• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

B. Krishnakumar

TYRE major Goodyear India has reported increased losses for the year ended December 2001 due the overall unfavourable business environment. Both the turnover and bottomline were under pressure because of sluggish demand and realisations.

The company's net turnover dropped to Rs 490.35 crore for the year ended December 2001, from Rs 491.3 crore in the previous year. Goodyear has a strong presence in the passenger car, tractor and truck and bus segments. The demand for these tyres remained sluggish in the original equipment and replacement markets.

With the passenger car output dropping sharply, the industry did not pass through a healthy business phase. The total car output was relatively flat trend in 2001. The agricultural and economic growth too was not all that robust.

The subdued trend in realisations for agricultural produce had a negative impact on tractor offtake.

The anaemic economic growth translated into a subdued demand for commercial vehicles. As a result, the demand for tyres from all the three business segments remained under pressure for Goodyear India. Viewed in this backdrop, the marginal decline in turnover by about Rs 1 crore does not appear all that bad.

The growing presence in the passenger car radial market has played a key role in arresting the fall in turnover. The problems associated with other tyre producers such as Modi Rubber and Dunlop appear to have had a positive impact for the rest, including Goodyear.

However, at the operational level, Goodyear reported a loss of Rs 8.16 crores against a profit of Rs 5.2 crore the previous year. Much of the deterioration in performance is explained by the depressed realisations and an increase in trading activity.

In 2001, the company appears to have given more importance to marketing of tyres, either imported or purchased from the South Asian Tyres. This is reflected in the lower proportion of raw material as a percentage of sales, despite a firm trend in raw material prices. Reflective of this trend, the purchase of finished goods rose to Rs 142.76 crore from Rs 113.3 crore in 2000. The other elements of cost, such as interest and depreciation, remained unchanged over the previous year. The pressure on the operating margin, therefore, played a key role in the higher net loss for Goodyear. From Rs 24.26 crore in 2000, the net loss rose to Rs 36.98 crore for the year ended December 2001. The company has an equity base of Rs 23.07 crore, of which 74 per cent is held by the American parent — Goodyear Tire Company.

As for the future prospects, the company's performance is unlikely to improve sharply in the near term. Nor is it likely to worsen. The recent improvement in passenger car and heavy commercial vehicle output would offer some relief in the form of improved demand for tyres.

Though there are no conclusive signs of an economic recovery, a pick-up in the economic activity and an improvement in the farm sector would be welcome developments from the company's perspective.

As of now, fresh exposure in Goodyear can be avoided as the prospects for the tyre sector do not appear too promising. At the current level of Rs 28, there is no point liquidating holdings in Goodyear as the downside risk is relatively low.

Considering the strong fundamentals and the technological backing of the global tyre major, shareholders could remain invested and contemplate fresh buying when passenger car and tractor production improves.

Send this article to Friends by E-Mail

Stories in this Section
Parnami Habitat Developers Ltd: Accept

Copyright © 2002, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line