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Ceat reported turnover of `843cr (`719cr) for 2QFY2011, up 17.1% yoy. The company’s
top line has been recovering following the uptick in OE volumes; however, during
1HFY2011 and 2QFY2011, capacity constraints restricted top-line growth. The company
posted operating profit of `43.9cr (`106.6cr) for 2QFY2011, a decline on both yoy and
qoq basis primarily due to the spurt in rubber prices, which resulted in a substantial
1,677bp yoy increase in raw-material cost at 69.2% (52.4%) of sales in 2QFY2011. OPM
for the quarter stood at 5.2% (14.8%). Net profit came in at `15.3cr (`61.5cr) for the
quarter. Higher input costs and increased interest and depreciation impacted the bottom
line, which fell by 75% yoy while increasing 10% qoq. In view of the apparent structural
shift that the tyre industry is going through, the stock is available at attractive valuations.
We retain our Buy rating on the stock with a Target Price of `205.
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