Mutual Funds Commodities Research Tax Planning IPO Our Team Contact Us  
Google
Web www.equitybulls.com
Research

| More

CEAT - Replacement demand drives outperformance - ICICI Securities

Posted On: 2020-10-29 05:44:45


CEAT's Q2FY21 performance was an all-round beat on consensus expectations. EBIDTA margins came in at 14.8%. The strong margin performance was due to: a) improvement in product mix (replacement share up 30%); b) lower commodity prices on crude-linked derivatives (e.g. carbon black); and c) internal cost control. Management indicated ramping up operations to cater to OEM, replacement demand aided by import restrictions has supported volume growth. Strong operating cashflows, cost control measures and prudent capex are expected to help keep debt levels in check. Demand outlook for Q321E remains positive however management visibility for demand beyond the same remains low. Maintain BUY.

Key highlights of earnings call:

- The gross margin improvement was largely driven by: i) reduction in raw material costs (~5%), lower carbon black prices; ii) improved product mix (replacement segment grew 30% YoY) and iii) strong cost control measures.

- Management indicated likely margin pressure in Q3/Q4 as raw material costs edge higher by 2-3% QoQ (natural rubber up 28% MoM) and product mix shifts towards higher OEMs sales for the festive period.

- Income tax for Q2 was lower by Rs550mn, due to one-time impact of accumulated losses in CSTL consumed in Q2, as the company completes the merger of CSTL effective FY21. Effective tax rate for H2FY21 would trend higher to normal tax rate.

- Management indicated import restriction on tyres has aided domestic players as imports have gone down significantly. On M&HCV side, TBB segment has witness strong gains vis-à-vis TBR, CEAT's TBB capacity is operating at peak utilisations.

- Plant capacity and utilisation: In Halol plant, TBR segment currently operates at ~50% utilisation at 60k-70k units per month (total capacity 120k tyres); PCR currently operates at capacity of 20k tyres per day. In Chennai, PCR is operating at 3k-4k tyres per day on capacity of 20k tyres per day with another 10k units per day to be added in phase-2.

- CSTL business currently operates at 85-90% utilisation producing (30-35T per day) and will gradually be ramped up to 50-55T capacity in the current capex cycle.

- Company has reduced debt by Rs1.9bn to Rs18bn largely from operating cashflow management, reduction in working capital (Rs0.55bn) and delay in capex.

- Company has gained market share during the quarter (~16%) due to supply constraints in the industry and is likely to normalize at ~13-14% market share.

- CEAT plans for cost reduction of Rs1bn in utility costs, power and fuel costs, network redesign and employee costs, benefits of which will be visible in FY22E.

Valuation

As we enter H2FY21, we like the growth rebound story however are apprehensive on maintenance of such high margin levels, believe as the mix normalises (OEM vis-à-vis replacement), margins are likely to mean revert lower (10-12% band). Commodity price inflation of natural rubber (up ~28% MoM) also remains a key risk. We tweak our earnings estimates downwards (12%/-2%/-3% for FY21E/FY22E/FY23E) factoring in weak growth outlook. We value CEAT on SoTP basis, maintain our standalone multiple to 15x Sep'22E EPS of Rs87 (earlier: Rs89) and maintain the ascribed value of Sri Lanka business at Rs22 per share. We maintain our BUY rating on the stock with a revised target price of Rs1,323 (earlier: Rs1,356).

Shares of CEAT LTD. was last trading in BSE at Rs.1105 as compared to the previous close of Rs. 1146.45. The total number of shares traded during the day was 5854 in over 812 trades.

The stock hit an intraday high of Rs. 1153.5 and intraday low of 1100.8. The net turnover during the day was Rs. 6593208.


Source: Equity Bulls

Click here to send ur comments or to feedback@equitybulls.com



Disclaimer:The article above is a gist / extract of the original report prepared by the research firm / brokerage firm. This article is not to be considered as an offer to sell or a solicitation to buy any securities. This article is meant for general information only. www.equitybulls.com, its employees or owners or the research firms, its employees or owners won't be responsible for any liability that may arise from information, errors or omissions in these articles. www.equitybulls.com or its employees or owners / the research firms or its employees or clients or owners may from time to time hold positions in securities referred in this article. For detailed research reports, please contact the concerned research firm directly.





Other Headlines:

Motherson Sumi Systems - Company Update - Virtual Investor Conference - ICICI Direct

Mutual Fund Review - November, 2020 - ICICI Direct

Sadbhav Engineering - Q2FY21 Company Update - ICICI Direct

IRB Infrastructure - Q2FY21 Company Update - ICICI Direct

Vodafone Idea fund raising - Angel Broking

Rupee - Nov 23, 2020 - Reliance Securities

Crude Oil - Nov 23, 2020 - Reliance Securities

Q2FY21 Bank Result Quick Review - Angel Broking

Banks & NBFC's Sector Update Report - Yet another watershed moment? - HDFC Securities

Galaxy Surfactants - EBITDA/kg has an upside risk - ICICI Securities

Diagnostics - COVID-19 tests continue to trend higher - ICICI Securities

Banking & Financial Services - Sector Update - Nov 22, 2020 - ICICI Direct

Dalmia Bharat Sugar - Q2FY21 Company Update - ICICI Direct

Balkrishna Industries - Industry export growth momentum continues - ICICI Securities

Covid Recovery Pulse - Festive positivity continues in auto retails, E-way bill generation improves... - ICICI Direct

Quant Pick - Exide Industries - ICICI Direct

Shankara Building Products - Q2FY21 Company Update - ICICI Direct

Triveni Engineering - Q2FY21 Company Update - ICICI Direct

Initiating Coverage on Sudarshan Chemical - Leaping into the league of giants - HDFC Securities

Earnings Wrap Q2FY21: Earnings outperform, post Covid recovery picks up steam - ICICI Direct

Vodafone Idea Positive development beneficial for IDFC first bank - Angel Broking

Lakshmi Vilas Bank - Angel Broking

WIPRO Buyback record date announcement - Angel Broking

TCS buyback record date announcement - Angel Broking

Banks Sector Update - Collection efficiency - a positive surprise! - HDFC Securities

Quant Pick - Max Financial Services - ICICI Direct

Graphite India - Q2FY21 Result Update - ICICI Direct

Gladiator Stocks - Maruti Suzuki India - ICICI Direct

Exide Industries - Q2FY21 Result Update - ICICI Direct

Mishra Dhatu Nigam - Execution outlook remains strong - ICICI Securities

Bharat Electronics - Diversifying into multiple revenue streams - ICICI Securities

Wipro Ltd - Virtual Analyst Meet Update - ICICI Direct

Avadh Sugar & Energy - November 2020 - Company Update - ICICI Direct

Mahindra Lifespace Developers - H1FY21 Company Update - ICICI Direct

Quant Pick - Godrej Consumer Products - ICICI Direct

India Equity Strategy Report - Quarterly flipbook - HDFC Securities

Maintain REDUCE on Jubilant FoodWorks - Recovery continues; priced-in - HDFC Securities

Maintain BUY on Ahluwalia Contracts - Q2FY21 - Significant beat on execution - HDFC Securities

Repco Home Finance Limited - Q2 FY21 Result Update - YES Securities

JK Lakshmi Cement - Target upgrade - Angel Broking

BUY on Petronet LNG - Stellar quarter - HDFC Securities

Maintain BUY on Prestige Estates Projects - Capex cycle to gather pace - HDFC Securities

REDUCE on LIC Housing Finance - Tread with caution - HDFC Securities

SELL on New India Assurance - High claims ratio dents profits - HDFC Securities

New orders for L&T - Angel Broking

Cipla - Multi-G agreement - Angel Broing

REDUCE on Eicher Motors - 'Meteor' to drive sales; valuations remain expensive - HDFC Securities

BUY on Galaxy Surfactants - Highest volumes in a quarter - HDFC Securities

Repco Home Finanance - Q2FY21 Result - Angel Broking

NMDC - A single headwind against investment thesis - II - ICICI Securities



Website Created & Maintained by : Chennai Scripts
West Mambalam, Chennai - 600 033,
Tamil Nadu, India

disclaimer copyright © 2005 - 2019