Dolat Capital Market recommended accumulate rating on CEAT with a target price of Rs 1223 in its research report dated October 28, 2020.
Dolat Capital Market's research report on CEAT
CEAT’s 2QFY21 consol results beat estimates with margins expanding by 470bp YoY at 14.8% (PLe 11.6%) led by lower RM basket (-9% YoY), higher replacement mix at 70% (v/s 60% YoY). We expect reversal in margins to normalized levels at 11-12% in 2HFY21 led by a) increased share of OEM in sales mix with volume recovery across segments, b) higher RM prices by 2- 3% QoQ. To factor in for CSTL merger and better performance at CEAT, we raise FY21/22/23 consol EPS 8.2%/7.1%/5% and factor in revenue/EBITDA/PAT CAGR of 8.7%/13.9%/10.2%.
With reduced capex intensity (cumulative capex of Rs11b in FY22/23 v/s Rs23b in FY19-21) we expect CEAT to turn FCF positive and generate FCF of Rs6.5bn in FY22/23. Consequently, we maintain Accumulate with revised price target of Rs1,223 (earlier Rs1,136), based on 15x Sep-22 consol EPS.
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