Buy CEAT; target of Rs 1760: Cholamandalam Securities

Cholamandalam securities is bullish on CEAT has recommended buy rating on the stock with a target price of Rs 1760 in its research report dated October 29, 2018.

Broker Research

October 31, 2018 / 17:32 IST

Cholamandalam Securities' research report on CEAT

In 2QFY19, CEAT’s consolidated revenue grew by 15.2% YoY to INR 17.5bn and standalone revenues grew by 14% YoY to INR 17.2bn, largely driven by volume growth of 12.5% YoY and realizations growth of ~2.5% YoY. The volume growth was broad-based with all major business segments posting double digit growth. EBITDA margins contracted by 240bps YoY and 120bps QoQ on account of higher raw material costs which were up by 3.5% QoQ on a per ton basis . Management expects to see a further increase in Raw material prices in 3QFY19 by 5% over 2QFY19.

Outlook

The company has had an impressive volume growth momentum of ~15% in 1HFY19.The price increase of 2%/4% would help in coping up some of the RM pressure on account of rising crude prices At CMP, the stock is trading at P/E of 12.7X/10.3x on FY19E/FY20E EPS, respectively. We maintain our BUY rating on CEAT with revised target price of INR 1,760, assigning a P/E of 16X on FY20 EPS.

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