Ceat Ltd. share price target

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 (30%), 2W/3W (32%), Passenger vehicles (14%), LCV (11%), Farm (6%), and Specialty (6%). In terms of market, replacement contributed 58% of the sales while OEM and exports make up 27% and 15% of the sales, respectively. CEAT has a robust distribution network consisting of over 4,500 dealers, 33 regional offices and more than...

Higher Capex and Debt to Impact Profitability CEAT has delivered a strong operating performance in 2QFY20. Its EBIDTA margin was 110bps higher than our estimates, supported by lower commodity cost, while EBIDTA was 14% higher than our estimate. Its volume declined 3% YoY due to subdued sales in OEM segment, flat volumes in replacement and single digit growth in exports. Its consolidated revenue fell by 5% YoY and 4% QoQ to Rs17.5bn. Consolidated EBIDTA declined by 5% YoY (+3% QoQ) to Rs1.7bn, while adjusted PAT fell by 46% YoY as well as 46% QoQ to Rs445mn due to higher depreciation and interest outgo. EBIDTA margin improved 10bps YoY (+53bps QoQ) to 10.1% vs....

We attended CEAT's annual Investor day and are downgrading the stock Change in Estimates | Target | Reco from Hold' to Reduce' on account of further downside that we see to margins and rise in debt levels. Given the various capacity expansions (capex of...

We attended CEAT's annual Investor day and are downgrading the stock Change in Estimates | Target | Reco from Hold' to Reduce' on account of further downside that we see to margins and rise in debt levels. Given the various capacity expansions (capex of...

CEAT's consolidated Q4FY19 revenues grew 5.2% YoY to Rs 17.6bn supported by a ~6% increase in realisations. EBITDA dropped 18% YoY as margins slipped 260bps to 9.2%. A lower tax rate slowed the decline in adj. PAT to 2% YoY at Rs 926mn. As per management, the demand climate remains challenging due to sluggish OEM sales as well as a replacement market slowdown, while rising crude and rubber prices could inflate RM costs. We trim FY20/FY21 EPS by 3%/6% to bake in lower revenues and roll over to a Mar'20 TP of Rs 1,350 (Rs 1,430 earlier)....

Earnings call highlights: (a) Price cut of ~1% across products in the replacement segment. (b) Replacement segment remains sluggish. But, industry should grow in single-digits. CEAT hopes to outperform driven by TBR & PCR capacity addition. (c) With inflation in crude and international rubber prices, it expects some cost pressures to reflect in 2QFY20. In a weak demand environment, it sees limited scope for a price hike in the near future, and hence, margins should be under stress. (d) FY20 consol. capex guidance is at INR15-16b (~INR11b in FY19). 2W capacity should start in the...

CEAT Q4 numbers were broadly in line with estimates. Consolidated revenue grew by 5.2% YoY to ` 17.6bn led by 6% increase in ASP partially offset by 1% de-growth in volume (affected by slowdown in both OEMs and replacement market). EBITDA fell 17.8% YoY to ` 1.62bn with muted margin at 9.2% (+100bps QoQ/-260bps YoY) led by negative operating leverage and higher ad spend. We believe that slowdown in replacement segment would continue in Q1 (especially in CV segment as business at ground level is pretty muted), while OEM production level would further...

CEAT's Q3FY19 reported standalone operating margin at 8.3%, down 405bps Change in Estimates | Target | Reco quarter were down 170bp (despite RM/ton up 2% qoq) on account of a finished...

revenue grew ~9% YoY (-2% QoQ) to INR17.1b (in-line) in 3QFY19, driven by 2% YoY (-5.4% QoQ) volume growth. The impact of RM cost inflation of 2.1% QoQ was offset by price hike of 2-3%. EBITDA declined 24% YoY (-10% QoQ) to INR1.4b (our impacted by adverse mix and inventory build-up. EBITDA margin contracted 80bp QoQ/360bp YoY to 8.3%, below our estimate of 9.2%. Adj. PAT (a) OEM growth outpaced replacement growth (slowed down in CVs and farm but expected to recover from Mar19) in the quarter. (b) RM cost is likely to gradually decline Mar19 onward, with marginal benefit of lower RM cost in 4Q.

Strong focus on PCR, 2W and OHT bodes well for margins We met CEAT's MD Mr Anant Vardhan Goenka and CFO Mr Kumar Subbiah at the RPG Annual Investor Conference 2018. Key takeaways: CEAT plans to invest INR35-40b over the next 3-5 years to expand its capacity. This would lead to its capacity increasing by ~50% post full ramp-up in FY21. Majority of this capex is directed toward its focus areas of passenger car radial tyres...