Feb/15 Mar/15 Apr/15 May/15 Jun/15 Jul/15 Aug/15 Sep/15 Oct/15 Nov/15 Dec/15 Jan/16 Eastern Treads Ltd CMP: 91.20 February 11, 2016 Stock Details BSE code 531346 BSE ID EASTRED Face value ( ) 10 No of shares (m) 5.2 52 week H/L 116.5/35.0 Market cap ( m) 477.1 30 days avg vol (No) 6,716 Free float ( m) 162.2 Stock performance (%) 1M 3M 12M Absolute -13.0% 23.3% 122.2% Rel. to Sensex 6.2% 34.4% 142.4% Shareholding Pattern* (%) Promoters FIIs DIIs Others 65.5% 0.0% 0.0% 34.4% *As of December 2015 Relative Chart Company Overview Eastern Treads Ltd is engaged in the business of manufacturing pre-cured tire treads, cushion compounds, gum and black vulcanizing cement. Industry Overview Tyre retreading industry in India is witnessing rapid growth due to increased demand from the tyre replacement market. Retreading industry offers monetary and environmental advantages; hence it is gaining popularity in tyre replacement markets over the world and became an economically viable option for fleet owners. Financial Performance Eastern Treads Ltd revenues from operations for FY 15 fell 1.8% to 876.1 million compared to 892.5 million in the previous year. The company has reported a net profit of 15.8 million in FY 15, representing a 4.0% fall compared to the profit of 16.4 million in FY 14. On Q-o-Q basis Eastern Treads revenues have declined 2.2% to 207.0 million in Q2 16 from 211.5 million in Q2 15. Table1: Key Financials 120 Eastern Treads Limited Sensex 30,000 (Y/e March) 2Q FY15 2Q FY 16 100 80 60 40 20 29,000 28,000 27,000 26,000 25,000 24,000 23,000 Sales ( m) 650.0 892.5 876.1 211.5 207.0 YoY Growth (%) -23.6% 37.3% -1.8% 8.1% -2.2% EBITDA ( m) 26.7 40.9 49.1 12.07 16.82 EBITDA Margin 4.1% 4.6% 5.6% 5.7% 8.1% PAT ( m) 10.7 16.4 15.8 4.0 7.2 EPS ( ) 2.02 3.07 3.01 NA 1.37 0 22,000 YoY Growth (%) 172.7% 52.0% -2.0% NM NM Source: Company, Karvy Investment Advisory Source: Bloomberg 1
Background and Business Description Eastern Treads Ltd was founded by Mr. (Late) M.E.Meeran on July 2, 1993 as a private limited company under the Companies Act, 1956 and it was later converted into a public limited company on February 17, 1995. The company engaged in the business of manufacturing pre-cured tire treads, cushion compounds, gum and black vulcanizing cement. Key Strengths Diverse product portfolio Strong brand image Risks & Concerns Heavy reliance on tyre replacement market Economic slowdown Board of s Table 2: Composition of Board Name Mr. Navas M Meeran Mr. M.E. Mohamed Mr. M.S. Sebastian Mr. M.S. Ranganathan Mr. Naiju Joseph Mr. K.S. NeelacantaIyer Mr. K.V. Rajagopalan Nair Source: Company Relation with Company 2
Industry Overview Tyre retreading industry in India is an unorganized and fragmented market which is witnessing rapid growth due to increased demand from the tyre replacement market. The industry offers monetary and environmental advantages; hence it is gaining popularity in tyre replacement markets over the world and became an economically viable option for fleet owners. Tyre retreading in India is done extensively for commercial vehicles such as trucks and busses. The primary reason for retreading tyres is to save operational costs as applying a new tread can be done at less than half the cost of a new tyre. Tyre manufacturers invest heavily in research and development of treads and their designs for improved functionality and competitiveness. When a tyre is manufactured, about 20 to 25% of the cost of the tyre is down to the tread. As the tread wears off with use, a new tread can be used over the tyre to increase its life span. Retreading helps keep costs down by recycling tyres. There are thousands of small and mid-segment tyres retreading companies thriving in India and it is expected that an average retreader will get 200 to 300 tyres per month or 2,500 to 3,500 tyres per year. Retreading for the commercial vehicle segment is poised for growth in India, fuelled by the increase in the number of vehicles, rising tyre costs, the advent of radial tyres, better roads and the introduction of multi-axle heavy duty vehicles. Competition analysis Company CMP ( ) Mcap ( m) Rev ( m) OPM (%) EPS ( ) PE (x) Eastern Treads Ltd 91.2 477.1 876.1 5.6% 3.0 20.8 Rubfila International Ltd 34.3 1,480.2 1,605.1 14.2% 3.1 14.8 Vamshi Rubber Ltd 29.8 125.2 668.3 5.2% 2.3 12.7 Source: BSE 3
Financial Analysis For the period ending 31 March, 2015, Eastern Treads Ltd reported revenues of 876.1 million, representing 1.8% fall when compared to the revenues in FY 14. The company s EBITDA stood at 49.1 million in FY 15 and its EBITDA margin improved by 100 bps to 5.6% from being 4.6% in FY 14 due to operational efficiency. Year end March Income statement ( million) Revenue 650.0 892.5 876.1 % growth -23.6% 37.3% -1.8% EBITDA 26.7 40.9 49.1 % EBITDA margin 4.1% 4.6% 5.6% Depreciation and amortisation 5.9 7.9 9.5 EBIT 20.9 33.0 39.6 Interest 5.8 8.3 15.4 PBT 15.0 24.8 24.2 Tax (credit) expense 4.4 8.4 8.4 Net profit 10.7 16.4 15.8 % growth net profit 0.2% 54.1% -4.0% Balance sheet ( million) Shareholder fund 133.38 150.58 163.86 Long term liabilities 4.50 17.63 32.20 Current liabilities 93.20 191.64 165.41 Fixed assets 42.98 65.03 91.69 Current assets 172.95 270.37 245.42 Cash & cash equivalents 7.27 2.99 9.75 Cash flow statement Cash flow operations 26.58-38.25 58.19 Cash flow from investing -11.77-42.30-23.40 Cash flow from financing -11.77 76.27-28.03 Per share data EPS ( ) 2.02 3.07 3.01 CEPS ( ) 3.13 4.55 4.82 DPS ( ) - - - BVPS ( ) 25.29 28.17 31.30 Financial Ratios % ROE 8.3% 11.6% 10.0% ROCE 11.7% 12.5% 15.8% Debt/Equity 33.7% 76.0% 52.7% Interest coverage ratio 3.6 4.0 2.6 Current ratio 1.9 1.4 1.5 Cash ratio 0.08 0.02 0.06 Source: Company, Karvy Investment Advisory 4
Financial Snapshot Revenue growth (%) EBITDA margin (%) 1,000.0 800.0 600.0 400.0 200.0 0.0 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% 6 5 4 3 2 1 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% % Revenue ( m) % growth EBITDA ( m) % EBITDA margin 2 15.00 1 5.00 Net Profit Margin (%) 1.90% 1.80% 1.70% 1.60% 1.50% 35.00 3 25.00 2 15.00 1 5.00 BVS & EPS 3.50 3.00 2.50 2.00 1.50 1.00 0.50 Net Profit ( m) % net profit margin Book value per share ( ) EPS diluted ( ) Liquidity ratios Profitability ratios 2.00 0.10 20.0% 1.50 1.00 0.50 0.08 0.06 0.04 0.02 15.0% 10.0% 5.0% 0.0% Current ratio Cash ratio ROE ROCE Source: Karvy Investment Advisory 5
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