Ceat Ltd. share price target

COFORGE: Bumper FY22 guidance; reiterate BUY. CEAT: Rising raw material costs to impact earnings; SELL

Background: CEAT is one among the top four tire manufacturers in India and is a part of the RPG group. The company has a total manufacturing capacity of 0.1mn + tyres/day with plants situated in Nashik, Bhandup (Mumbai),Ambernath, Halol, Nagpur and Sri Lanka. The company manufactures all tires: Truck & Bus (33%), 2W/3W (30%), Passenger vehicles (13%), LCV (8%), Farm (9%), and Specialty (7%). In terms of market, replacement contributed 71% of the sales while OEM and exports make up 17% and 13% of the sales, respectively in 3QFY21. CEAT has a robust distribution network consisting of over 3,400+ dealers, 33 regional offices...

CEAT's revenue was 8% ahead of our estimate at Rs 23bn in Q4FY21.

Cost inflation to keep margin under pressure over the next two quarters CEAT's 4QFY21 performance was impacted by RM cost inflation and weaker mix. While cost inflation will impact near-term performance, strength in demand will enable gradual pass through of cost. We cut our FY22E/FY23E EPS by ~31%/6% to factor in near term impact from the second COVID wave and RM cost inflation. Maintain Buy....

During the last upcycle, limited focus on CV category tyres eroded CEAT's market share in both OEM and replacement markets.

In 3QFY21,CEAT reported a strong set of numbers. Revenue grew by 26.1%YoY to 22,123 mn (est.INR19,693 mn) mainly due to volume growth majorly from replacement demand led by rise in personal mobility, recovery in CV demand and farm equipment segments and restrictions on imports. EBITDA grew by 78.8% YoY to INR 3,277 mn (est.INR 2,422 mn) mainly due to higher gross margin on account of price hikes (i.e 3% in Dec'20) across categories (except 2W) and higher mix from replacement segment(+35% YoY) which resulted in operational efficiency. Moroever, in this quarter, company witnessed the strongest demand for CVs (~30% in TBR and TBB), PVs and 2W/3Ws. OTR segment grew 42% YoY due to increase in the domestic farm sector and exports. The company expects the RM basket to increase by 10% sequentially due to sharp surge in rubber and crude oil prices. Adjusted net profit stood at INR 1,417 mn (est.983 mn) strong performance on operational front. Focus on brand value with new client acquisition to increase market share gains...

Background: CEAT is one among the top four tire manufacturers in India and is a part of the RPG group. The company has a total manufacturing capacity of 0.1mn + tyres/day with plants situated in Nashik, Bhandup (Mumbai),Ambernath, Halol, Nagpur and Sri Lanka. The company manufactures all tires: Truck & Bus (33%), 2W/3W (30%), Passenger vehicles (13%), LCV (8%), Farm (9%), and Specialty (7%). In terms of market, replacement contributed 71% of the sales while OEM and exports make up 17% and 13% of the sales, respectively in 3QFY21. CEAT has a robust distribution network consisting of over 3,400+ dealers, 33 regional offices...

CEAT's 3QFY21 consol results beat our estimates with margin sustaining at 14.8% expanding 440bp YoY (PLe 11.5%), despite RM headwinds (+1.5% increase in RM/kg) and lower replacement mix (~65% v/s ~70% in Q2). With continual healthy growth in replacement segment and likely price rise, we expect margins to remain elevated at 13.5-14% even in 4Q. However, it can normalize at 11.5-12% in FY22/23 led by a) replacement mix normalizing to...

CEAT's 3QFY21 stellar performance was driven by strong volume growth and lower than estimated RM cost inflation. Strong demand is expected to enable pass-through of RM cost inflation, help utilize recent capacity additions, drive FCF generation, and deleverage the Balance Sheet. We upgrade our FY21E/FY22E EPS by ~21%/14% to factor in expected increase in volume growth and price hikes. We see catalysts in the form of strong demand and robust margin to rollback underperformance in the stock in FY21 YTD. Maintain Buy....

CEAT surprised positively on both revenue and earnings in Q3FY21, led by strong replacement demand and above-expected gross margins which could be a function of low-cost inventory.