - - - - Other income 14 5 17 9 14 17 Others (14) 1 (32) (3) - - Cash Flow from Investing (21) (22) (65) (27) 25 (6) Issue of Equity - - - - - - Inc./(Dec.) in loans - - - - - - Dividend Paid (Incl. Tax) (16) (19) (21) (21) (21) (21) Others (2) () (2) - - Cash Flow from Financing (18) (19) (21) (24) (21) (21) Inc./(Dec.) in Cash (9) 14 59 31 65 71 Opening Cash balances 65 55 159 218 249 314 Closing Cash balances 55 159 218 249 314 386 June 6, 212 1
Key Ratios Y/E December (` cr) CY28 CY29 CY21 CY211 CY212E CY213E Valuation Ratio (x) P/E (on FDEPS) 23.3 1.3 1.1 11.6 1.4 7.9 P/CEPS 17.3 8.8 8.3 8.9 7.8 6.2 P/BV 4.7 3.5 2.8 2.4 2. 1.7 Dividend yield 1.8 2.1 2.5 2.5.2.2 EV/Sales.8.6.4.3.3.2 EV/EBITDA 13.1 4.8 4.7 4.5 3.6 2.4 EV / Total Assets 3.9 2.6 1.9 1.6 1.2.8 Per Share Data (`) EPS (Basic) 14. 31.7 32.4 28. 31.5 41.3 EPS (fully diluted) 14. 31.7 32.4 28. 31.5 41.3 Cash EPS 18.8 37.2 39.1 36.5 41.9 52.2 DPS 6. 7. 7. 7. 8. 8. Book Value 69.7 93.1 117.4 137.2 159.6 191.8 Dupont Analysis EBIT margin 4.6 1.9 7.5 6.1 6.4 7.5 Tax retention ratio.6.7.7.7.7.7 Asset turnover (x) 9.3 13.7 54.8 167.3 39. 46.2 ROIC (Post-tax) 26. 97.9 278.4 686.4 167.1 233.3 Cost of Debt (Post Tax) - - - - - - Leverage (x) (.3) (.7) (.8) (.8) (.9) (.9) Operating ROE 17.1 25.6 54.3 146.2 24.4 29.9 Returns ROCE (Pre-tax) 24.6 53.8 37.6 3.7 28. 31.2 Angel ROIC (Pre-tax) 42.3 149.2 412.8 1,22.8 41.8 335.9 ROE 21.1 39. 3.8 22. 21.2 23.5 Turnover ratios (x) Asset Turnover 3 4 4 5 4 4 Inventory / Sales (days) 28 19 17 21 19 19 Receivables (days) 4 35 27 31 35 37 Payables (days) 83 15 96 99 96 95 WC (ex-cash) (days) (4.4) (32.2) (38.) (34.5) (29.5) (25.2) Solvency ratios (x) Net debt to equity (.3) (.7) (.8) (.8) (.9) (.9) Net debt to EBITDA (1.) (1.3) (1.9) (2.2) (2.6) (2.5) Interest Coverage 13.1 28.2 25.8 17.8 35.3 49.9 June 6, 212 11
Research Team Tel: 22-393578 E-mail: research@angelbroking.com Website: www.angelbroking.com DISCLAIMER This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. 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 reliable sources 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 this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible 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. While Angel 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. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. 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. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report. Disclosure of Interest Statement Goodyear India Ltd. 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 Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%) Reduce (-5% to 15%) Sell (< -15%) June 6, 212 12