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Sunday, November 27, 2011

CEAT Ltd:-Buy/sell/growth prospects and recommendation,news and results,target price and analysis,view and outlook,multibagger

Scripscan:CEAT Ltd

Story:CEAT is one of the leading Tire companies in India providing car tires, bus tyres, SUV tyres, bike tyres, wheels, etc.Continuous ramp-up at the Halol plant improves operating performance: During 2QFY2012, the company’s net sales grew strongly by 32.7% yoy (3.7% qoq) to Rs 1,118cr on account of availability of additional capacity at the Halol plant and average price hike of ~10% in 1QFY2012. OEM and exports sales registered impressive growth of 57% and 90% yoy, respectively, while replacement sales grew by 14% yoy.Top-line growth also benefited from a 21.4% yoy increase in other operating income. Operating margin improved by 27bp yoy to 5.5%, largely due to ramp-up at the Halol facility and price increases carried out in 1QFY2012. While raw-material cost as a percentage of sales increased by 223bp yoy, the decline in staff cost and other expenditure as a percentage of sales (by 129bp and 132bp yoy, respectively) helped CEAT to maintain its margins. Net profit, however, fell sharply by 63.3% yoy to Rs 6cr due to significant rise in depreciation (114.4% yoy) and interest (170.4% yoy) expense.I expect CEAT to report continuous improvement in its operating performance, led by improving utilization at the Halol plant and a gradual decline in raw-material prices. Consequently,I estimate CEAT to post an EPS of Rs 20 in FY2013E.Buy it with a target price of 100rs to be achieved in the next 1 year.

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