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Thursday, March 1, 2012

Goodyear India - Stock To Buy from Evergreen Industry

Stock analysis after recent results reported by Goodyear India Ltd. (GIL). Recommendation and rating would be to buy stocks of Goodyear India for one year. Checkout the target stock price.

Goodyear India reported lower-than-expected revenues of Rs.395cr. Stock market analyst’s were expecting the company to post revenues to the tunes of Rs.440 crores. Company’s EBITDA margin was flat on a yoy basis. Company paid higher raw material cost but it was offset by other lower expenses.

Company’s net profit for the quarter stands at Rs.20cr.

Business Growth
Goodyear is one of the most reputed tyre brands in India and has got a tremendous brand recall. Also it is the market leader for tractor tyres. Tractor tyres contributed almost 60% to it’s tyre sale by weight in 2011. The tractor industry in India had grown by 27% in 2010 and is expected to grow at similar pace from 2011 to 2013 period. This should help Goodyear India to clock estimated CAGR of 17% in revenues till 2013.

Goodyear India has very high end brands as it’s clientele. The list comprises of Audi, BMW, Land Rover, Mitsubishi and Porsche. The ROIC of company in 2011 stands at, hold your breath, 1,022.7% !! By far the best in industry (Industry standard is 30%).

Stock Valuations:
Goodyear India Limited is a debt free company with cash reserves of Rs.249cr as in 2011.

Company’s raw material, raw rubber, has become cheaper in past one year. Rubber prices have comedown to Rs.188/kg in February 2012 from Rs.243/kg in April 2011. It is a big decline for company’s raw material procurement costing and would definitely boost the bottom line in coming quarters.

As mentioned above, revenues of Goodyear India are expected to grow at CAGR of 17% from 2011 to 2013. And due to this growth along with rubber price decline, company’s net profit should witness growth of over 37% CAGR till end of 2013.

At current stock price of Rs.360, the stock trades at P/E of 12.44 and at P/E of 6.9 to its 2013 estimated EPS of Rs.52. If you value the stock at P/E of 9 in year 2013, the target stock price should be around Rs.470. One may buy stocks of Goodyear India for 1 year target stock price of Rs.470.

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