Angel Broking bullish on Ceat, McLeod Russel

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Angel Broking bullish on Ceat, McLeod Russel

Rajen Shah, Chief Investment Officer at Angel Broking is bullish on Ceat and McLeod Russel post impressive Q3 earnings performance. However, Shah is negative on Dish TV and NMDC subsequent to Q3 earnings coming in below expectations.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ News and Notices about Ceat See interviews with Ceat Management See what other Experts & Brokerages are saying about Ceat See previous Results of Ceat Ceat BSE | NSE 31/05/12 Are Mutual Funds betting on Ceat?

On Ceat

The margins have shrunk from almost about 14% to about 7% or so because last quarter rubber prices were at about Rs 85-90 per kilogram (kg), crude oil was at about USD 50-55 per barrel and now crude has moved up to USD 80 per barrel. Even rubber prices went up by almost 60%, so rubber prices currently stand at about Rs 140 kg compared to almost about Rs 85-90 kg in the last quarter. So, sequentially the performance has not been up to the mark, but if you see on a year-on-year (YoY) basis, certainly the company has done exceptionally well. There is a 30% kind of topline growth.

The OEM demand is pretty firm, replacement demand is very robust and Ceat, which has almost 75% of its turnover from replacement market, has done exceptionally well from a loss of about Rs 21 crore, it has reported about Rs 24 crore of profit. I think margins will be maintained at about 6.5-7% in the coming quarter. So we do expect this year to be reasonably fine. But the interesting thing, the reason why I have said it is a hit is if you see the market cap of this company, it is about Rs 500 crore and it owns 24 acres at Bhandup, the value of that is about Rs 450 crore. So take out that land, you are getting a company with Rs 3,000 crore of turnover just for Rs 50 crore.

If you compare MRF and Ceat, Ceat is half the size of MRF, but its market cap is one-fifth of MRF. So we do expect Ceat to outperform in the tyre space.

On NMDC

I have taken earnings into consideration as well as the valuations. When I say that it is a miss, what I meant is that yes, earnings if you see they have not been too good if you compare it vis-à-vis Sesa Goa. While Sesa Goa's profits are up about 31%, NMDC's profit if you do like-to-like comparison last quarter of 2008 had about Rs 1,000 crore of higher income on account of price realizations. So if you do like-to-like comparisons, yes the turnover has gone up by about 18% or so and profits have gone up by about 20-22%, but if you compare it with Sesa Goa, the growth in the bottomline could have been better.

Yes, iron ore prices have moved up significantly over the past two months, almost about 20% kind of rise in iron ore prices, realizations will be better and we expect this company to report almost about Rs 15 kind of earnings for 2011. But the valuations are a little stretched, hardly there is 1-1.5% kind of floating stock in the market and that keeps the stock at a very fancy kind of P/E multiple almost 35-38 kind of P/E multiple. So certainly yes, it is a miss for me as far as performance and valuations are concerned.