CEAT LTD - Q3 FY17 (Consolidated) 

CEAT Ltd reported subdued December quarter results PAT & EBDITA declining in double digits. Impacted by demonetization and rising rubber & crude prices, the company still managed to register volume growth of about 10.70% YOY. PAT stood at Rs. 838 Mn against Rs. 1122 Mn corresponding period previous year declining 25%. Revenue was seen at Rs. 15572 Mn rising 5% YOY, compared to Rs. 14838 Mn same quarter previous year. On sequential basis, sales/revenue fell 2.2% on account of marginal volume decline mainly due to demonetization. QOQ, exports grew by about 5% while domestic volume saw a decline of 4%.EBDITA was reported at Rs. 1592 Mn in Q3 FY17 against Rs. 1931 Mn in Q3 FY16. Other Income saved the show rising 55% sequentially and 10% YOY. Though operating cost is stagnant QOQ, yearly jump is around 9% with raw material cost & depreciation taking the biggest hit rising 10% & 33% YOY in the current December quarter. EBDITA Margin was shaved off 279 basis points whereas Net Profit Margin was lower by 218 basis points YOY. EBDITA & Net Profit Margin was reported at 10.22% & 5.38% in the current December quarter.  One basis point is 1/100^th of a percentage. The decline is largely due to demand drop in passenger and two wheeler segments on account of demonetization and mild increase in raw material cost in Q3 FY17. 

CEAT Ltd with market cap of Rs. 46702 Mn is a major player in two wheeler & passenger cars & utility vehicles segment. The company is focused on its capex plans of about Rs. 28000 Mn over the next five years which will increase its capacity by 1 million tyres in TBRs, 17 million in two-wheeler tyres and about 6 million in PCR tyres per annum. The company is expected to improve its margins after June quarter as demonetization & raw material pressure wears off and it undertakes price rise in the coming months.  We recommend BUY for the stock for medium & long term investment with PE multiple of 12.02 x FY17E & 10.71 x FY18E with a target price of Rs. 1350. Disclaimer                                                                               The information and opinions contained in the research reports have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. 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