Buy Goodyear India; target of Rs 510: Angel Broking

Angel Broking`s research report on Goodyear India

“For 1QCY2014, Goodyear India (GIL) reported a strong set of numbers. Its top-line surged by 15 percent yoy to Rs387cr, 10.6 percent higher than our estimate of Rs350cr. The EBITDA came in higher at Rs40cr, up 30.4 percent yoy; while margins expanded by 120bp yoy to 10.2 percent, mainly due to lower employee costs and other expenses (as a percentage of sales). On the back of efficient operating performance coupled with a 57.1 percent yoy increase in other income to Rs11cr, the net profit for the quarter grew 34.9 percent yoy to Rs28cr, in-line with our estimates.”

“GIL is a market leader in the tractor tyre industry. Tractor tyres accounted for ~60 percent of the company’s tonnage offtake in CY2012. As per industry reports, tractor sales are likely to grow in the range of 7-9 percent over CY2014-15E. Thus, we expect GIL to register a 6.3 percent CAGR in revenue over CY2013-15E.”

“On the back of strong growth in tractor tyre market and decline in rubber prices, earnings are expected to grow at a CAGR of ~11.9 percent over CY2013-15E to Rs118cr in CY2015E. Moreover, we forecast GIL’s CY2015E cash reserves to be at Rs439cr, which is ~47 percent of its current market capitalization. At the current levels, the stock is trading at a PE of 8.0x its CY2015E earnings and P/BV of 1.6x for CY2015E. We recommend a Buy rating on the stock with a target price of Rs510 based on SOTP valuation,” says Angel Broking research report. 

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