Beginning 1 January, tyre maker Goodyear India Ltd will have to reimburse its parent company Goodyear Tire and Rubber Co. for certain expenses incurred. In response to an investor query, the company clarified to the Bombay Stock Exchange that the expenses could range from 1.5-2.5% of net sales of the Indian company during the given year.
Goodyear India will pay its parent for services in the areas of information technology, procurement, production, supply chain, sales and marketing, finance and general administration. Besides, this will include a part of the expense incurred for all subsidiaries of the parent company in the Asian region, which will be duly shared as per regulations.
What does this imply? From an investor standpoint, it shaves off the operating profit to that extent. Going by fiscal year 2008 financial results, the company had clocked revenues of Rs922 crore with an operating profit of around Rs45 crore.
For the nine months ended 30 September, net income was around Rs740 crore, around 3% higher than the year-ago period. Operating profit grew by 44% to around Rs101 crore, largely due to lower raw material costs.
Graphics: Yogesh Kumar / Mint
The company, which has an 80-year-old presence in India, is known for superior innovation thanks to its parent Goodyear Tire and Rubber, based in Ohio, US. For instance, tyre dealers state that despite the recession the company had launched a flurry of new products and variants in the Indian market across vehicular segments this year. This was perhaps in line with the parent company’s global initiative to launch nearly 57 products so far in 2009, against its target of 50.
In a corporate presentation, Goodyear highlighted industry growth in 2010, especially in markets for tyres with high value-added features, larger rim diameters and fuel-efficient technology. Analysts also point out that the two major growth engines for the company would be India and China, besides a few other emerging markets such as Latin America and Africa. During 2009, Goodyear India’s growth is a part of the Asia-Pacific growth story, which has been the highest among all regions during the year so far. In the medium term, therefore, robust revenue growth and cost rationalization measures could well absorb the reimbursement of expenses to the parent company.
For the nine months ended September, Goodyear India’s earning per share of Rs27 was double that of the year-ago period. Low liquidity, however, has led to low institutional interest in the stock. Of the equity capital of Rs23.07 crore, about 74% is held by the promoters.
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