Hold Ceat; target of Rs 122: Nirmal Bang

Nirmal Bang has recommended hold rating on Ceat with a target of Rs 122, in its February 11, 2013 research report.
 
“CEAT reported results above expectation resulting from improvement in volumes and benefit of lower raw material cost. Although volumes witnessed an increase, the average realization was lower due to the change in product mix (shift from replacement to OEM) and marginal increase in discounts. EBITDA margins witnessed an improvement on expected lines resulting from the benefit of lower raw material cost which was partially offset by increase in employee expenses and other expenses (brand building and advertisement).”
 
“CEAT reported one-time VRS payment to nearly ~180-190 employees of Rs 13.66 cr at the Bhandup plant. Adjusted consolidated PAT increased from Rs 12.34 cr in Q2FY13 to Rs 31.86 cr in Q3FY13.  Resulting from subdued demand in the domestic auto industry (particularly replacement demand) the top line performance of most of the tyre companies has been impacted. Following the steep fall in natural rubber prices, the margins witnessed an improvement which is likely to continue in Q4FY13E as rubber prices tend to remain lower. Though management has indicated improvement in margins we believe that slowdown may force tyre manufactures to reduce prices and if the slowdown continues in Q1FY14 as well then we may see some margin pressure coming up in FY14E.”
 
“We remain cautiously optimistic on the overall performance of the company considering the slowdown in the auto industry.  Nevertheless, improving operating performance led by improving utilization at the Halol plant, changing product mix (radial vs bias), expanding presence (tapping new geographies) and attractive valuations continue to be the key positive for the company.  At CMP, the stock is trading at P/E of 3.6x FY13E and 3.2x FY14E earnings with an EV/EBITDA of 3.58x and 3.27x which we believe are lower as compared to peers. We continue to maintain our HOLD rating on the stock with a target price of Rs 122 indicating upside of 18.7% from current levels,” says Nirmal Bang research report.

Non-Institutions holding more than 90% in Indian cos

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