Dolat Capital's research report on CEAT
CEAT has displayed a decent operating performance in a relatively challenging demand environment led by cost control measures and reduction in promotional expenditure. Revenue de-grew 36% YoY to Rs 11.2bn, entirely attributed to volume. EBITDA de-grew 39% YoY to Rs 1.02bn with EBITDA margin at 9.1%. Replacement demand has witnessed a strong recovery after the lockdown was lifted and reached normal levels in the month of July. Management expects momentum to continue in the near to medium term. Being the market leader in 2W segment (31% of revenue share), and capacities in Specialty and Farm tyres (13% of revenue), the company has a well hedged portfolio to cushion the blow from downturn of CV demand. Company is focused on strengthening its existing relationships with OEMs and channel partners in order to efficiently manage working capital and cash. Given new capacities (TBR/PCR/2W), CEAT is now well positioned to benefit from the revival of the OEMs and replacement volume for medium to long term. The company is also aggressively working towards its reducing fixed cost through cost control measures. Although majority of the capex is already incurred, high leveraged balance sheet continues to put pressure on the near to medium term profitability.
AT CMP, stock is trading at 13/11x for FY22/23E EPS (vs historical mean of 16x). We roll forward our estimates from FY22 to FY23E and upgrade our rating to Buy with TP of Rs 1,092 (based on 14x FY23E Cons EPS).