Accumulate CEAT; target of Rs 1223: Dolat Capital Market

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%.

Outlook

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.