Saturday, August 31, 2013
At least some of you may raise your eyebrows for recommending a stock related with automobile sector at this juncture.Yes,automobile and related sectors in India are passing through a tough time but I believe it is a special case and there is some strong rationale for recommending this stock.Goodyear India is a 74 % subsidiary of world’s largest tyre company US based ‘ The Goodyear Tire & Rubber Company ‘. Company having two manufacturing facilities in India located at Ballabgarh and Aurangabad. In addition to this, company sourcing part of its requirements from Goodyear South Asia Tyres Private Limited Aurangabad.About 65% of Goodyear India’s turnover coming from the tractor segment and it is the market leader in this category for the past many years.All major tractor producers including Mahindra,TAFE,Eicher,Escorts ..etc are the customers of Goodyear. Apart from tractor segment ,company having commentable presence in passenger segment and a preferred supplier of many foreign companies operating in India like Volkswagen, GM, Toyota , Ford..etc. Now company very aggressively expanding into replacement market too by establishing marketing network throughout India.
Even at this over all tough time for tyre industry what is special for Goodyear is a possible chance of good growth in its major segment .ie,tractor tyres.Due to very good monsoon and better price for products, farmers are expected to benefit substantially in coming years which will directly impact tractor sales going forward.If we analyse the data of tractor sales for the past few months it is evident that there is good spike in it for all major players. Being a supplier to OEM’s in this segment this will directly help Goodyear for better sales. Another positive factor is the softening in the price of its major raw material – natural rubber.In last FY ,company depends import to meets its requirement due to higher price in local market.But this year natural rubber price came down and it is expected to range bound at current level .This situation will surely help the company to source natural rubber from local market itself and improve its margins. Another factor is the increasing presence of foreign players in Indian Automobile sector .Many multinational auto companies are coming to India and launching their latest models here.Most of these overseas companies having strong business relations with the parent company of Goodyear .The Indian unit succeeded to continue their good relations with this auto majors here in India too.In recent times Goodyear India emerged as the preferred supplier for many such OEM’s . Parent company’s most modern technology and support of good R&D helping Goodyear India to launch many new products .Actually Goodyear is the pioneer in tubeless tyre technology in India .Company is in advanced stage to launch radial tyres in farming sector.All these factors helped the company to outperform the entire tyre Industry in the latest June quarter.Company reported a whopping 80% increase in net profit to Rs.26 Cr .Its year ending is in December and company is expecting to report an EPS of Rs.35-40. It is a debt free company with a clean balance sheet consisting cash and cash equivalents of Rs.238 Cr .Company is an uninterrupted dividend payer for the past many years which paid 70% each in last four years.This MNC super brand is eligible to be included even in your core portfolio at CMP of Rs.300/- ( Stock listed in BSE only with scrip code - 500168)
Link to company website HERE
Link to last Annual Report HERE
Disc: I have vested interest in Goodyear India.