Buy Ceat; target of Rs 149: Mircosec

Mircosec is bullish on Ceat and has recommended buy rating on the stock with a target of Rs 149 in its August 23, 2012 research report.

"Ceat Ltd is planning to invest 250 crore for setting up green field bias tyre plant in Bangladesh with an initial production capacity of 65 tonnes per day. The Bangladesh plant will make cross-ply tyres for trucks, light and small commercial vehicles and two-wheelers for the local market which is currently around Rs. 1,000 crore. It is expected to grow to around Rs. 1,200 crore by 2015. The firm aims to capture 40% of the projected demand of cross-ply tyres in the region by 2015."

“In the past, auto industry has registered an extraordinary sales growth of 30% in Original Equipment Manufacturer. As per SIAM, the overall industry is expected to grow around 9%-11% for FY13E. OEM segment contributed around 26% of the total turnover in 2011-12 in the replacement market and is expected to register a growth of 11-13 % in 2012-13. Going forward we expect the demand coming from replacement market will drive the volume and margin for the company.  Amidst all the gloom and doom in the auto industry, tyre companies have something to cheer in the form of fall in rubber prices. Despite the falling rupee and sluggish demand, the correction in rubber prices may result in margin improvement for tyre companies in the coming quarters offering much needed margin relief. Domestic prices have come down from a peak of Rs.240/ kg in April 2011 to around Rs 169/kg now.”

“The Indian tyre industry is expected to continue its growth and is likely to witness a turnover growth of 10% CAGR during the period between FY’13 -14. Tyre industry is capital intensive and hence the current high interest rate scenario and other constraints remain as strong entry barriers, enabling sustainability to existing players. In India 66% of tyre demand comes from replacement market, in which the T&B (Truck &Bus) segments contribute 60% of the total volume. T&B tyre segment is highly dominated by CEAT, Apollo, MRF, JK tyre and Birla. Currently top four players have 85% market share in Indian tyres Industry. With rubber prices expected to remain weak in the near future, we maintain our positive outlook on Ceat Ltd. At the CMP of Rs 122.65, the stock is trading at 3.7x its FY13E EPS of INR33.0 and 3.1x its FY14E EPS of Rs 39.47. We assign a multiple of 4.5 xs to its FY13E EPS to arrive at a Target price of Rs149 (i.e an upside of 21%),” says Microsec research report.

Non-Institutions holding more than 90% in Indian cos

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