CEAT - 4QFY2013 Result Update - Angel Broking

Ceat reported impressive performance for 4QFY2013 led by a strong sequential EBITDA margin expansion of 218bp driven by ~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. While we broadly maintain our revenue and EBITDA margin estimates for Ceat; we revise our earnings estimates upwards by 12.1%/5.6% for FY2014/15, primarily to reflect the benefits of lower interest cost going ahead. The company has reduced its interest burden by ~270cr in 2HFY2013 and the full benefits of this would be reflected in FY2014. Due to attractive valuations we maintain our Buy rating on the stock.

Impressive 4QFY2013 results: 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 volume growth was led by a strong ~24% yoy (~21% qoq) growth in the OEM segment led by new partnerships with Hyundai, 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. Net average realization registered a decline of ~2% yoy and 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. Led by a strong operating performance, net profit on a sequential basis witnessed a significant growth of 98.6% to Rs. 61cr.

Outlook and valuation: We retain our positive view on Ceat and believe that the company will continue to benefit from softening of commodity prices and lower debt burden. However, slowdown in demand due to lower-than-expected pick-up in replacement segment along with pressures from OEM to reduce prices may adversely impact the company. At Rs. 119, the stock is trading at attractive valuations of 2.4x FY2015E earnings. We maintain our Buy rating on the stock with a target price of Rs. 170.

Source : Equity Bulls

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