MOSL: CEAT (Buy)-Above est. led by lower RM-Stable costs and price hike to aid margins
CEAT: Above est. led by lower RM; Stable costs and price hike to aid margins
(CEAT IN, Mkt Cap USD0.5b, CMP INR804, TP INR989, 23% Upside, Buy)
- Higher realizations, lower RM costs boost margins: 1QFY20 consol. revenues grew 3% YoY (flat QoQ) to INR17.5b (v/s est. INR 17.7b). While volumes remained flat, realization grew 2-3%. EBITDA margins expanded 30bp QoQ (-80bp YoY) to 9.5% (v/s est. of 8.5%), driven by lower RM costs and IND-AS116 related lower other expenses (~60bp). Higher depreciation and interest cost resulted in adj. PAT decline of 14% YoY (-21% QoQ) to INR629m (v/s est. of INR510m).
- Earnings call highlights: (a) New capacities are on track; TBR started in 4QFY19, with full ramp-up expected in 12-14 months; PCR will start in Dec'19 with planned ramp-up over 2-3 years; and 2W should start in Sep'19 and ramp up in 1.5-2 years. (b) For the new PCR capacity, company has a large order book from OEMs, which will take care of initial capacity. (c) TBR price increase in Jul'19 and another in next few days, totaling to 1.5-2% increase. (d) RM prices are stable at 1QFY20 level as increase in natural rubber is expected to be off-set by crude price decline. (e) Capex of INR2-3b deferred by a year. Company expects to invest INR13-14b for capacity (incl. OTR) in FY20 and INR11-12b in FY21.
- Valuation and view: We are lowering our FY20/FY21 consol. EPS estimates by 13% each to factor in lower OEM volumes as well as higher depreciation and interest. The tyre industry is facing the double whammy of weak demand and substantial capacity additions (particularly in 2Ws and PCR). This would test pricing discipline of the industry. The stock trades at 15.3x/12.1x FY20/FY21E EPS. Maintain Buy with TP of ~INR989 (14x Jun'21 consol. EPS).
CEAT Limited is engaged in manufacturing and sale of automotive tires, tubes and flaps. The Company manufactures radials for a range of vehicles. It offers products for light commercial vehicles (LCVs), motorcycles, scooters, cars, farm vehicles and trailers, off the road (OTR)/specialty vehicles and trucks, among others. It has capacity to produce approximately 95,000 tires per day. The CEAT Bike tires include CEAT Zoom, CEAT Zoom Tubeless, F67, F85, Milaze, Secura Sport and Secura Zoom, among others. Its scooter tire range includes Gripp and Zoom D. Its car tire range includes BT, Czar AT, Czar HT, Rhino and Rhino TQ. It offers Buland and Buland Mile XL RIB for LCVs. It offers Anmol SL and Buland Mile XL for autos. Its tire range for farm and agriculture vehicle includes Aayushmaan Front, Aayushmaan Rear, Samraat Front and Samraat Super Front. It has developed OTR or specialty tires for mining, quarrying, rock excavation, construction and port applications.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.