Buy Goodyear India; target Rs 375: Nirmal Bang
Nirmal Bang is bullish on Goodyear India and has recommended buy rating on the stock with a price target of Rs 375, in its June 27, 2013 research report.
June 27, 2013 / 19:22 IST
Nirmal Bang's research report Goodyear India
Goodyear India has managed to register a strong growth in the margins in the latest quarter on account of correction in raw material prices. We expect these higher margins to stay on the back of persistent weakness in natural rubber prices. We also expect a decent volume growth due to onset of good monsoons leading to further improvement in the financial performance of the company.Investment RationaleStrong tractor sales augur well for the leader: Goodyear is the leader in the farm tyre segment. A good monsoon coupled with the Government’s thrust on the agri-sector in a pre-election year should lead to decent volume growth for the company.
Margins expected to improve further: The company registered a more than 300 bps improvement in raw material/net sales ratio leading to a more than 400 bps improvement in EBITDA margins. We expect these margins to stay on the back of subdued outlook for natural rubber prices.
Excellent Balance Sheet: Goodyear has one of the strongest Balance Sheets in the tyre sector. The net cash and cash equivalent of the company stood at Rs.238.3 crore, translating into a cash per share of Rs.103.4. This figure is equivalent to 1/3rd of the present price of the company.
Decent dividend pay-out ratio: Goodyear has announced a dividend of Rs.7 per share for CY’12. On the back of improving cash flows and considering the strong cash balance, we do not rule out the possibility of a special dividend from the company.Valuation & Recommendation: "We expect the company to register net sales of Rs.1550.5 crore in CY’13E, an increase of 4.7 per cent y-o-y. The net profit of the company should be around Rs.78 crore for CY’13E, translating into an EPS of Rs.33.9. Considering the strong Balance Sheet, improvement in earnings on the back of weak natural rubber prices, we expect Goodyear’s share price to reach Rs 375 over the next 9 to 12 months. Buy the stock," says Nirmal Bang research report.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. 
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