Accumulate Goodyear India; target of Rs 659: Angel

Angel Broking's report on Goodyear India (GIL)

"For 4QCY2014, Goodyear India (GIL) reported a disappointing set of numbers. Its top-line for the quarter declined by 11.2% yoy to Rs 360cr, below our expectation of Rs 424cr. The raw material cost as a percentage of sales declined by 314bp yoy to 66.5% but employee and other expenses (both as a percentage of sales) increased by 210bp yoy and 231bp yoy to 8.5% and 16.6% respectively, negating the benefits of lower raw material cost. As a result, the EBITDA margin declined by 127bp yoy to 8.4%, below of our expectation of 9.9%. Owing to lower topline and subdued operating performance, the net profit declined by 31.2% yoy to Rs 19cr."

Outlook and valuation: "On the back of projected growth in the tractor tyre market and decline in rubber prices, earnings are expected to grow at a CAGR of ~11.9% over CY2014-16E to Rs 127cr in CY2016E. At the current market price, the stock is trading at a PE of 10.9x its CY2016E earnings. On a TTM basis, GIL is one of the cheapest MNCs available as it trades at a PE of 13.7x while other MNCs (market cap of Rs 1,000-Rs 5,000cr) trade above the 20.0x mark (median of 35.7x). We have revised our rating on the stock to Accumulate and assign a target price of Rs 659 based on a target PE of 12x for CY2016E", says Angel Broking research report", says Angel Broking research report.

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