Buy Goodyear India; target of Rs 910: ICICI Direct

ICICI Direct's research report on Goodyear India

Goodyear India (BIL) reported soft Q4FY20 numbers. Net sales for the quarter came in at Rs 375 crore (down 11.5% YoY). Margins rose 144 bps sequentially to 6.2% on account of 86 bps gross margin expansion and 70 bps decline in other expenses as a percentage of sales. Consequent PAT was at Rs 12.7 crore (down 52.7% YoY) despite lower tax outgo, on the back of revenue dip and YoY slide in margins (430 bps). For full year FY20, revenues fell 8.7% YoY to Rs 1,745 crore while margins fell 80 bps YoY to 7.8%. Ensuing profitability decline was of 13.2% YoY to Rs 89 crore.

Outlook

We expect net sales, EBITDA and PAT CAGR at -0.2%, 13.3% and 9%, respectively, over FY20P-22E. The topline performance is expected to benefit from significant tractor segment exposure, with margins expected to be aided by soft input costs. GIL’s MNC parentage and healthy financials (zero debt company with Rs 546 crore cash on books, controlled ~22 day working capital cycle & ~21% RoIC) continue to provide comfort. We maintain our BUY rating, valuing it at Rs 910 i.e. ~20x P/E on FY22E EPS.

Goodyear India 01072020