Goodyear India (GOOIND)

CMP: | 920 Target: | 1,130 (23%) Target Period: 12 months BUY

March 18, 2021

Healthy prospects, sound financials…

Goodyear India (GIL) has performed reasonably well, thus far in 9MFY21 in
spite of the Covid-19 disruption. On a YTD basis, net sales are down ~11%

Company Update
Particulars
YoY (Q2FY21, Q3FY21 growth at 6.0%, 20.7% YoY, respectively). Margins,
Particular Amount
however, are higher by ~400 bps YoY to 12.2% (includes multi-year high
Market Capitalization (₹ crore) 2,122
readings of 15.3% and 14.5% in Q2FY21 and Q3FY21, respectively). Total Debt (FY20) (₹ Crore) 0.0
Consequent 9MFY21 PAT is higher by 22.5% YoY to | 93 crore despite loss Cash & Inv (FY20) (₹ Crore) 546.0
after tax of | 4.5 crore in Q1FY21. The company also declared an all-time EV (₹ Crore) 1,576
high interim dividend of | 80/share in December 2020. 52 week H/L (₹) 1202 / 531
Equity capital (₹ crore) 23.1
Strength returning across served segments Face value (₹) 10.0
GIL’s presence spans the tractor, CV, PV segments, including via the trading Price Performance
route – with the share of traded revenues within overall pie averaging ~32- 1500 20,000
33% in the past few years. The domestic tractor space has performed 1200 15,000
robustly, thus far, in FY21, with 10MFY21 domestic volumes at ~7.4 lakh 900
10,000
units, up ~20% YoY. Stellar outperformance over the rest of the automotive 600
5,000
pack has been on the back of robust rural sentiment and cash flows given 300
record crop production & procurement and continued government thrust on 0 0

Sep-18

Sep-19

Sep-20
Mar-18

Mar-19

Mar-20

Mar-21
farm incomes and rural infrastructure. We anticipate further resilience in the
sector over the next year, which would benefit GIL in coming quarters given
its status as one of the leading players in the tractor tyre space. Elsewhere, GIL (LHS) Nifty (RHS)
in our opinion, the cyclical bottom of the domestic CV industry has been

ICICI Securities – Retail Equity Research

Key highlights
surpassed as evidenced by (a) pickup in M&HCV truck volumes being
reported by major players in the past few months (partly aided by low base),  Demand outlook has improved
with ~23 months of industry decline behind us post FY19 (usual past CV across served segments i.e.
tractors, CV, PV
down cycles have lasted ~two years) and (b) uptick in demand from mining,
construction and road building sectors. PV revival post-Covid remains  One of the best balance sheets in
healthy, spurred by personal mobility demand - with low channel inventory the domestic tyre space with net
levels indicating robust demand prospects. This places GIL well with respect cash on B/S (FY20)>25% of MCap
to future demand outlook, with FY21E-23E sales CAGR seen at 11.7%. Risks to our call
Gross margin contraction up ahead  Lower than anticipated demand
recovery in automobile sector
Steep rise in prices of key raw materials viz. natural rubber and crude oil  Elongated muted margin profile
derivatives led to ~217 bps QoQ decline in gross margins in Q3FY21. We amid high raw material cost
expect some part of the increase to continue to impact forthcoming Research Analyst
quarters’ performance. However, continued topline strength and
consequent operating leverage benefits would aid in mitigating the damage. Shashank Kanodia, CFA
[email protected]
Nevertheless, we build 11.5% and 12% margins in FY22E and FY23E,
respectively, lower than ~15% trajectory reported in Q2FY21 and Q3FY21. Jaimin Desai
[email protected]
Valuation & Outlook
We expect 12.1% PAT CAGR in FY21E-23E. Healthy demand prospects
across segments along with MNC parentage and strong B/S and return ratio
profile (FY20; zero debt company with | 546 crore cash on books & >20%
RoIC) continue to provide valuation comfort. We maintain BUY, valuing it at
| 1,130, 16x P/E on FY23E EPS of | 70.7 (previous target price | 910).

Key Financial Summary

Key Financials FY19 FY20 FY21E FY22E FY23E CAGR (FY21E -23E)
Net Sales 1,911.9 1,745.6 1,709.8 2,030.6 2,132.1 11.7%
EBITDA 164.5 135.7 207.8 233.5 255.9 11.0%
EBITDA Margins (%) 8.6 7.8 12.2 11.5 12.0
Net Profit 102.1 88.8 129.7 147.3 163.1 12.1%
EPS (₹) 44.2 38.5 56.2 63.8 70.7
P/E 20.8 23.9 16.4 14.4 13.0
RoNW (%) 11.8 9.7 15.1 15.5 15.4
RoCE (%) 14.1 9.2 17.7 18.3 18.3
Source: Company, ICICI Direct Research
 Company Update | Goodyear India ICICI Direct Research

Financial story in charts

Exhibit 1: Topline trend
2500

2000

1500
(₹ crore)

We expect sales to grow at a CAGR of 11.7% over

2,132
2,031
1,912

1000 FY21E-23E
1,746

1,710
500

0
FY19 FY20 FY21E FY22E FY23E

Net Sales
Source: Company, ICICI Direct Research

Exhibit 2: EBITDA & EBITDA margin trend

300 14.0
12.2 12.0
11.5
12.0
250 Margins are seen remaining stable around the ~12%
8.6 10.0
7.8 mark in FY22E & FY23E
8.0
(₹ crore)

200
%

6.0

4.0
150
2.0
136

234
164

208

256

100 -
FY19 FY20 FY21E FY22E FY23E

EBITDA EBITDA margin

Source: Company, ICICI Direct Research

Exhibit 3: Profitability trend

180
160
140
PAT is expected to grow to | 163 crore by FY23E at
120
a CAGR of 12.1% from FY21E
100
(₹ crore)

163

80
147
130

60
102

89

40
20
0
FY19 FY20 FY21E FY22E FY23E

PAT
Source: Company, ICICI Direct Research

ICICI Securities | Retail Research 2

 Company Update | Goodyear India ICICI Direct Research

Exhibit 4: Return ratios

70

60

46.5

45.7
42.6
50 Return ratios are expected to be in the high teens in

39.7
40 coming years with forward RoIC >40% due to high
share of cash in B/S as a % of networth
(%)

23.3
30
20.3

18.3
18.3
17.7
16.2

15.5

15.4
15.1
14.1
11.8

20 9.7
9.2
10

0
FY18

FY19

FY20

FY21E

FY22E

FY23E
RoE RoCE RoIC

Source: Company, ICICI Direct Research

Exhibit 5: Valuation Summary

Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE
(₹ cr) (%) (₹) (%) (x) (x) (%) (%)
FY18 1,665 10.1 56.3 2.0 16.3 7.7 16.2 20.3
FY19 1,912 14.9 44.2 (21.5) 20.8 9.5 11.8 14.1
FY20 1,746 -8.7 38.5 (13.0) 23.9 11.6 9.7 9.2
FY21E 1,710 (2.0) 56.2 46.1 16.4 8.0 15.1 17.7
FY22E 2,031 18.8 63.8 13.6 14.4 6.8 15.5 18.3
FY23E 2,132 5.0 70.7 10.7 13.0 5.9 15.4 18.3
Source: Company, ICICI Direct Research

ICICI Securities | Retail Research 3

 Company Update | Goodyear India ICICI Direct Research

Financial Summary

Exhibit 6: Profit and loss statement | crore Exhibit 7: Cash flow statement | crore
(Year-end March) FY20 FY21E FY22E FY23E (Year-end March) FY20 FY21E FY22E FY23E
Total operating Income 1,745.6 1,709.8 2,030.6 2,132.1 Profit after Tax 88.8 129.7 147.3 163.1
Growth (%) -8.7 -2.0 18.8 5.0 Add: Depreciation 50.1 53.0 56.9 59.7
Raw Material Expenses 1,192.4 1,111.0 1,340.2 1,407.2 Sub: Other Income -35.2 -22.5 -23.6 -25.0
Employee Expenses 139.6 140.0 152.3 159.9 (Inc)/dec in Current Assets 41.6 -4.5 -74.9 -23.7
Other Expenses 277.9 251.0 304.6 309.2 Inc/(dec) in CL and Provisions -82.6 -10.5 64.1 20.3
Total Operating Expenditure 1,609.9 1,502.0 1,797.0 1,876.2 CF from operating activities 62.7 145.2 169.8 194.3
EBITDA 135.7 207.8 233.5 255.9 Other Income 35.2 22.5 23.6 25.0
Growth (%) -17.5 53.1 12.4 9.6 (Inc)/dec in Investments 0.0 0.0 0.0 0.0
Depreciation 50.1 53.0 56.9 59.7 (Inc)/dec in Fixed Assets -65.0 -70.0 -70.0 -70.0
Interest 4.0 3.5 3.3 3.2 Others -5.4 0.1 -1.3 -0.4
Other Income 35.2 22.5 23.6 25.0 CF from investing activities -35.1 -47.4 -47.7 -45.4
PBT 116.8 173.7 196.9 218.0 Inc/(dec) in loan funds 0.0 0.0 0.0 0.0
Total Tax 28.0 44.1 49.6 54.9 Dividend paid & dividend tax -36.1 -184.6 -57.7 -57.7
Reported PAT 88.8 129.7 147.3 163.1 Others -4.0 0.0 0.0 0.0
Growth (%) -13.0 46.1 13.6 10.7 CF from financing activities -40.1 -184.6 -57.7 -57.7
EPS (₹) 38.4 56.1 63.8 70.6 Net Cash flow -12.5 -86.8 64.4 91.3
Source: Company, ICICI Direct Research Opening Cash 558.5 546.0 459.2 523.6
Closing Cash 546.0 459.2 523.6 614.9
Source: Company, ICICI Direct Research

Exhibit 8: Balance Sheet | crore Exhibit 9: Key ratios

(Year-end March) FY20 FY21E FY22E FY23E (Year-end March) FY20 FY21E FY22E FY23E
Liabilities Per share data (₹)
Equity Capital 23.1 23.1 23.1 23.1 EPS 38.5 56.2 63.8 70.6
Reserve and Surplus 892.7 837.8 927.4 1,032.8 Cash EPS 60.2 79.2 88.5 96.6
Total Shareholders funds 915.8 860.9 950.5 1055.9 BV 397.0 373.2 412.0 457.7
Total Debt 0.0 0.0 0.0 0.0 DPS 13.0 80.0 25.0 25.0
Deferred Tax Liability 12.8 12.8 12.8 12.8 Cash Per Share 236.7 199.1 227.0 266.5
Minority Interest / Others 0.0 0.0 0.0 0.0 Operating Ratios (%)
Total Liabilities 954.7 899.8 989.4 1094.8 EBITDA Margin 7.8 12.2 11.5 12.0
Assets PBT / Net sales 4.9 9.1 8.7 9.2
Gross Block 507.6 567.5 637.5 707.5 PAT Margin 5.1 7.6 7.3 7.6
Less: Acc Depreciation 206.4 259.4 316.2 375.9 Inventory days 31.3 32.0 32.0 32.0
Net Block 301.2 308.1 321.2 331.5 Debtor days 46.0 48.0 48.0 48.0
Capital WIP 14.9 25.0 25.0 25.0 Creditor days 55.7 55.0 55.0 55.0
Total Fixed Assets 316.1 333.1 346.2 356.5 Return Ratios (%)
Investments 14.3 14.3 14.3 14.3 RoE 9.7 15.1 15.5 15.4
Inventory 149.8 149.9 178.0 186.9 RoCE 9.2 17.7 18.3 18.3
Debtors 219.9 224.9 267.0 280.4 RoIC 23.3 39.7 42.6 45.7
Loans and Advances 11.7 11.5 13.6 14.3 Valuation Ratios (x)
Cash 546.0 459.2 523.6 614.9 P/E 23.9 16.4 14.4 13.0
Other current assets 13.2 12.9 15.4 16.1 EV / EBITDA 11.6 8.0 6.8 5.9
Total Current Assets 940.7 858.4 997.6 1,112.6 EV / Net Sales 0.9 1.0 0.8 0.7
Creditors 266.3 257.6 306.0 321.3 Market Cap / Sales 1.2 1.2 1.0 1.0
Provisions 13.6 13.1 15.6 16.4 Price to Book Value 2.3 2.5 2.2 2.0
Other current liabilities 72.4 70.9 84.2 88.4 Solvency Ratios
Total Current Liabilities 352.2 341.7 405.7 426.0 Debt/EBITDA 0.0 0.0 0.0 0.0
Net Current Assets 588.5 516.7 591.9 686.6 Debt / Equity 0.0 0.0 0.0 0.0
Others 35.6 35.4 36.7 37.2 Current Ratio 1.4 1.5 1.5 1.5
Application of Funds 954.7 899.8 989.4 1094.8 Quick Ratio 0.9 0.9 0.9 0.9
Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research

ICICI Securities | Retail Research 4

 Company Update | Goodyear India ICICI Direct Research

RATING RATIONALE
ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its
stocks according -to their notional target price vs. current market price and then categorizes them as Buy, Hold,
Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined
as the analysts' valuation for a stock

Buy: >15%
Hold: -5% to 15%;
Reduce: -15% to -5%;
Sell: <-15%

Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
[email protected]

ICICI Securities | Retail Research 5

 Company Update | Goodyear India ICICI Direct Research

ANALYST CERTIFICATION
I/We, Shashank Kanodia, CFA, MBA (Capital Markets) and Jaimin Desai, CA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect
our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that
above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies
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ICICI Securities | Retail Research 6