Buy CEAT; target of Rs 1839: Edelweiss

Edelweiss' research report on CEAT

CEAT’s Q4FY18 EBITDA at INR2.0bn (up 44% YoY) came 8% below estimate due to adverse revenue mix and raw material cost pressure. Management has pegged FY19 capex at INR15-17bn (>25% FY18 sales) as the company is investing in a truck & bus radial tyre plant (production to commence in Q3) as well as a car radial tyre plant (to start in FY20). Hence, capacity is likely to jump 50% from current 1,000tonnes per day (TPD) over the next three years.

Outlook

Adverse mix and higher competitive intensity in the two-wheeler segment is likely to pressurise CEAT’s margin. Hence, we revise down FY20E EPS 4%. Maintain ‘BUY’ with revised TP of INR1,839 (earlier INR1,918).

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