Buy Ceat; target of Rs 104: Angel Broking

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Buy Ceat; target of Rs 104: Angel Broking

Angel Broking is bullish on Ceat and has recommended buy rating on the stock with a target of Rs 104 in its January 12, 2012 research report.

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Angel Broking is bullish on Ceat and has recommended buy rating on the stock with a target of Rs 104 in its January 12, 2012 research report.

"According to a press release with BSE, Ceat (CEAT) is considering to allot convertible warrants on a preferential basis to its promoters. We believe this development would improve investor sentiments on the back of promoters' confidence in the prospects of the company. Earlier, in September 2010, CEAT had issued 1,712,170 convertible warrants on a preferential basis to its promoters; however, they are yet to be converted. CEAT's promoters have also been steadily increasing their stake in the company to capitalize on the sharp fall in the company's stock price post the substantial increase in raw-material prices, which had impacted the company's profitability. Promoters have already hiked their stake from 48.47% in March 2010 to 50.2% as of September 2011. We estimate this stake to further increase to 52.6% upon the conversion of warrants issued in September 2010 (due for conversion in March 2012)."

"CEAT is ramping up its radial capacity at the Halol plant to 150TPD, which is likely to be fully operational by 1QFY2013. As a result, we expect the company's top line to witness a 21.4% CAGR over FY2011-13E. With the completion of the proposed expansion and availability of additional radial capacity, product mix is also set to turn favorable, which is expected to fetch better margins for CEAT. Additionally, pricing action (~10% in 1HFY2012) and decline in raw-material prices (down 20% from the peak) are expected to result in a 100bp margin expansion in FY2013. Therefore, we expect the company's bottom line to report a 60.9% CAGR over FY2011-13E."

"We expect CEAT to report continuous improvement in its operating performance, led by improving utilization at its Halol plant and a gradual decline in raw-material prices. Consequently, we estimate CEAT to post an EPS of Rs20.8 in FY2013E. At Rs83, CEAT is trading at 4x FY2013 earnings. We continue to maintain our Buy recommendation on the stock with a target price of Rs104, valuing it at 5.0x FY2013E earnings. We believe monetization of surplus land at Bhandup will further act as a positive trigger for the stock," says Angel Broking research report.         

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To read the full report click on the attachment