Company over View:

CEAT is India’s leading tyre company with over 50 years of presence. It is ranked as No. 1 player in Sri Lanka in terms of market share. CEAT is an abbreviation for Cavi Elettrici e Affini Torino (Electrical Cables and Allied Products of Turin). Founded in Italy as CEAT Tyres by Virginio Bruni Tedeschi, the company established its manufacturing in India in 1958 and was sold to Pirelli by Virginio’s heir Alberto Tedeschi (Carla Bruni’s grandfather) in the 1970. Ceat Indian division was then taken over by RPG Enterprises in the year 1982 which also got the rights to the CEAT brand and renamed the company as CEAT Limited

The company is headquartered in Mumbai. It has manufacturing plants in Mumbai, Nashik and Halol near Baroda. CEAT owns:

6 Manufacturing plants – 3 in India and 3 in Sri Lanka

10 outsourcing units for tyres, tubes and flaps

3 dedicated 2-3-wheeler plants controlled by CEAT

Company Revenue Background:

Ceat has posted decent numbers for the quarter ending March 2013. The Revenues from operations on consolidated basis increased by around 6% at Rs.1345.70 crores vs Rs.1273.25 crores y-o-y. Operating profit remained flat on a yearly basis whereas it jumped 30.57% at about Rs.144.52 crores as against Rs.110.68 crores in the earlier quarter. Resting on the raw material side primarily rubber prices have come down. They encompass come down from about Rs 165-170 per kilogram in Q3 to about Rs 155-160 per kilogram in Q4. That is a drop of about 6-7 percent quarter on quarter (QoQ). Ceat has reported 32.83% rise in its net profit at Rs.64.90 crore for the quarter as compared to Rs.48.86 crore. EPS for the quarter stood at Rs.18.95. Ceat share of business in the replacement market is at about 55%, about 22-23 percent is in the exports and about 22-23 percent is in the OEM segment. Volumes grew by 11% sequentially with exports and OE registering a volume growth of 17% quarter on quarter. And the replacement segment grew by 6% q-o-q. While volume registered growth; the net impact due to price mix was around negative 2% on account of some pricing action during the quarter in the replacement and OE segments. Ceat continued its thrust on Motorcycle and SUV tyre advertising campaigns.

Company Valuation:

By means of increasing market presence, new product launches, ramping of production facilities and improving operation performance; Ceat’s revenue visibility looks promising. We deem Ceat Ltd. is trading at an attractive valuation at 2.22x and 1.80x of FY14EPS of Rs.48.57 and FY15EPS of Rs.59.77. We Bet to Grab Share Near Rs. 110 for Target of Rs. 140 in Time Period of 6-9 Months.

Trade: Nse Inda / Bse India Scrip Code {15254}

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