Buy CEAT; target of Rs 1741: Motilal Oswal

Motilal Oswal's research report onCEAT

4QFY17 revenue grew 5% YoY to INR 16.4b (est. of INR 16.5b), driven by volume growth of 4.4% and pricing mix. EBITDA margin shrunk 390bp YoY to 8.1%, impacted by gross margin contraction of 600bp, partly offset by lower other expenses. EBITDA fell by 29% YoY to INR 1,325m and adj. PAT by 25% to INR 798m (est. of INR 777m).

Outlook

In FY18, management is expected to take further price hikes, while volume growth will be driven by strong demand in UVs. In this view, we expect revenue/PAT CAGR of 10%/20%, driven by EBITDA margin expansion of 180bp to 12% over FY17-19E. We value the company at a P/E of 13x FY19E EPS, and continue maintaining Buy rating with a target price of INR 1,741 (15% upside).

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