Accumulate CEAT; target of Rs 2992: Prabhudas Lilladher

Prabhudas Lilladher recommended accumulate rating on CEAT with a target price of Rs 2992 in its research report dated July 20, 2024.

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July 23, 2024 / 12:52 IST

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Prabhudas Lilladher's research report on CEAT

CEAT’s 1QFY25 revenue increased by 8.8% YoY, missing PLe/BBGe by 2%/8%. Growth in revenue was led by healthy demand in the replacement market. Despite pricing initiatives, rise in key input prices resulted in gross margin declining by 184bps YoY to 39.2%, against PLe/BBGe of 42%/40.8%. As a result, its EBITDA declined by 1.1% YoY to Rs3.8bn and margin contracted by 120bps YoY to 12% (PLe: 13.2%; BBGe: 14.4%). The management indicated have increased the prices across its product portfolio and it would further be taking price hikes, which shall aid mitigate some of the input cost pressure; however, margin could continue to be in the similar profile given the significant rise in input cost and lag in passing on price hikes. Given the input cost pressure, we lower our EBITDA/EPS estimates by ~3/6% for the forecasted period. Overall, the demand momentum has remained stable, while the company’s focus on scaling margin accretive products shall drive growth in the long term.

Outlook

We estimate its revenue/EBITDA/APAT to increase by 10.5%/9.1%/12.3% over FY24-26E. We retain our ‘Accumulate’ rating with a revised target price of Rs2,992 (previous Rs3,017) valuing it 14x on its FY26E EPS.

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