Earnings Update - CEAT Ltd. (CEAT IN) - Margin declined due to higher RMC - CSEC Research

Margin declined due to higher RMC

- In 4QFY17, CEAT's standalone revenue grew by 5.0% YoY to INR 14.5bn. Volume grew by 4.5% YoY for the standalone business with bulk of growth being driven by PCR and 2W replacement segments, growing 25% YoY and 18% YoY, respectively. OEM volume and exports witnessed decline whereas blended replacement demand was up 10% YoY. Sri Lanka JV volume was up 7% YoY.

- Standalone EBITDA declined 27% YoY to INR 1.38bn. EBITDA margin declined 430bp YoY to 9.6% on account of ~11% increase in raw material prices. Depreciation was higher by INR 111mn due to the commissioning of Nagpur and Halol facility. Tax rate was lower at 6.6% due to the investment allowance on capex and R&D spent tax benefit being availed of in the quarter. Management indicated that in FY18 there would be no investment allowance tax benefit and R&D tax benefit will also be lower, hence effective tax rate could be closer to 29%. APAT came in at INR 827mn.

Valuation: We expect CEAT's margins would continue to remain under pressure in FY18E given increase in raw material costs and higher other expenses. However, price hikes in 1QFY18 would partly offset cost pressures. We expect revenue to grow at ~16% CAGR over FY17-19E. Currently stock is trading at 14.8X FY19E and we assign the stock a MARKETPERFORMER, with a target price of INR 1,729 by assigning PE of 14.0X FY19E.

Risks: Further increase in rubber & crude prices can negatively impact margins.

Shares of CEAT LTD. was last trading in BSE at Rs.1775.1 as compared to the previous close of Rs. 1845.1. The total number of shares traded during the day was 159751 in over 6922 trades.

The stock hit an intraday high of Rs. 1872 and intraday low of 1764. The net turnover during the day was Rs. 287816668.

Source : Equity Bulls

Keywords