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B. Krishnakumar

THE pick-up in the automobile production and the improvement in economic fundamentals has had a positive impact on the financial performance of the tyre companies.

Taking into account the recent developments such as cut in excise duty, soft trend in input cost and the appreciation of the rupee, Goodyear's performance could improve in the near term. Risk-seeking investors with a slightly long-term orientation could take limited equity exposure in the company at the current level of Rs 42.

Goodyear India has a strong presence in the passenger car and tractor tyre segments. A bulk of its income flows from the original equipment market. It has also taken efforts to gain a better presence in the replacement market. The slowdown in the automobile sector, in general, and the tractor segment, in particular, has affected the company's financial performance in the past few years.

For the year ended December 2002, the company reported a net loss of Rs 12.69 crore, while the turnover improved by about 12 per cent to Rs 550.31 crore.

Apart from the slowdown in the tractor segment, the firm trend in the price of key raw materials, including natural rubber, had a negative impact on performance.

The pick-up in passenger car market and the thrust towards the highly lucrative replacement market has helped the company reduce its losses from Rs 36.98 crore recorded in the previous year.

The performance worsened further during the quarter ended March 2003.

The upward spike in the price of crude oil and natural rubber had negative impact on the company's performance for the quarter ended March 2003.

The turnover dropped by about 10 per cent to Rs 121.59 crore. However, aided by an extraordinary income of about Rs 13.4 crore, the company managed to record a net profit of Rs 6.28 crore against a net loss of Rs 2.21 crore. Though the performance may not be enthusing, the tyre industry per se did not pass through a favourable phase during this period.

Even the market leader - MRF had to contend with a subdued trend in performance during this period and Goodyear was no exception.

Going forward, Goodyear's performance depends on the growth passenger car and tractors market.

The recent pick up in economic fundamentals and the efforts taken by the company to enhance the presence in the truck tyre market would improve the financial performance in the future.

The prices of natural rubber and crude oil have softened a bit in recent months, which would have a positive impact on profitability.

Besides, the reduction in excise duty in the tyres sold in the replacement market would also have a positive impact, to the extent the benefit is not passed on to the consumers.

From an investment perspective, the downside risk in Goodyear India appears relatively limited.

While the historic performance may seem unimpressive, the recent developments could help the company stage an operational turnaround. Aggressive investors could take equity exposure in (limited quantity) in the company.

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