Hold CEAT; target of Rs 2430: Prabhudas Lilladher

Prabhudas Lilladher's research report on CEAT

We increase our FY24/25E EPS estimates by 5%/4%, to factor in benefit of lower RM (1.5% QoQ) on EBITDA margin expansion. In 1QFY24, CEAT’s revenue grew 4.7% YoY helped by volume growth of 1.5% YoY and 3.1% growth in blended realizations. The company expects high margin replacement, exports improvement and fall in OEM mix for FY24. The LCV segment declined compared to others and management expects this momentum to continue post good rainfall. RM cost is expected to remain in narrow range and CEAT has not passed on benefits of lower RM to replacement buyers yet. Further, interest costs have increased by 80-90bps QoQ and will increase by another 30-40bp. Exports market recovery may be slow due to anticipated slowdown in Europe in FY24. We expect near term pressures on profitability given 1) impact on export, 2) moderate growth and 3) higher interest costs. Yet correction in commodity cost coupled with cost control would aid margin expansion, in our view.

Outlook

The stock is trading at 18x/16x FY24/FY25, above historical levels. Maintain ‘HOLD’ with revised TP of Rs 2,430 (Rs 2,330 earlier) at 15x Mar-25E consol. EPS.