NRI Business Associate
CEAT Ltd highlighted that it needs to take price hike of 4-5% to reach margin levels of 10-12%
CEAT Ltd: BUY
Dated: 2 nd August 2021
CMP: Rs.1356
Fair Value: Rs.1500
Potential Upside: 10.6% Market Cap: Rs.5,485 Cr Time Frame: 12 months
- We expect volume growth to remain strong on account of strong replacement segment demand and recovery in the OEM segment in the near term.
- The company has increased its market share across segments led by (1) improving quality of tires in the TBR segment, (2) widening its distribution network in the 2W segment and (3) further strengthening its OEM relationship and benefit of import restrictions in the PCR segment. (TBR – Truck Bus Radial; 2W – Two Wheeler; OEM - Original Equipment Manufacturer; PCR – Passenger Car Radial)
- We expect the company to gain further 80 bps market share over the next two years led by (1) new order wins in the PCR segment and (2) improving brand perception in the TBR segment.
- The company highlighted that it needs to take price hike of 4-5% to reach margin levels of 10-12%, which it might take over the course of 2QFY22.We would like to note that the international rubber prices have corrected by 20-25% from its top and we expect the raw material basket to come down from 3QFY22E onwards.
- We expect the company to deliver 13% revenue CAGR in consolidated entity over FY21-24E. We expect standalone EBITDA to grow at 12% CAGR over FY2021-24E. (EBITDA - Earnings before interest, taxes, depreciation, and amortization; CAGR - Compound annual growth rate).
- We value the company at a PE of 12x September 2023E earnings.
Note: The above is a brief note on the company, based on the inputs of KIE research report dated 22 nd July 2021, which is available on their website at: https://www.kotaksecurities.com/ksweb/ResearchCall/Fundamental . Disclaimer: http://bit.ly/2n5AxIE
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please refer the Risk Disclosure Document issued by SEBI and go through the Rights and Obligations and Do's and Dont's issued by Stock Exchanges and Depositories before trading on the Stock Exchanges .
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Authorised Person
Lakshit Financial is Authorized Person of Kotak Securities Limited in cash segments of BSE & NSE and NSE F&O segments with NSE. Lakshit Financial registration number: BSE CASH AP0106730124228 | NSE CASH AP029177621 | NSE F&O AP029177621. Lakshit Financial Registered Office: ASM 7, Ashwin Sector, Mumbai Agra Highway, CIDCO, Nasik 422009, Maharashtra, India. Kotak Securities Limited. Registered Office: 27 BKC, C 27, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051. CIN: U99999MH1994PLC134051. Correspondence Address: Infinity IT Park, Bldg. No 21, Opp. Film City Road, A K Vaidya Marg, Malad (East), Mumbai 400097. SEBI Registration No. INZ000200137 (Member of NSE, BSE, MSE, MCX & NCDEX). Member Id: NSE-08081; BSE-673; MSE-1024; MCX-56285; NCDEX-1262. AMFI ARN 0164, PMS INP000000258 and Research Analyst INH000000586. NSDL/CDSL: IN-DP-NSDL-23-97.
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please refer the Risk Disclosure Document issued by SEBI and go through the Rights and Obligations and Do's and Dont's issued by Stock Exchanges and Depositories before trading on the Stock Exchanges.
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