CEAT - 4QFY2013 Result Review - Angel Broking

Ceat reported impressive performance for 4QFY2013 led by a strong sequential EBITDA margin expansion of 218bp on the back of the ~8% qoq decline in natural rubber prices. Consequently, net profit surged 98.6% qoq (47.1% yoy) to Rs. 61cr, which was significantly above our estimates of Rs. 35cr.

For 4QFY2013, standalone top-line reported a slightly better-than-expected growth of 7.1% yoy (8.8% qoq) to Rs. 1,311cr which was driven by a strong volume growth of 9.3% yoy (11.3% qoq). The total volumes in tonnage terms for the quarter stood at 59,000MT and were driven primarily by a strong 24.2% yoy (21% qoq) growth in the OEM segment led by new partnerships with Royal Enfield, Volvo-Eicher and Bajaj Auto. The replacement segment however, posted a muted growth of 1.2% as the demand in the segment remains weak. The sales-mix for 4QFY2013 in the replacement, OEM and export segments stood at 50%, 25% and 25% respectively as against 54%, 22% and 24% respectively in 4QFY2012. Ceat's net average realization in 4QFY2013 registered a decline of 2.2% yoy (2.4% qoq) largely due to adverse product-mix (higher OEM share in total-mix). On the operating front, EBITDA margins jumped sharply by 218bp qoq to 10.6% against our expectations of 8.8%, as raw-material cost as a percentage of sales witnessed a significant decline of 206bp qoq led by ~8% decline in the natural rubber prices. On a yoy basis, EBITDA margins expanded marginally by 28bp as benefits of lower natural rubber prices (down ~16% yoy) were offset by increase in higher employee and other expenditure (due to increased marketing spends). Led by a strong operating performance, net profit on a sequential basis witnessed a significant growth of 98.6% to Rs. 61cr. On a yoy basis too, net profit posted a strong growth of 47.1% yoy aided by lower interest expense (due to reduction in debt levels) and lower tax outgo (tax-rate at 22.4% as against 30.9% in 4QFY2012).

We retain our positive view on Ceat and believe that the company will continue to benefit from the softening of commodity prices. However a slowdown in demand remains a concern as the replacement demand has not picked up as anticipated. Nonetheless at Rs. 119, the stock is trading at attractive valuations of 2.6x FY2015E earnings. We maintain our Buy rating on the stock with a target price of Rs. 169.

Source : Equity Bulls

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