Buy CEAT, Dishman Pharmaceuticals: Angel Broking
Brokerage house Angel Broking is bullish on CEAT, Dishman Pharmaceuticals and has recommended buy rating on both the stocks with a target price of Rs 170 and Rs 132 respectively in its research reports dated August 2, 2013.
August 05, 2013 / 14:58 IST
Angel Broking's research report -
CEATFor 1QFY2014, the standalone top-line reported a better-than-expected growth of 7.8 percent yoy to Rs 1,280cr despite the sluggish demand environment in the domestic markets. The top-line was driven by a strong volume growth of 10.7 percent led by a volume growth of 28.2 percent yoy in the OEM segment on back of the new partnerships with Royal Enfield, Volvo-Eicher and Bajaj Auto. The net average realization however, declined by 2.7 percent yoy on account of an adverse product-mix (higher OEM share) and also due to price cuts undertaken during the quarter. The operating profit surged 43.5 percent yoy (8.2 percent qoq) to Rs 151cr driven by a 293bp yoy (115bp qoq) expansion in operating margins led by a 12.4 percent yoy decline in natural rubber prices. The raw-material expense as a percentage of sales fell 570bp yoy (187bp qoq) during the quarter. Nevertheless, other expenditure witnessed a sharp jump of 27.5 percent yoy (5.7 percent qoq) due to increased marketing spends, which arrested further margin expansion in our view. Led by a strong operating performance, the net profit increased 126.8 percent yoy to Rs 58cr, ahead of our expectation of Rs 38cr. Sequentially though, it declined by 4.1 percent primarily due to a higher tax outgo. Tax rate stood at 33.1 percent as against 22.4 percent in 4QFY2013.Outlook and valuation: We retain our positive view on Ceat and believe that the company will continue to benefit from the softening of commodity prices. However, slowdown in demand environment remains a concern as the replacement demand has not picked up as anticipated. Nonetheless, at Rs 118, the stock is trading at attractive valuations of 2.4x FY2015E earnings. We maintain our Buy rating on the stock with a target price of Rs 170.Dishman PharmaceuticalsDuring the quarter, Dishman reported a de-growth of 2.9 percent yoy in the top-line to end the period at Rs 306cr. The dip in sales was on back of the MM segment, which de-grew by 22.0 percent, while the CRAMS segment grew by 8.6 percent yoy. The OPM came in much higher at 27.8 percent, ie an expansion of 133bp yoy. The expansion in margins was on back of gross margin improvement, which expanded by 211bp. However, a 21.3 percent yoy and 30.4 percent yoy rise in interest and depreciation expenses during the period led the net profit to decline by 24.5 percent during the period.Outlook and valuation: We expect Dishman's net sales and net profit to come in at Rs 1,534cr and Rs 133.6cr, respectively, for FY2015. At current levels, Dishman is trading at 2.9x and 2.6x FY2014E and FY2015E earnings, respectively. We believe that the current valuations are attractive; hence, we maintain our Buy recommendation on the stock with a target price of Rs 132.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. 
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