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Yes Securities Report
Ceat Ltd.'s Q3 FY24 results missed our estimates as ~200 basis points QoQ contraction in consolidated gross margins at 41.3% (estimate 42.8%) surprised negatively. This was led by ~2.5% increase in blended raw material basket QoQ, price correction in exports (to be competitive) and unfavorable product mix.
On standalone basis, volumes/average selling prices fell ~1.7%/-1.4% QoQ. Within sub segments, export/replacement volumes were flattish/+single digit QoQ while original equipment manufacturer volume degrew. With the recent stability in crude prices, the management indicated raw material basket likely to remain flat QoQ.
Going forward, focus on high margin segments such as exports and off-highway tires over truck-bus radial tyres (though capacity expansion planned) to aid volumes and margins.
Ceat has maintained the capex guidance of Rs 6-6.5 billion of project capex in FY24E. Sustained volumes in both OEMs and replacement will enable faster absorption of new capacities and drive operating leverage.
This, coupled with price retention should keep margins at elevated level (13-14%). Further, with current capex plan, contribution from focus areas could scale up to 60-62% over FY24-25E, which would reflect positively on margins.
We have increase our FY24/25 earning per share by 13%/11% to factor in for exports ramp-up and higher blended margins (mix related).
However, valuations at15.2 times/14.3 times (versus 10 year long period average of 16 times) do factor in positives with limited headroom for muted performance, we believe.
Hence, we maintain ‘Neutral' on the stock with revised target price at Rs 2,982 based on ~15 times March-2026 EPS.
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