Buy CEAT; target of Rs 3017: Prabhudas Lilladher

Prabhudas Lilladher's research report on CEAT

It was a decent Q4FY24 performance from CEAT with revenue growth in line with PLe while it came in 3.2% lower than consensus. The growth in revenue was driven by volume growth in replacement market and exports business. Its RM basket remained similar to Q3FY24, which aided in gross margin expansion of 216bps YoY/96bps QoQ to 42.3% (PLe: 41.4%; Consensus: 41.3%). High other expenses and EPR provisions suppressed EBITDA and profitability during the quarter. We believe margins could be marginally impacted by rise in rubber prices as well as EPR provisions, however, management aims to mitigate the risk of increasing RM through pricing actions as well as through improved product mix. Overall the demand momentum looks quite optimistic while its focus on scaling its exports business to 25% in the next couple of years shall aid in stable revenue and volume growth. Factoring this, we estimate its revenue/EBITDA/APAT to grow at a CAGR of 10%/9%/13% over FY24-FY26E.

Outlook

Given its focus on improving efficiencies and increase its exports business, we upgrade our rating from “Accumulate” to “Buy” with a revised TP of Rs 3,017 at 14x on its FY26E EPS.