Accumulate CEAT; target of Rs 1775: Prabhudas Lilladher

Prabhudas Lilladher's research report on CEAT

CEAT reported revenue growth of 3% QoQ at Rs 28.8bn, largely led by ~4% blended price increase over 1Q. Overall volumes declined 1.5% QoQ. EBITDA margin at 7.1% expanded 120bps QoQ, led by improved realization. However, margins still remain below pre-COVID levels owing to reduced share from replacement sales (53% of sales currently vs ~60% earlier). Going ahead, domestic demand is expected to remain steady, whereas, exports could be under pressure in the near term owing to global recessionary scenario. Margins are likely to improve in the quarters ahead, as commodities have corrected within 15-25% range in last 6 months (RM cost basket inflated 4% in 2Q and is expected to decline 2-3% in 3Q). Debt levels may increase in 2HFY23 (up by ~Rs 2bn in 1HFY23) on the back of working capital and capex requirements.

Outlook

Although near term low export volumes, moderate growth in replacement sales and higher interest costs may put pressure on profitability, yet moderation in commodity cost coupled further price hikes would aid margin expansion, in our view. We increase our FY24/25E revenue estimates by 7% each, to factor demand recovery across segment and price hikes. Maintain ‘Accumulate’ with revised TP of Rs 1,775 at 14x Sep-24E consolidated EPS.

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CEAT - 08-11-2022 - prabhu