Accumulate CEAT; target of Rs 1800: Prabhudas Lilladher

Prabhudas Lilladher’s research report on CEAT

We increase our EPS estimates by c10% each for FY24/25, to factor in strong beat on margins led by lower commodity costs (8-9% lower QoQ) and management commentary. In 4QFY23, CEAT’s revenue was helped by volume growth of 7% QoQ, however, blended realizations were lower QoQ due to mix and discount. RM basket was lower by 8-9% QoQ (gets passed on to clients with one quarter lag) and helped EBITDA margin to grow by c560bps. In FY24, CEAT sees mix of higher margin replacement and exports segment to improve and OEM mix to fall. However, volumes growth could be in the range of low to mid-single-digit in major segments. CEAT expects RM cost to remain in a narrow range and may have to pass on benefits to its clients in 1QFY24. In the near-term, impact on export volumes, moderation in growth and higher interest costs may put pressure on profitability. Yet correction in commodity cost coupled with cost control would aid margin expansion, in our view.

Outlook

Maintain ‘Accumulate’ with revised TP of Rs 1,800 (Rs 1,635 earlier) at 14x Mar-25E consolidated EPS.

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CEAT – 08 -05 – 2023 – prabhu