Visit http://indiaer.blogspot.com/ for complete details CEAT – 2QFY2011 Result Update:Performance Highlights
Ceat’s top-line has been recovering following the uptick in OE volumes.
However, during 1HFY2011 and 2QFY2011, capacity constraints restricted
top-line growth. EBITDA margins came in marginally lower than our expectations
at 5.2%. Margins declined by 962bp yoy due to the sharp increase in rubber
prices. Net profit fell following the steep decline in margins. Nonetheless, on
account of attractive valuations, we maintain our estimates as well as the
Buy recommendation on the stock.
Top-line up 17.1%; OPM at 5.2% marginally below expectation: Ceat clocked
turnover of `843cr (`719cr) for 2QFY2011, an increase of 17.1% yoy.
Top-line growth was aided by ~54.4% yoy growth in OE revenues and ~21.6%
yoy growth in replacement revenues. Total volumes during the quarter increased
8% yoy to 19lakh units (17.6lakh units in 2QFY2010). Operating profit at `44cr
(`107cr) dipped on yoy and qoq basis primarily due to the spurt in rubber prices
leading to substantial 1,677bp yoy increase in raw material cost at 69.2%
(52.4%) of sales in 2QFY2011. Net profit at `15cr (`61cr), registered a decline of
75.2% yoy.
Outlook and Valuation: We believe that strong demand, prevailing high capacity
utilisation levels and higher investment requirements would help the Indian tyre
industry to arrest the sharp decline in margins despite the upward move in input
costs (rubber and carbon black). Thus, we maintain a Buy on Ceat, with a Target
Price of `200, at which level the stock would trade at 5x, 5.1x and 0.9x FY2012E
EPS, EV/EBITDA and P/BV, respectively.
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