MOSL: CEAT (Buy) - Op performance in-line; encouraging recovery since June
CEAT: Op performance in-line; encouraging recovery since June
(CEAT IN, Mkt Cap USD0.7b, CMP INR1367, TP INR1775, 30% Upside, Buy)
Price increases to pass on cost inflation happening gradually
- CEAT's 1QFY22 operating performance was in-line, but higher depreciation and interest impacted PAT. Demand recovery has been encouraging since Jun'21 and is back at 2HFY21 levels. While cost inflation is moderating, the industry is taking gradual price increases to dilute the impact.
- We cut our FY22E/FY23E EPS by ~15%/7%, factoring in RM cost inflation, higher depreciation, and higher interest cost. Maintain Buy.
Price hike dilutes cost impact; capitalization drives higher depreciation
- Revenue/EBITDA grew 70%/63% YoY (-17%/-36% QoQ) to INR19b/INR1.66b in 1QFY22.
- Volumes declined 21% QoQ and OEM/replacement volumes were down 30%/20%, while exports grew in the mid-single digits. ASP was up 4% QoQ.
- Gross margins contracted 130bp YoY (-310bp QoQ) to 38.9% (est. 40%), reflecting RM cost inflation (12% QoQ increase) and an adverse mix.
- The EBITDA margin declined 40bps YoY (-270bps QoQ) to 8.7% (est. 9.1%), further impacted by op. deleverage, but partially offset by lower ad spends.
- Higher depreciation costs (due to the capitalization of ongoing capex) and interest expenses (due to an increase in debt) hurt PAT - which stood at INR240m (est. INR339m; v/s loss of INR155m in 1QFY21 and PAT of INR1.53b in 4QFY21).
- Gross debt increased by INR3.67b QoQ to ~INR17.85b on higher working capital and capex.
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.
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