MOSL: CEAT (Buy)-Weak demand, adverse mix, and inventory build-up hurt margins
CEAT: Weak demand, adverse mix, inventory build-up hurt margins
(CEAT IN, Mkt Cap USD0.6b, CMP INR1118, TP INR1370, 23% Upside, Buy)
- Price hikes drive revenue growth: revenue grew ~9% YoY (-2% QoQ) to INR17.1b (in-line) in 3QFY19, driven by 2% YoY (-5.4% QoQ) volume growth. The impact of RM cost inflation of 2.1% QoQ was offset by price hike of 2-3%. EBITDA declined 24% YoY (-10% QoQ) to INR1.4b (our estimate: INR1.6b) due to higher other expenses (+16% YoY/7% QoQ), impacted by adverse mix and inventory build-up. EBITDA margin contracted 80bp QoQ/360bp YoY to 8.3%, below our estimate of 9.2%. Adj. PAT declined ~37% YoY to INR528m (our estimate: INR646m).
- Earnings call highlights: (a) OEM growth outpaced replacement growth (slowed down in CVs and farm but expected to recover from Mar'19) in the quarter. Exports declined in double-digits. (b) RM cost is likely to gradually decline Mar'19 onward, with marginal benefit of lower RM cost in 4Q. (c) Company took price hike of 2-3% in 3Q, of which ~1% was rolled back in Jan'19. (d) Capex (ex-maintenance & OTR capex) for FY19 at INR11b-11.5b (deferred INR2b) and INR17-18b for FY20, but maintained at INR40b over FY19-22. (e) Capacity addition schedule on track, with TBR to come on board by 4QFY19, PCR & 2W by 2QFY20 and OTR by 4QFY20.
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.