4 August 2017
1QFY18 Results Update | Sector: Automobiles
TP: INR2,029 (+17%)
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High-cost inventory, destocking impact perf; Pressure likely to ease
Revenue in line; significant miss on EBITDA and PAT:
CEAT reported overall
revenue of INR16,286m (est. of INR15,474m) in 1QFY18, as against
INR16,462m in 1QFY17, marking a decline of 1.1%. EBITDA stood at INR547m
(est. of INR1,486m) v/s INR1,854m in 1QFY17, with the margin at 3.4% (est.
9.6%) v/s 11.3% in 1QFY17 on account of a significant rise in raw material cost
(up to 59% of net sales v/s est. of 51.5% and 50.8% in 1QFY17). Consequently,
adj. PAT for 1QFY18 stood at INR11m (est. of INR679m) v/s INR1,039m in
1QFY17, marking a decline of 99%.
RM basket to soften in 2QFY18:
1QFY18 witnessed a sharp rise in raw material
cost (+820bp YoY and 260bp QoQ). Price of natural rubber increased 30% YoY,
while that of synthetic rubber rose 50% YoY. This, along with realization
disappointment due to competitive pressure, exerted immense burden on
margin. However, average raw material prices have already come down by
~10% in 2QFY18 and should soften further, bringing margins back on track.
Continued focus on passenger segment:
While commercial segment volumes
declined ~5%, passenger segment witnessed growth of less than 5% in
volumes. However, we expect passenger volumes to grow further on account
of continued initiatives and platform roll-outs (viz., launch of puncture-less
tires and Innova range to provide best mileage).
Valuation and view:
We expect recovery going forward on account of better
volume growth, softening of raw material prices and a recovery in market post
the GST transitional phase. We expect revenue/PAT CAGR of 8%/17% over
FY17-19E. We value the company at a P/E of 16x FY19E EPS, and maintain
with a target price of INR2,029 (17% upside).
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, (INR m)
Free float (%)
1948 / 836
Financials & Valuations (INR b)
2017 2018E 2019E
EPS Gr. (%)
597.0 678.8 788.8
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Niket Shah – Research Analyst
(Niket.Shah@MotilalOswal.com); +91 22 3982 5426
Aksh Vashishth – Research Analyst
(Aksh.Vashishth@MotilalOswal.com); +91 22 6129 1553