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Prabhudas Lilladher Report
We increase our earnings per share estimates by ~10% each for FY24/25, to factor in strong beat on margins led by lower commodity costs (8-9% lower QoQ) and management commentary.
In Q4 FY23, Ceat Ltd.'s revenue was helped by volume growth of 7% QoQ, however, blended realisations were lower QoQ due to mix and discount. Raw material basket was lower by 8-9% QoQ (gets passed on to clients with one quarter lag) and helped Ebitda margin to grow by ~560 bps.
In FY24, Ceat sees mix of higher margin replacement and exports segment to improve and original equipment manufacturer mix to fall. However, volumes growth could be in the range of low to mid-single-digit in major segments.
Ceat expects raw material cost to remain in a narrow range and may have to pass on benefits to its clients in Q1 FY24. 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.
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