Accumulate CEAT; target of Rs 133: PLilladher

Prabhudas Lilladher`s research report on CEAT

"CEAT is mainly focusing on increasing its market share in motorcycles as well as UVs by introducing new products, increasing its distribution reach as well as investment in brand building. At the same time, management indicated that the exports (~22 percent of net sales) could increase to 25 percent in a couple of years. With the Bhandup plant operating at 80 percent utilisation levels, Mr. Goenka categorically mentioned that the Bhandup operations would not be shifted to Ambernath, thereby, putting to rest any assumption of sale of land at Bhandup. Natural rubber prices are expected to remain stable at Rs165/kg. The company is looking to reduce its debt by Rs1bn from the current ~Rs13bn. Capacity expansion at the Halol facility, coupled with stable rubber prices over the next couple of quarters, augurs well for the company.s prospects. We maintain our .Accumulate. rating on the stock with a TP of Rs133 based on 3x P/E multiple on FY14E basis.” “CEAT has gained 500bps in market share in the motorcycle segment to 19.0 percent in FY13. The company intends to further up its market share, given the new launches as well as brand-building exercise via marketing and ad spends. At the same time, the company has enhanced its reach to 350 districts currently from 200 earlier which has helped them increase their volumes, especially in the replacement market. They have lined up 20 new products in the motorcycle segment. On the OEM side, they are currently supplying to Royal Enfield, Bajaj Auto and Honda Motorcycles and Scooter India.” “Given the strong internal accruals in FY14E, we believe the debt could come down by Rs1bn as also indicated by the management in the meet. Capacity expansion at Halol facility, coupled with stable rubber prices over the next couple of quarters, augurs well for the company’s prospects. We maintain our ‘Accumulate’ rating on the stock with a TP of Rs133 based on 3x P/E multiple on FY14E basis,” says Prabhudas Lilladher research report.  Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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