The General Tyre and Rubber Company of Pakistan Limited (GTR) was established in 1963. It has a production capacity of 2.5 million tires and serves four market segments. Its main competitors are Balochistan Wheels and Diamond Tires. GTR has a 70% market share in replacement tires but production costs are high due to importing raw materials. Using DCF, P/E, and P/B valuation methods, the assistant estimates GTR's stock is undervalued at the current market price of PKR 165 and recommends buying the stock.

1. General Tyre & Rubber Co
of Pakistan Ltd

2. 2
Company Overview
The General Tyre and Rubber Company of Pakistan Limited
(GTR) came into existence in 1963
The Company was then established by General Tire International
Corporation (GTIC) of USA
GTIC sold 90% of their shares to the present owner M/s Bibojee
Services Ltd. in 1977
The capacity of the Company stands at 2.5 million tyres
GTR has four market segments to cater to. These are:
The Original Equipment Manufacturers – Vehicle assemblers
The Replacement or the After market
Government Departments/Institutions
The Export Market

3. Competitive Overview
3
 Major competitors are Balochistan Wheels and Diamond Tyres
 Tyre industry is growing due to increase in demand of automobiles; investment
being made in modern machinery
 70% market share of replacement tyre
 Cost of production is high because Pakistan imports raw material
 Threat from tyre smuggling
 Cheap Tyre Import

4. 4
Porter’s Five Forces
Substitutes
• Tyres have no subsititutes
Rivalry
• Highly Competitive market, main competition from Loads ltd, Balochistan
Wheels and Diamond Tyres
New
Entrants
• Low Threat of new Entrants. Smuggling of tyres. Cheap tyre
imports
Buyer’s
Power
• General Tyres is the first choice. All major automobile companies buy
from here
Supplier
Power
• Low due to raw material being imported. Exchange rate risk.
COP is high

5. 5
Key Financials
• Company’s performance has been
steady. Turnover for current year has
increased as compared to previous
year.
• Sales have increase from Rs. 9,479
million to Rs. 9645 million
• Company’s net profit for the year is Rs.
881 million (2016: Rs. 1,032 million)
• This decrease in net profit is due to the
high cost of production caused by the
imported raw materials
• GT has invested heavily in fixed assets
which it believes will help in achieving
growth in future

6. 6
Assumptions
• Terminal Growth: 5%
• Cost of Debt: 8%
• Cost of Equity based on CAPM:
16.12%
• WACC: 11.4%
Risk free rate 6%
Beta 1.012
Expected market return 10.0%
Psx 100index on 30June 2018 41,910.90
Psx 100index on Ending 30june 2017 46,565.29
COST OF EQUITY 16.12%
WACC Calculation
wd 56%
we 44%
Cost of Debt 8%
WACC 11.4%
WACC (2022ONWARDS) 10%
GROWTH RATE 5%
No of Shares (miilions) 59.771
Price Forecasted 212.9373689

7. 7
Periods 1 2 3 4 5
Year 2017 2018 2019 2020 2021 2022
EBIT 1303 1494 1666 1782 1833 1982
DepreciationandAmortisation 678 702 733 778 838 870
Change inworkingcapital 107 574 42 569 -579 -670
Capitalexpenditure (762) (830) (889) (1,005) (1,133) (1,001)
Free Cashflowtothe firm 1,326.15 1,939.91 1,550.61 2,124.55 958.76 1,180.76
TerminalValue 24,796
PVOFCASHFLOWS 1326.14772 1741.105219 1249.0766 1536.0188 622.1304394 15128.72141
VALUEOFFIRMperShare 339.2456622
VALUATION USINGDCF METHOD
Valuation Using P/B Ratio Valuation Using P/E Ratio
Book Value of the company Earnings of the company
3796 846.397
Price/Book Ratio Price/Earning Ratio
Balochistan Wheels 1.4 13.74
Diamond Tyres Ltd. 2.6 9.98
Pakistan Rubber and Tyre Co. 2.86 8.975
AVERAGE 2.3 10.9
Value of Firm 145.2 154.3

8. 8
Valuation Methods
FCFF P/E P/B
We predicted the
company’s cash flow for
the next 5 years and then
assumed that cash flows
will grow at a constant
rate (5%) from there. We
then discounted it at
WACC
The Target price of share
calculated through FCFF
is Rs 339
Balochistan Wheels,
Diamond Tyres and Pakistan
Rubber and Tyre Co were
used as comparable. The
average P/E calculated using
them was 10.9
The Target price of share
calculated through this
method is Rs 154
The average P/B
calculated using
comparable was 2.3
The intrinsic price of
share calculated
through this method is
Rs 145

9. 9
Average Price
METHOD FIRMVALUE
DCF 339
P/B 145
P/E 154
AVERAGE 213
VALUATION SUMMARY

10. 10
Sensitivity Analysis
We can see through the sensitivity analysis table
that value change is more sensitive to changes
in terminal growth rate as compared to WACC.
339 1% 2% 3% 4% 5% 6% 7%
8% 257 277 304 339 388 462 585
9% 247 267 292 326 373 444 561
10% 239 257 281 313 358 426 538
11% 230 248 271 302 345 409 517
12% 222 239 261 291 332 393 496
13% 215 231 252 280 319 378 477
14% 207 223 243 270 308 364 458
Sensitivity analysis
TERMINAL GROWTH RATES
WACC

11. 11
Recommendation
Stock is
UNDER
Valued in the
Market: Thus
BUY the
Stock.
• Forecasted Price = Rs. 213
• Price as per PSX June 30 2018 = Rs 165
• Share price is undervalued
• Buy Share because it is expected that price will
increase
• General Tyres also made some heavy investment
in capital assets in 2017 which will help the
company grow in future
• AVG TARGET
PRICE IS PKR 213
• MARKET PRICE
(AS OF 30TH NOV)
IS PKR 165

12. THANK
YOU!
Mohammad Kaab Baig
11110