MOSL: CEAT (Buy)- Op. performance in-line-RM cost inflation impact curtailed by price hike
CEAT: Op. performance in-line; RM cost inflation impact curtailed by price hike
(CEAT IN, Mkt Cap USD0.8b, CMP INR1324, TP INR1588, 20% Upside, Buy)
- Higher ad spends, RM dent margins QoQ: 1QFY19 consol. revenue grew ~17% YoY (+2% QoQ) to INR17.1b (in-line), driven by 18.5% YoY volume growth. Adverse mix resulted in ~1.5% YoY decline in realization. Gross margin shrank 40bp QoQ (+520bp YoY) to 39.3% (est. of 38.8%) due to crude-related RM cost inflation and INR depreciation. Further, higher ad expenses during the quarter (100bp) resulted in ~150bp QoQ contraction in EBITDA margin to 10.3% (+660bp YoY). Adj. PAT grew 56x YoY to INR735m (est. of INR843m), impacted by a higher tax rate.
- Earnings call highlights: (a) CEAT witnessed healthy growth across segments, with growth of over 20% in CVs and over 15% in 2Ws. Both OEM and replacement segments witnessed robust growth. (b) Expect further RM cost inflation (by 2-3% QoQ) in 2QFY19. To mitigate this impact, management expects to take ~1% price hike in 2Q. (c) Took an average price increase of 1.5-2% in 1QFY19. (d) ~1% price hike was taken in 2Ws in Jul’18, which implies that price gap vis-à-vis competitors has now widened. (e) Implementation of new axle load norms could lead to development of new tyres with increased rim size. Testing of new tyres would take ~six months. (f) De-bottlenecking of PCR capacity in next one month.
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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