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Tuesday, 5 December 2017

                                                      CEAT LTD – Q2 FY18

CEAT Ltd reported robust sequential growth in September quarter FY18. After a sluggish June quarter, consolidated PAT & EBDITA rebounded to normal levels on the back of lower raw material prices and controlled expenditure. PAT stood at Rs. 729 Mn against Rs. 1065 Mn corresponding period previous year and Rs. 14 Mn previous June quarter. EBDITA was reported at Rs. 1811 Mn in the current quarter against Rs. 1890 Mn in Q2 FY17 and Rs. 650 Mn in previous June quarter. Revenue was seen at Rs. 15230 Mn falling 5% YOY, compared to Rs. 15966 Mn same quarter previous year. On sequential basis, revenue declined 6% as GST impacted in the first two months of the quarter. Other Income jumped 1.8 times and was reported at Rs. 65 Mn against Rs. 37 Mn same quarter previous year. Operating expenditure declined 4% yearly and 14% sequentially with lower raw material cost & controlled expenses especially discretionary expenditure. Other expenses have fallen by 8.6% sequentially and 2.6% on yearly basis. EBDITA Margin improved mildly by 5 basis points YOY at 11.89% whereas Net Profit Margin declined 187 basis points at 4.79% in the current September quarter. On sequential basis margins were better jumping 790 & 471 basis points for EBDITA & Net Profit Margin respectively in Q2 FY18.

CEAT Ltd with market cap of Rs. 69325 Mn is a major player in two wheeler & passenger cars with market share of about 27%. Both Nagpur & Halol plants have been commissioned and ramp-up is underway. Nagpur plant is at 50% of its peak capacity and is 120 tons per day plant.  Halol plant is at about 70% from its peak capacity. Chennai expansion is underway which is solely dedicated to passenger cars where the company has currently around 10% market share. Ceat’s capex plans involve an outflow of about Rs. 16000 Mn – Rs. 18000 Mn between FY17-FY19.

With demonetization & GST impact discarded and lower rubber prices, CEAT Ltd is expected to improve its bottom-line in the coming quarters and report healthy growth. We recommend BUY for the stock for medium & long term investment with target price of Rs. 2200.

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