04 October 2012 CMP: Rs 24.2 Industry: Auto Tyres & Rubber Products BSE Group/Index: B/- Promoters R P Jagatia, J. P. Goenka, M. P. Kankani Year of incorporation 1964 Corporate office 418, Creative Industrial Estate, 72, N. M. Joshi Marg, Lower Parel Mumbai 400011. Maharashtra - India Company website http://www.govindrubber.com Write to us at equityresearch@outlookindia.com Key Data (as on 04 Oct 12) BSE 509148 ISIN INE011C01015 Face Value Rs 10.0 Mkt Cap (Rs. mn) 529.6 Current P/E 4.5 Current P/BV 1.7 52 week high-low 27.4-7.7 30 day daily trading volume (nos.) 74362 Equity capital (Rs. mn) 218.4 Net worth (Rs. mn) 303.6 Company business Govind Rubber Limited (GRL) is engaged in the manufacture of rubber products including tyres and tubes. GRL s principal products include cycle tyres, cycle tubes, auto tyres and auto tubes. It manufactures auto tyres in nylon cross ply for mining, skid steers, forklifts, light trucks, motorcycles, scooters and mopeds. It also manufactures tubes and tube valves. GRL has two dedicated manufacturing units for tyres and one manufacturing unit for tubes. All three are in Ludhiana. GRL supplies tyres to a number of Indian bicycle manufacturing companies including TI, Avon, Hero, Atlas, Milton Cycles and Safari Bikes. Its European Clients include Aldi, Epple, Pukky, Panther, Prophete and Trax Bond. GRL is a part of Siyaram Poddar Group (SPG) which has wider interests in textiles and garment (Siyaram s) and paper other than tyres. Peer group analysis FY12, Rs in mn Govind Rubber Ltd Goodyear India Ltd TVS Shrichakra Ltd Total income 3406.8 15247.2 14092.9 EBIDTA 231.5 1211.4 1308.7 EBIDTA margin 6.8% 7.9% 9.3% PAT 110.1 646.0 397.5 PAT margin 3.2% 4.2% 2.8% EPS 5.1 28.0 52.3 Cash accruals 138.9 842.9 605.4 BV/share 13.9 142.4 186.1 Debt/EBIDTA (x) 4.3 1.0 2.3 Debt/equity (x) 3.2 0.4 2.1 ROANW 44.3% 21.2% 31.1% ROACE 28.0% 42.6% 42.6% P/E 4.7 11.5 5.9 P/BV 1.7 2.3 1.6 Source: Company GRL s debt-equity ratio of 3.2x is highest among its peers as the company is highly leveraged. GRL s EBIDTA margin of 6.8% is lowest among peers. Page 1 of 6
Plant capacity Product line Tyres Tubes Monthly capacity 3.0 million pieces 3.6 million pieces Price performance with index 51% 8% 95% -10% -33% -7% 1YR 2YR 3YR Small Cap GRL Source: Company, BSE As on 31 August 2012 Public shareholding >1% Sr. No. Name of shareholder No. of shares held (mn) Shares as % age of total shares 1 Balkrishna Industries Limited 0.50 2.30 2 ICICI Bank Limited 0.33 1.50 3 Ind Finance and Securities Trust Private Limited 0.30 1.36 4 Vijay Babulal Shah 0.23 1.06 Total 1.36 6.22 Source: BSE Change in shareholding pattern (%) Shareholding pattern (%) As on 30 June 2012 Year Promoter FII DII Others Jun-12 53.84-1.55 44.61 Mar-12 53.84-1.55 44.61 Dec-11 53.84-1.55 44.61 Sep-11 53.84-1.55 44.61 Mar-11 53.84-1.55 44.61 Mar-10 53.82-0.05 46.13 Mar-09 53.82-8.61 37.57 Mar-08 53.82-10.42 35.76 Mar-07 53.82-10.91 35.81 Source: BSE 44.61 1.55 53.84 Promoter DII Others Page 2 of 6
Wide product range for bicycle tyres In-house R & D facility to develop new products Margins are susceptible to volatility in rubber prices More than 90% of tyres are sold to replacement markets and OEMs Tyres/tubes can be exported and imported freely Expanding operations in Europe Formed joint venture to manufacture highly specialized rubber Key strengths GRL offers a variety of tyres in terms of size and design. It produces nylon tyres, color wall tyres, full color tyres, fancy tyres, puncture protective tyre etc and all these are produced in the size between 12-inch and 28-inch. This helps GRL meet a wide range of demand. GRL has a fully equipped In-house R & D laboratory. It also has a tyre mould designing In-house facility. With this, GRL has produced new products to meet the requirement of niche segments in the domestic as well as international markets. Availability of research facilities along with focus on developing new products will help GRL increase its customer base. Key Concerns Natural rubber constitutes nearly 45% of total raw material content in a tyre. Given this, any change in rubber price will impact the operating margins of the company. GRL s cost related to rubber consumption was 43.4% of sales in FY12 as against 40% in FY11. Industry overview The Indian tyre Industry produced 63 mn tyres in FY12 (April September), compared to 57 mn in FY11. It includes 23 million tyres for motor cycle (21 mn in FY11), 13 mn for passenger cars (12 mn in FY11) and 11 mn for scooter/moped (9 mn in FY11). Total export of tyres also increased by 30% from 2.9 mn in FY11 to 3.8 mn in FY12. According to Automotive Tyre Manufacturers Association, 45% of total tyres produced during FY11 were supplied in the replacement market, 48% to original equipment manufacturers (OEMs) and 6% were exported. Government policy The tyre industry was delicensed in 1987. The export-import policy allows free export and import of all types of new tyres and tubes. However, import of used/retreated tyres, either for use or reclamation of rubber is restricted since 2006. Company fundamentals GRL has set up a wholly owned subsidiary, GRL BV at Netherlands, Europe, where the company has established an office and warehouses. GRL will market its full range of tyres and tubes in Europe through this network. GRL has entered into a joint venture for manufacturing highly specialized rubber by setting up a plant at Busan, South Korea (with 50% share in GK Company Limited). With this, GRL will sell its products within Korea, Indonesia, Vietnam, China and India. GRL is carrying out a brownfield expansion at its current locations in Ludhiana to manufacture tyres for the two and three wheeler segment. These details are yet to be disclosed. Increasing production capacity to serve different markets GRL is focusing on manufacturing specialty tyres in the range of agricultural, industrial and off-the-road (OTR) through GRL Tyres Private Limited. GRL intends to sells its specialty tyres into niche markets of Europe, America, Africa, Middle East and CIS Page 3 of 6
countries. Greenfield expansion: GRL also plans to set up a new tyre and bicycle manufacturing facility at Dahej in Gujarat with a capital outlay of Rs 7.5 bn. The plant at Dahej will have production capacity of 225 tons per day. Key financial indicators Total revenue from operations of GRL remained relatively stable in FY12 (Rs 3360 mn v/s Rs 3398 mn in FY11). Financial performance for FY12 EBIDTA fell from Rs 253 mn in FY11 to Rs 216 mn in FY12. Profit before tax decreased by 60% to Rs 44 mn in FY12, compared to Rs 110 mn in FY11 due to increase in interest expense. After taking credit of reversal of deferred tax, profit after tax of GRL increased from Rs 51 mn in FY11 to Rs 110 mn in FY12. Earnings per share, from Rs 2.3 to Rs 5.0 in FY12. Page 4 of 6
Quarterly results Particulars (Rs in mn) Apr 12-Jun 12 Apr 11-Jun 11 % Chg [1] Jan 12-Mar 12 % Chg [2] Total income 783.3 577.5 36% 1117.1 (30%) Total expenditure 724.3 535.4 35% 1062.5 (32%) EBIDTA 59.0 42.1 40% 104.5 8% EBIDTA margin 7.5% 7.3% - 9.3% - PAT 10.1 2.9 248% 57.3 (82%) PAT margin 1.3% 0.5% - 5.7% - EPS 0.5 0.1 400% 2.6 (81%) [1] Compared to corresponding quarter in the previous year [2] Sequential comparison Source: Company, BSE filings Segment-wise contribution to revenue from operations 2% 4% Tyres & Tubes Others Key ratios 22.3 13.9 8.9 BV per share 96% 98% 1.5 2.3 5.0 Inner ring represents FY11 data: revenue from operations - Rs 3404 mn Outer ring represents FY12 data: revenue from operations - Rs 3370 mn Profitability ratios 44.2% EPS 7.3 Leverage ratios 25.8% 30.1% 24.7% 28.0% 5.9 4.7 4.3 12.3% 3.6 3.2 ROANW (%) ROACE (%) Debt/EBIDTA (x) Debt/Equity (x) Page 5 of 6
Financials P&L (Rs. mn) Balance Sheet (Rs. mn) Total income 2905.7 3409.1 3406.7 Share Capital 218.4 218.4 218.4 EBIDTA 175.5 253.6 231.5 Reserves & Surplus (75.5) (24.8) 85.2 EBIDTA margin 6.0% 7.7% 6.8% Net worth 142.8 193.7 303.6 Depreciation 27.7 27.8 28.8 Borrowings 1036.9 911.0 985.5 EBIT 147.8 225.8 202.7 Current liabilities/provisions 476.7 823.9 996.0 Interest 115.4 116.0 142.6 Other non-current liabilities - 160.8 136.2 PBT 32.4 109.8 60.1 Total liabilities 1656.4 2089.4 2421.3 Deferred tax asset (Liability) - (58.6) 49.9 Fixed assets 330.2 336.1 345.3 Tax (0.2) (0.4) - Investments 0.0 0.0 22.3 PAT 32.6 50.7 110.0 Other non-current assets 93.5 31.4 68.7 PAT margin 1.1% 1.5% 3.2% Deferred tax asset 101.3 42.7 92.8 Dividend (including tax) - - - Current assets 1131.4 1679.2 1892.2 Dividend per share - - - Total assets 1656.4 2089.4 2421.3 Valuation ratios Cash Flow (Rs.mn) P/E 15.9 10.2 4.7 PBT 32.6 50.7 110.0 P/BV 1.1 2.7 1.7 CF from Operation 316.9 47.6 192.5 CF from Investment (46.3) (36.9) (61.2) CF from Financing (258.3) (5.4) (89.0) Inc/(dec) in Cash 12.3 5.4 42.3 Closing Balance 14.5 20.0 62.3 Source: Company Disclaimer The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied on as such. Our company 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. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for any investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigation as it deems necessary to arrive at an independent evaluation which may affect their investment in the securities of companies referred to in this document (including the merits and risks involved). The discussions or views expressed may not be suitable for all investors. This information is strictly confidential and is being furnished to you solely for your information. Page 6 of 6