Goodyear India - Rs.140.00

Established in 1922, Goodyear India Ltd (GIL) was originally incorporated as Goodyear Tire and Rubber Company (India) but was subsequently renamed as GIL in 1961 when it became a public limited company. This 85-year-old FERA company has a technical-cum-financial collaboration with Goodyear Tire and Rubber Company, USA which is also the holding company with 74% equity stake. Notably, the American parent is among the top three players in the world with presence in six continents and operating from 80 facilities in 28 countries. Here in India, GIL has emerged as a leading manufacturer of automotive tyres with 15% market share. In fact, it is the largest supplier of tractor tyres in the country and was the first to roll out tubeless radial tyres on Indian roads.

GIL has two manufacturing facilities: one in Aurangabad, which makes passenger car tyres and other facility in Haryana where tractor and other tyres are made. Except for two-wheelers, the company has presence in all major segments like passenger cars, heavy and light commercial vehicles, tractors & farm equipments etc. It supplies to most of the auto companies including Maruti, Tata Motors, M&M, Ford, GM, Hyundai, Ashok Leyland, Swaraj Mazda, TAFE, PTL, Eicher, Escorts, etc. It also commands a major market share in the Off The Road (OTR) segment by being the major supplier to Coal India Limited, Escorts, L&T, Tata Steel and other steel plants of the country. Importantly, it has strong presence not only in the OEM segment but also in the replacement market. Besides, its tyres are being exported to Australia, Dubai, Hongkong, Phillipines, Nepal, Bangladesh, Srilanka, Bhutan and Pakistan. Due to improved market conditions, GIL is finally implementing its Rs.80 cr. expansion plan to increase the production capacity at its Aurangabad facility from 4500 tyres per day to 10,000 tyres in the next two years. On the retail front, it has introduced international & multi-brand format 'Shop-in-shop' outlets, which not only sells tyres but also car accessories. GIL plans to open 300 such outlets by 2008 at an investment of Rs.50 cr.

The biggest turnaround for the tyre industry was the fall in the price of rubber, as it constitutes around 40% of the total raw material cost. Although, historically rubber prices are still trading high but in the last one year they have cooled off a bit. The RSS-4 Kottayam rubber price is currently trading around Rs.8700 per quintal compared to Rs.11500 in May 2006. Hence for the September 2006 quarter, GIL’s topline grew by 40% to Rs.212 cr. but NP zoomed by 10 times to Rs.15 cr. compared to Rs.1.50 cr. last year. It reported a healthy OPM of 10% after a long time. For the full year ending 31st December 2006, it may report net sales of Rs.800 cr. and NP of Rs.50 cr. i.e. an EPS of Rs.22 on its equity of Rs.23 cr. Hence at its current market cap of around Rs.325 cr., this MNC associate is trading at P/E ratio of than 7. However, as the performance of the tyre industry largely depends on the rubber prices, it’s very difficult to predict the future profit of the company. If the price of the rubber falls in future, the share price of the company will rise. Investors can buy at declines for a 50% return in 15-18 months.