Focus on quality and market trends
Moneylife Digital Team
Goodyear India, a 74% subsidiary of Goodyear Tire & Rubber Company, Ohio, makes automotive tyres, tubes, flaps and related rubber products at Ballabgarh (Haryana) and at Aurangabad (Maharashtra). The Aurangabad facility manufactures tyres for passenger cars, while the Ballabgarh unit develops farm tyres. Besides manufacturing tyres, the company also distributes and sells tyres, including tyres for cars, trucks, buses, motorcycles, airplanes, earthmoving and mining equipment, industrial and agricultural equipment, etc.
In the passenger car segment, Goodyear India supplies tyres to many leading auto brands in India such as Santro Xing, Hyundai i10, i20, Chevrolet Aveo U-VA, Maruti Wagon R VXi, Estilo VXi, Swift, SX4, Ford Fiesta, Figo, Ikon, Honda Civic, Octavia, Toyota Corolla, etc. The company has been a pioneer in tubeless radial tyres in the passenger car segment. In the farm segment, Goodyear supplies tyres to all the major tractor companies. It has developed a range of tyres called Vajra Super especially for the agricultural segment. It also exports to Bangladesh, Dubai, Australia, Ethiopia, Sri Lanka, Pakistan, Qatar, Germany, South Africa, Kenya, Guatemala, Jamaica, Egypt, Colombia, Tanzania, Turkey, Singapore, Kuwait, Japan and the US.
Goodyear India is planning to enter the large truck and bus radial (TBR) tyres market and is testing out its global range for Indian road conditions. The market study is expected to be ready by the end of the year after which the company will launch a new range. At present, Goodyear makes cross-ply (nylon) tyres for trucks and buses in which it has a small market share.
TBR sales account for 12% of the 950,000 truck and bus tyres sold each month. Sales of this segment have risen two to three times over the past two years on the back of strong growth in the commercial vehicles market and improvement in highways across the country. The company will also invest in the modernisation and expansion of its two plants and dealer network in India.
The auto sector has been doing quite well in India. This, in turn, has helped the component manufacturers—such as Goodyear India—to improve their performance on the back of higher demand. Major vehicle manufacturers have continued to register double-digit sales in the month of March 2011, despite concerns of a slowdown due to higher interest rates and input costs.
Passenger car maker, Maruti Suzuki, has reported a robust sales growth of 28% in March 2011, even better than those in February, whereas Tata Motors’ sales grew by nearly 11%, about the same rate as in the previous month. Two-wheeler manufacturer, Hero Honda, registered sales growth of over 24% in March, while Chennai-based TVS Motor Company grew a notch faster at 28%. Auto companies have registered surprisingly good sales over the past few months, driven by growing demand from an expanding middle class and easier access to loans.
According to the ICRA report Indian Tyre Industry, outlook for the domestic automobile industry is robust, supported by strong growth in the economy, favourable demographic profile and rising disposable incomes. India’s growing importance as an automotive export hub for small cars is another key demand driver for tyres. In 2009-10, India manufactured 3.5 million vehicles (29% growth); 10.5 million two-wheelers (25% growth); 440,000 tractors (29% growth) and 45,000 mining and construction equipment units.
On the other hand, high volatility in the price of petroleum products and raw materials (particularly the natural rubber prices witnessed in the past), is an area of concern. However, following a demand by tyre makers, the government had lowered the import duty on natural rubber in December to 7.5% for up to 40,000 tonnes until 31 March 2011, after which it has changed the duty to Rs20/kg or 20%, whichever is lower. The change in import duty would help improve availability of rubber in the Indian market. It will also lead to significant cost savings for the domestic tyre industry, besides helping companies manage their inventory better. With rubber prices currently at Rs233/kg, the earlier duty of 20% would have imposed an additional burden of Rs47/kg on tyre manufacturers.
For the financial year ended December 2010, Goodyear India’s net profit increased to Rs74.81 crore compared to Rs73.09 crore in the financial year ended December 2009. The company’s total revenues from operating activities for FY10 increased to Rs1,301.29 crore from Rs1,016.75 crore in FY09.
During the same period, its net revenues rose to Rs1,297.23 crore from Rs1,015.10 crore. In FY10, the company registered an earning per share (EPS) of Rs32.43 compared to Rs31.69 in the last fiscal. The company had recommended a dividend of Rs7 per equity share of face value of Rs10 for the year ended December 2010.
Goodyear’s average growth in revenues and operating profit over the past five quarters has been 30% and 50%, respectively. Its average operating margin is a poor 9% but the return on net worth is an excellent 34%. Its market-cap to revenues is 0.47, while its market-cap to operating profit is 5.44 times. The stock carries a dividend yield of 2.95%, while its price to earning ratio is just 8.75. The stock has outperformed the Sensex since January 2010 and is worth buying at the current market price for long-term investment, given its low price and high return on net worth.