Accumulate CEAT; target of Rs 1825: Prabhudas Lilladher

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Prabhudas Lilladher's research report on CEAT

We reduce our EPS estimates by 2/7% for FY24/25, to factor in weak volumes in replacement, exports and 2W OEM segments. In 3QFY23, CEAT’s revenue at Rs 27bn came in 3% below estimates led by higher than expected decline in QoQ volumes (-6.5% QoQ, growth of lower-single digit YoY). Management highlighted that demand for higher prices category i.e. Trucks/Buses/UVs continues to fare better than lower priced 2Ws, especially motorcycles. Replacement demand remains sluggish. In the near-term, exports may face some brunt due to recessionary environment. Margins to improve in quarters ahead, as commodity basket decline 4% QoQ in 3Q; and will further decline by 2-3% in 4Q.

Outlook

In the near-term, low export volumes, moderate growth in replacement sales and higher interest costs may put pressure on profitability. Yet correction in commodity cost coupled with further price hikes would aid margin expansion, in our view. Maintain ‘Accumulate’ with revised TP of Rs 1,825 at 14x Dec-24E consolidated EPS (Rs 1,775 earlier 14x on Sep-24E EPS).

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CEAT - 27 -01-2023 - prabhu