MOSL: CEAT (Buy)-RM inflation diluted by price hikes-Volume outlook strong
CEAT: RM inflation diluted by price hikes; Volume outlook strong
(CEAT IN, Mkt Cap USD0.6b, CMP INR1106, TP INR1343, 21% Upside, Buy)
- Raw material inflation, one-off labor cost dents margin QoQ: 2QFY19 consol. revenue grew ~15% YoY (+3% QoQ) to INR17.5b (in-line), driven by 12.4% YoY (1.4% QoQ) volume growth. RM cost inflation of 3.5% QoQ was diluted by price hike of 1.7% and favorable revenue mix. Further, higher staff cost and marketing spend impacted EBITDA margin, resulting in 120bp QoQ decline to 9.1% (est. 9.6%). Adj. PAT declined ~17% YoY to INR644m (est. INR751m). CEAT’s 1HFY19 revenue/PAT grew by 16%/74%, respectively, implying residual growth in 2HFY19 of ~10%/-23%, respectively.
- Earnings call highlights: (a) CEAT witnessed healthy growth across segments with robust growth across OEM and replacement segments, (b) expect further raw material (RM) cost inflation of ~3.5% QoQ in 3QFY19, (c) took an average price increase of 1.7% in 2QFY19, and further hike of 4% in 2Ws and 2% in TBR in Oct’18 (in line with industry). Further prices hikes would be required to fully off-set RM inflation, (d) management revised capex guidance for FY19 to INR13-15b (from INR15-17b earlier). However, overall capex of INR35b is maintained, with the timeframe extending beyond FY20, and (e) working capital reduced by ~INR1.4b in 1HFY19, driven by an improvement in inventory and receivables as well as increase in payable days.
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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