By: Ismail Iqbal Securities Private Limited
We have updated our target price of General Tyre and Rubber Company of Pakistan Limited (GTYR) to PKR 201.2/share (previous TP PKR 193.10 for Dec ’15) for June 2016 after incorporating the 1QFY16 result. GTYR posted 1QFY16 EPS of PKR 3.02 (PAT 179.5mn), rising phenomenally by 218.2% YoY. The impressive growth in earnings is mainly driven by the increase in topline by 18.4% YoY and also due to improvement in gross margin by more than 3ppts YoY for the 1QFY16. The increased tyre sales was primarily due to higher automobile offtake with total auto sales increasing by around 72% YoY for the 1QFY16. Currently, our updated TP of PKR 201.2 provides an upside of 17.7% against its previous closing price. Hence, we are maintaining our positive stance on the stock.
Higher auto demand and lower raw material prices drive earnings northwards GTYR’s 1QFY16 PAT increased to PKR 179.5mn (EPS 3.02), up by 218.2% YoY but down by 22% QoQ. A strong growth in volumetric sales of tyres to 551k units in 1QFY16, up by 38% YoY was the main contributor towards the inflated EPS. The high volumetric growth in 1QFY16 was mainly due to increased vehicle demand of Passenger Cars, Light Truck and Truck/Bus categories in the same period. Moreover, the government of Punjab’s Apna Rozgar Scheme of distributing 50000 vehicles also added to the increased demand of tyres.
GTYR also benefited from the softening of raw material prices, mainly rubber, resulting in its gross margins improving by 328bps YoY for the 1QFY16. GTYR uses both natural rubber and synthetic in its manufacturing of tyres. Going forward, the company is expected to maintain its improved gross margins with the prices of Oil and Natural Rubber expected to remain low in FY16 with only a gradual increase in the coming periods.