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Ceat SENSEX
Fundamental Pick
Initial Coverage
CEAT LIMITED
9th August 2011
Ceat Ltd is a one of the leading manufacturer of tyre in India with a market share of 12% of Indian Tyre Industry. Today Ceat’s portfolio consist of various segment such as heavy duty trucks and buses (T&B), light commercial vehicles (LCVs), passenger cars (PC), earth-movers and forklifts (Specialty segment) and 2‐wheelers. Ceat is manufacturing over 10 million tyres in a year. The Company derive over 65% of its revenue from the replacement segment. With the growth in Indian Automobile segment and company’s focus towards increasing the capacity to cater the demand of the tyre industry will lead to healthy growth of the company. Looking at the Industry and the company’s strong growth prospects, we initiate coverage on the stock with 'BUY' rating and a price target of `125.
INVESTMENT ARGUMENT:
Growth in OEM to fuel Revenue
Indian Automobile industry has witnessed strong recovery from the recession. Automobile domestic sales has grown at a CAGR of 27% over FY09-11. In FY11 Passenger Vehicle (PV) has grown by 29% fol-lowed by Commercial Vehicle (CV) which grew by 27% and 2/3 wheelers by 26%. Increase in the Auto demand will directly lead to demand for the tyres from OEM and the robust growth witnessed in last two year will lead to replacement demand. CV is contributing >65% to the company's sales followed by PV 12% and 2/3Wheelers 10%.
Operating margin boosts up: with increased Focus on Replace-ment business.
Replacement segment has better margin as compared to OEM. In FY11 the replacement segment contributed 66% to the company’s revenues. Going forward the company plans to increase this to 70-75%. We believe shift toward the higher margin business will over-all improve the operating margin of Ceat.
Currently the company has a sales network of 34 regional offices and over 3500 dealers out of which 100 are exclusive CEAT shoppes and 96 Ceat Hubs. Going forward the company plans to increase the number of Shoppes from 100 to 200 by FY13E and Ceat Hubs to 260 from 96. On an average T&B tyres are replaced after a period of 12-18 months and PC tyres are replaced in 24-48 month.
Key Share Data
NSE Symbol CEATLTD
BSE Code/Group 500878/B
Bloomberg Code CEATIN
Reuters Code CEAT.BO
Equity Capital (` Cr) 34.24
Face value ` 10
Market Cap. (` Cr) 300
52W H/L 195/84.25
Avg. Daily Volume 150790
Sector TYRES
Sensex 16990
Nifty 5119
Share Holding Pattern
Promoter 49.20%
FII 1.80%
DII 17.78%
Public & Others 31.22%
Stock Returns in (%)
1Mth 3Mth 6Mth
CEAT -17.82 -8.38 -4.55
BSE AUTO -9.36 -10.51 -1.20
Research Analyst
Dipti Saraf [email protected] # +91 79 26666717
Rating : Buy
Target Price : `125
Upside : 35%
Time Frame: 15-18 month
CMP : ` 91.3(as on 08/08/11)
Page : 1
CEAT LIMITED
Expansion of Production Capacity
Ceat commissioned its Halol (Gujrat) Plant in FY11. The plant has an in-stalled capacity to produce 150 tons per day (tpd). Further company is planning to enhance its production capacity of Nasik plant by 35tpd from the current 165tpd to 200tpd. Apart from capacity expansion at Halol And Nasik plant company has also expanded it capacity to 5.5 lakh tyre per month from 2.5 lakh tyre per month at Ace tyres (Out Source Partner)
Decline in Raw material price helps to increase the margins.
Over 70% of its total cost of production is raw material cost. In last fi-nancial year we have witnessed all time high rubber prices and even crude oil price showed a spurt. Although the price has corrected from its peak; going forward we believe that there is space for further 10-15% correction in rubber prices. In FY11, despite the industry witness-ing a hike of 63% in natural rubber prices; the company passed on the hike to its end customer with a lag, due to which company’s EBIDTA margin was adversely affected. In FY11 and in Q1FY12 the company hiked its product prices by 9-10% throughout all segments. We expect the rubber prices to hover in the range of `150-200 over FY12E & FY13E which will help company to record higher operating profits.
Healthy Financial and Valuation
We expect the revenue and profit of Ceat to grow at a CAGR of 22% and 116% to `5382 and `128 Crs respectively over FY11 to FY13E. At the CMP of ` 91 the company is trading at multiples of 0.36X and 0.28X of its FY2012E and FY2013E Book Value (BV) of `251.45 and `321.34 re-spectively. We initiate coverage on CEAT with a BUY rating and a price target of `125 in 15-18 month. Historically the company is trading be-tween P/BV band of 0.4-0.8, we conservatively take the multiple of 0.5 with its FY2013E BV of `321.34.
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FY09 FY10 FY11E FY12E FY13E
Revenew (` crs) 2366.50 2807.47 3468.93 4381.62 5148.83
YoY 2% 19% 24% 26% 18%
EBITDA (` crs) 9.02 280.55 93.50 198.10 247.67
EBITDA (%) 0% 10% 3% 5% 5%
PAT (` crs) -16.11 161.03 22.28 95.64 130.51
PAT (%) -1% 6% 1% 2% 3%
DEPS (`) -4.71 47.03 6.51 27.93 38.12
BV (`) 142.63 183.62 189.59 215.21 249.81
ROE (%) -3% 26% 3% 13% 15%
ROCE (%) -1% 19% 4% 9% 10%
Ceat, 12%
MRF, 27%
Birla, 11%
JK, 16%
Apollo, 19%
Others, 15%
Source: Company, Monarch Research
Figure 1: Industry Scenario
CEAT LIMITED
About the Company
Page : 3
Ceat Ltd is a one of the leading manufacturer of tyre in India. It is a part of RPG group. Company caters all segments of the automobile industry and some of the Off The Road (OTR) products as well. Today Ceat’s portfolio consist of various segment such as heavy duty T&B, LCVs, PC, earthmovers and forklifts (Specialty segment) and 2‐wheelers.
The company was incorporated in 1958, in collaboration with TATA Group as Ceat Tyres of India Ltd. In 1982 RPG Group took over the com-pany and named as CEAT LIMITED. Ceat is manufacturing over 10 million tyres in a year. In FY11 the com-pany's market share was nearly 12% in the Indian Tyre Industry. The company has improved its market share by 1% as compared to last FY10. The Company derive over 65% of its revenue from the replace-ment segment. Company has 3 manufacturing facilities 2 in Maharashtra (Nasik and Bhandup) and 1 in Gujarat (Halol). It has a strong sales network consist-ing of 34 regional offices and over 3,500 dealers of which approxi-mately 100 are exclusive dealers running the CEAT Shoppe outlets for the PC segment and 96 run the CEAT Hubs for the T&B segments.
Ceat also has global Presence with 20% revenue comeing from the ex-port market. The company exports to nearly 112 countries across Asia, Africa, Europe and America.
CEAT LIMITED
Page : 4
Ceat has associated Joint Venture (JV) in Sri Lanka named as CEAT Ke-lani. In FY10 the company increased its stake in this JV to 54.84% from the initial level of 18% . As a result of this, CEAT’s investment arm-Associated CEAT Holdings Company (Private) Limited (ACHL) has be-come its subsidiary. ACHL controls 50% stake in the operating company. Kelani has showed good growth in FY11 registering an increment of 29% in its net sales. As Compared with Ceat’s standalone margin, the margin of Kelani is better, resulting to better margin in consolidated books.
Tyre Industry
Nearly 5% of the global demand and supply is contributed by the Indian Tyre Industry. The industry has registered significant growth in FY10 with a turn over of `25,000 crs, resulting in the growth of 12-13% over FY09. This growth is expected to be predominantly driven by an increase in volumes rather than average realizations. Average realization for FY10 was ~ `185 Per Kg. In FY10 total Tyre export was `3625 crs. In India there are 36 tyre manufactures out of them top 10 players contribute ~95% of the total production
The Indian tyre industry is enjoying strong growth and will continue to do so on the back of the country’s fast paced GDP growth, growth in the automobile industry, faster development of road infrastructure, increas-ing levels of radialisation as well as growing demand from the OTR seg-ment. Radialisation level in India is still very Low as compared to the developed nations . India has matched the global radialisation in the PC segment i.e of 98% as compared with the average global level of 95%. But in the case of LCV and Heavy Commercial vehicle (HCV) the average global level is of 60% where as India has reached only 18% in LCV and 12% in HCV. Going forward with the development in the India infrastruc-ture this radialisation level will improve
Tyre industry is highly sensitive to its raw material. Nearly 72% of the total cost of production is raw material cost.
Exhibit 1: Raw Material Cost
Raw Material % to Raw Material Cost
Natural Rubber 43% Nylon Tyre Cord 18% Carbon Black 11% Rubber Chemical 5% Butyl Rubber 4% Poly Butadiene Rubber (PBR) 5% Styrene Butadiene Rubber (SBR) 5% Others 9%
Source: ATMA, Monarch Research
54% 55% 56% 58% 58%62%
46% 45% 44% 42% 42%38%
0%
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70%
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2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
'000 Tonnes
Production Imports Tyre Cons. Non Tyre Cons.
CEAT LIMITED
Tyre Industry
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Nearly 55-60% of the total rubber production in India is utilized by the tyre segment. Tyre industry imports high amount of syn-thetic rubber (PBR, SBR) mainly due to unavailability of the same.
Following is the trend of the India’s Rubber Production, Con‐sumption and the Imports
There are also few drivers which generates the import demand of the raw material
No domestic Production of Butyl Rubber and Styrene Butadi-ene Rubber of tyre.
Production of Nylon Tyre Cord Fabric, Polybutadiene Rubber, Rubber Chemicals, Steal Tyre Cord, Polyester Tyre Cord insuf-ficient to meet domestic demand.
Duty-free imports permitted against export of tyres; domes-tic demand not sufficient to meet complete requirement; technical and commercial considerations
Business strategy to have multiple sources of supply.
Source: ATMA, Monarch Research
Figure 2: Rubber Production and Consumption
CV67%
2/3W10%
Car/Jeep12%
Others11%
0
5
10
15
20
25
30
35
40'00000
Domestic PV sales
CEAT LIMITED
Investment Arguments
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Growth in OEM to fuel domestic demand
Indian Automobile industry has witnessed strong recovery from the re-
cession. Automobile domestic sales has grown at a CAGR of 27% over
FY09-11. In FY11 PV has grown by 29% followed by CV which grew by
27% and 2/3 wheelers by 26%. As per Society of Indian Automobile
Manufacturers (SIAM) estimation in FY12E CV sales are expected to in-
crease by 14-16% whereas PV by 10-12% . Over the next 3-4 years PV is
likely to grow at a CAGR of 6.3% from 2009-2014 according to Automo-
tive Component Manufacturers Association (ACMA). Indian automobile
industry is likely to grow at a CAGR of 14% over 2009-2020 as per Ernest
and Young (E&Y) estimates. The car manufacturing capacity is estimated
to increase to 5.7million units by 2015 from 1.48 million units in 2009.
Increase in the Auto demand will directly lead to demand for the tyres
from OEM and the robust growth witnessed in last two years will lead to
replacement demand in coming years. OEM is contributing nearly 14-
15% to the total top-line of Ceat and replacement nearly 66% from re-
placement market rest is from Export market.
CV is contributing >65% to the company's sales followed by PV 12% and 2/3Wheelers 10%. Government’s focus towards the infrastructure im‐provement and building roads across the country (i.e. construction of 33000 km Roads) will lead to strong growth for CV.
Source: Company, Monarch Research
Source: SIAM, Monarch Research
Figure 3: Domestic PV & CV Sales
Figure 4: Segmental revenue of Ceat
CEAT LIMITED
Investment Arguments
Page : 7
Operating margin boosts up: with increase Focus on Replacement busi-ness.
Ceat being an auto ancillary has limited bargaining power with OEM. Replacement segment has better margin as compared to OEM. In FY11 the replacement segment contributed 66% to the company’s revenues. Going forward the company plans to increase this to 70-75%. We be-lieve shift toward the higher margin business will overall improve the operating margin of Ceat.
To increase the market share in the replacement market Ceat has exclu-
sive outlets for its end customer. Ceat has made outlets for PV know as
“CEAT Shoppes” and for T&B as “CEAT Hub”. Currently the company has
a sales network of 34 regional offices and over 3500 dealers out of
which 100 are exclusive CEAT shoppes and 96 Ceat Hubs. Going forward
the company plans to increase the number of Shoppes from 100 to 200
by FY13E and Ceat Hubs to 260 from 96. This would increase the com-
pany’s reach to the end customer resulting in the higher replacement
sales.
On an average T&B tyres are replaced after a period of 12-18 months and PC tyres are replaced in 24-48 month. Strong sales of consumer ve-hicle which was witnessed in 2009 will result to strong replacement de-mand in this financial year.
Source: Company, Monarch Research
Figure 5: Segmental revenue of Ceat
Company is increasing its sales
network, by increasing total
number of dealer and its exclu-
sive outlets know as Ceat
Shoppes and Ceat Hub will
lead to increase in the replace-
ment business of the company.
160 175 200 200
230 240 240 220
590 175
120140
170
205
0
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600
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800
900
FY10 FY11 FY12E FY13E
Nasik Bandup Halol Outsource
Source: Company, Monarch Research
Figure 6: Capacity Expansion Plan.
MT/Day
CEAT LIMITED
Investment Arguments
Page : 8
Expansion of Production Capacity
Ceat commissioned its Halol (Gujrat) Plant in FY11. The plant has an in-stalled capacity to produce 150 tons per day (tpd). The plant was com-missioned on 25th march 2011. By September 2011 the plants is ex-pected to run on full capacity. Further company is planning to enhance its production capacity of Nasik plant by 35tpd from the current 165tpd to 200tpd. Current capacity of the company is 560tpd after the comple-tion of Nasik plant and full utilization of Halol plat by the end of FY12 the company’s production will be 700tpd. The current capacity at Bhandup Plant is 240tpd. Apart from capacity expansion at Halol and Nasik, the company has expanded its capacity to 5.5 lakh tyre per month from 2.5 lakh tyre per month at Ace tyres which is outsourcing partner of the Company.
At Halol plant the Company is basically involved in the production of Ra-dial tyre which will lead to company's strong footprints in the Radial tyre segment . Radial tyres are more efficient as compared to cross ply tyre in terms of fuel efficiency and longer life.
India lags far behind other major economies in terms of radialisation. The radialisation level in Western Europe, North America, Central Europe is around 100%, 96%, 95% respectively and the world average radialisation is around 65%. Whereas Indian radialisation level is at 9.1%. This proves there is vast potential for the Radial tyre segment in India. In India PC has moved towards radialisation and approximately 98% of PC tyres are Radial tyre. In T&B segment still radialisation is not that popular mainly because of the Poor Indian Infrastructure. Today T&B segment has been radialized approximately to 12%. Govt’s focus towards improvement of infrastructure will lead to Radialisation. Com-panies across the sector is focusing on increasing radial capacity to util-ize the potential of the structural shift.
Industry move towards radi-
calization will lead to high op-
portunity for the company.
Company’s Halol plant is in‐
volved in radial tyre. In T&B
segment India is way far from
the average global standard of
radialisation
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RSS4 Prices Per kg RSS3 Bangkok Prices per kg
CEAT LIMITED
Investment Arguments
Page : 9
Decline in Raw material price helps to increase the margins.
Primary raw materials required for the production of tyres are Natural Rubber, Nylon Tyre Cord fabric, Carbon black and Crude etc. Over 70% of its total cost of production is raw material cost. In last financial year we have witnessed all time high rubber prices and even crude oil price showed a spurt. This spurt in the raw material cost has adversely af-fected the margin of the company. Although the price has corrected from its peak; going forward we believe that there is space for further 10-15% correction in rubber prices.
Ceat basically procures rubber from the domestic market; only for syn-thetic rubber and some portion of natural rubber it is dependent upon the imports. In FY11, despite the industry witnessing a hike of 63% in natural rubber prices; the company passed on the hike to its end cus-tomer with a lag, due to which company’s EBIDTA margin was adversely affected.
The rubber prices have cooled down from their peaks as can be ob-served from the chart below. The spread between International rubber prices and Domestic rubber prices is also narrowing. In FY11 and in Q1FY12 the company hiked its product prices by 9-10% throughout all segments. We expect the rubber prices to hover in the range of `150-200 over FY12E & FY13E which will help company to record higher oper-ating profits due to low material costs and higher realizations.
70%65%
57% 55%
64% 66% 69% 70% 71%77% 79%
0%
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6% 5% 5% 5% 4% 1% -1%
-10%
0%
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% of Sales EBIDTA Margins
Figure 7: Gap between Increase in Rubber price and Price hike Figure 8: Cost of RM as % of Sales & EBITDA Margin.
Figure 9: Indian and International Rubber Price
Source: Company, Monarch Research
Source: Rubber Board
CEAT LIMITED
Investment Arguments
Page : 10
Other Arguments:
Acquired the CEAT brand from Pirelli
Ceat is focusing on the expansion of its export segment. Till FY10 the company was able to sell its product in 9 south Asian countries under the brand name of Ceat. But was unable to sale in Europe and Latin America. For these countries company use to sell its product under the brand name of “Altura”. In FY11 The company has acquired the brand name CEAT from Pirelli in October 2010 for nearly 9 mn Euro (`55 Crs). By this acquisition the company is able to sell its product across the globe under the brand name of Ceat. This acquisition will allow the com-pany to command premium In Europe and Latin America Market. By this acquisition the company also gets a right to out source tyres from China or Vietnam or any other developing countries under the brand name of CEAT.
Relocation of Bhandup Plant
Ceat has a plan to relocate its Bhandup plant. For that company has al-ready bought 50 acre land at Ambernath in Thane (Maharashtra). Cur-rently Bhanudup plant is spread over 31 acres of the land. Relocation of the plant is taken into consideration to improve the operating margins. Some of the problem faced at Bhandup plant are 1) This facility comes under Mumbai region so the goods produced there has to face Octroi duty applicable in Mumbai which is higher as compared to Thane dis-trict. 2) the facility at Bhandup is based on old technology which result in lower efficiency (in terms of production and higher energy cost). By the sale of Bhandup land company will be able to generate cash of nearly `400-500crs which will be used in the development of Ambernath facility Company has sold 7 acre of its Bhandup plant in FY2007 at `130crs and the amount was utilized in funding the Halol Facility.
Company has a plan to complete this relocation process within two year. For this new facility company will be more techno savvy that would help the company to reduce the man power required and shift toward automation. The Company has started offering Voluntary Retire-ment System (VRS) to the Employees.
Relocation of plant will lead to
improvement in operating
margins
CEAT LIMITED
Investment Arguments
Page : 11
Healthy Financial growth
We expect the revenue and profit of Ceat Ltd to grow at a CAGR of 22%
and 116% CAGR to `5382 Crs and `128 Crs respectively over FY11 to
FY13E. Growth in sales is mainly due to the growth of the OEMs and it is
assumed that in India there would be high growth in CV segment as per
SIAM guidance. Further, the company is also in the expansion mode and
the improving utilization level should result in higher operating margins.
Apart from growth in OEM, Replacement segment will also generate
strong revenue for the company with higher operating margin. None-
theless the penetration of the Brand name Ceat will help the company
to get strong export market with brand recognition.
The operating margin and net margins are expected to increase by
191bps and 151bps respectively by FY13E. Operating and Net Profit are
expected to growth at a CAGR 57% and 116% over the period FY11 to
FY13E respectively resulting in operating and net profit of `280 Crs and
`128 Crs.
Source:
2,850
3,602
4,568
5,382
FY10 FY11 FY12E FY13E
Sales
289 113 222 280
165
27
99 128
FY10 FY11 FY12E FY13E
Operating Profit Net Profit
`in Crs
9.5%
2.9%
4.5% 4.8%5.4%
0.7%
2.0% 2.2%
FY10 FY11 FY12E FY13E
EBIDTA Margins PAT Margin
26
4
13 15
20
4
9 11
FY10 FY11 FY12E FY13E
ROE ROCE
CEAT LIMITED
Valuation
Page : 12
Ceat Ltd is a one of the leading manufacturer of tyre in India with a mar-
ket share of 12% of India Tyre Industry. Today Ceat’s portfolio consist of
various segment such as heavy duty T&B, LCVs, PC, earthmovers and
forklifts (Specialty segment) and 2‐wheelers. Ceat is manufacturing
yearly over 10 million tyres in a year and over 65% revenue comes from
the replacement business. With the growth in Indian Automobile seg-
ment and company’s focus towards increasing the capacity to cater the
demand of the tyre industry will lead to healthy growth of the company.
We expect the revenue and profit of Ceat to grow at a CAGR of 22% and 116% to `5382 and `128 Crs respectively over FY11 to FY13E. At the CMP of ` 91 the company is trading at multiples of 0.36X and 0.28X of its FY2012E and FY2013E Book Value (BV) of `251.45 and `321.34 re-spectively. We initiate coverage on CEAT with a BUY rating and a price target of `125 in 15-18 month. Historically the company is trading be-tween P/BV band of 0.4-0.8, we conservatively take the multiple of 0.5 with its FY2013E BV of `321.34.
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EPS & CEPS
EPS CEPS
CEAT LIMITED
Concerns
Page : 13
Raw material Cost
Prices of key Raw material (Natural Rubber and Crude Oil) are on rise.
Margins are getting pressurized due to continuous rise in rubber prices.
Since Ceat was unable to pass the complete raise the company has suf-
fered high on margins. Going forward with the cool down in the rubber
price and increasing the realization level the company will improve the
operating margins
World Economy concerns
Slower than expected global recovery could impact future growth pros-
pects and our earnings forecast
Fluctuation in Currency
~ 21% of the company’s revenue comes from its exports thus the com‐
pany is exposed to currency Risk. Any adverse movement in the cur-
rency can have a substantial impact on the company’s revenue.
Increasing Competition
Ceat faces threat from China in radial tyre. To control this threat com-
pany’s plat at Halol is basically involve in manufacturing of Radial Tyres.
Delay in Relocation of Bhandup Plant.
Today Bhandup plant has highest production capacity out of all the
there facility. Ceat is planning to shift its Bhandup facility to Ambernath
to save Octroi Cost and to improve operational efficiencies resulting in
improvement of Operating Margins. The complete relocation will be
completed in two years and the process will be done in phases. Any de-
lay in shifting plant would result in negative impact on margins.
CEAT LIMITED
Profit & Loss
Page : 14
Balance Sheet
Ratios Cash Flow
` in Crs.
YEAR 2011 2011 2012E 2013E
Net Sales 2,850.43 3,602.39 4,568.46 5,382.38
Growth (%) 26.38 26.82 17.82
Expenditure 2,561.92 3,488.94 4,346.47 5,102.24
% to Sales 89.88 96.85 95.14 94.80
EBITDA 288.51 113.45 221.99 280.14
EBIDTA Margins (%) 10.12 3.15 4.86 5.20
Depreciation 27.49 35.94 38.69 43.38
EBIT 261.02 77.51 183.31 236.77
Other Income 41.07 52.13 66.07 77.82
Interest 57.28 79.96 96.43 124.58
PBT 244.81 49.68 152.94 190.01
Tax 79.63 14.42 50.59 61.71
PAT 165.18 27.44 99.19 128.30
Growth (%) (83.39) 261.48 29.35
PAT Margins (%) 5.79 0.76 2.17 2.38
YEAR 2010 2011E 2012E 2013E
SOURCES OF FUNDS:
Share Capital 34.24 34.24 34.24 34.24
Reserves Total 594.96 613.20 704.38 820.66
Net Worth 629.20 653.49 744.67 860.95
Total Debt 673.63 1,050.51 1,187.29 1,310.75
Minority Interest 10.41 - - -
Total Liabilities 1,334.54 1,729.79 1,957.74 2,197.48 APP. OF FUNDS:
Goodwill 3.28 20.48 20.48 20.48
Gross Block 1,292.85 1,923.50 2,070.43 2,321.44
Less: Acc. Depri 495.26 530.30 568.99 612.36
Net Block 797.59 1,393.20 1,501.44 1,709.08
Capital WIP 234.01 127.23 250.00 200.00
Investments 43.42 42.96 42.96 42.96
Total Current Assets 1,058.34 1,256.32 1,450.50 1,726.58
Inventories 417.20 586.94 588.75 694.55
Sundry Debtors 390.33 489.78 660.99 778.61
Cash and Bank 140.98 48.90 35.12 67.70
Loans and Advances 109.83 130.70 165.63 185.72
Less Total Curr. Liab. 802.10 1,110.40 1,307.64 1,501.62 Total Assets 1,334.54 1,729.79 1,957.74 2,197.48
YEAR 2010 2011E 2012E 2013E
From Operations
Profit Before Tax 244.81 41.86 149.78 190.01
Depr. & Amort. 27.49 35.94 38.69 43.38
Interest paid 57.28 79.96 96.43 124.58
Operating profit 299.84 152.34 284.90 357.97
Inc/(Dec) in Working Capital (17.55) 10.44 (10.72)
(49.53)
Tax Paid (54.64) (19.09) (50.59) (61.71)
Net cash generated 227.65 143.69 223.59 246.73
Cash Flow from Invest-ing Activity
Purchase of Fixed Asset (270.87) (517.59) (269.70) (201.01)
Net Cash used in in-vesting activity (263.97) (488.07) (269.70) (201.01)
Changes in capital structure
Inc. in Shares capital - 6.05 - -
Interest Paid (64.30) (79.96) (96.43) (124.58)
Inc/(Dec) in Loans 30.05 333.73 136.78 123.46
Dividend Paid 10.03 (27.03) (8.01) (12.02)
Net Cash From Financ-ing (24.22) 232.79 32.33
(13.14)
Total Inflows (60.54) (111.59) (13.78) 32.57
Opening cash Balance 201.52 160.02 48.90 35.12 Closing cash Balance 140.98 48.43 35.12 67.70
YEAR 2010 2011E 2012E 2013
Profitability(%)
Operating Margin 10.12 3.15 4.86 5.20
Net Margin 5.79 0.76 2.17 2.38
(ROCE) 19.56 4.48 9.36 10.77
Valuation Ratio
P/BV 0.50 0.48 0.42 0.36
P/CEPS 1.62 4.92 2.26 1.81
EV/EBITDA 2.93 11.58 6.59 5.55
Debt/Equity 1.07 1.61 1.59 1.52
Current Ratio 1.32 1.13 1.11 1.15
Du Pont
Tax Burden 0.67 0.55 0.65 0.68
Interest Burden 0.81 0.38 0.61 0.60
Operating Margin 0.11 0.04 0.05 0.06
Asset Turnover 2.14 2.08 2.33 2.45
Financial Leverage 2.12 2.65 2.63 2.55
ROE 26.25 4.20 13.32 14.90
Valuation
Earning per share 48.24 8.01 28.97 37.47
CEPS 56.27 18.51 40.27 50.14
BV 183.76 190.86 217.48 251.45
GROWTH RATIOS (%)
Net Sales - 26.38 26.82 17.82
EBITDA - (60.68) 95.67 26.19
PAT - (83.39) 261.48 29.35
CEAT LIMITED
Page : 15
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RATING SCALE:
BUY - the stock is available at cheap valuation and has an upside of more than 20% and should be bought at the prevail-
ing price.
ACCUMULATE - the stock is fundamentally sound, however may/may not be available at cheap valuation. The up-
side is between 10%-20% and the stock can be bought on dips.
HOLD - the stock is nearing its fair value and should be approached with caution. The upside value for this stock is un-
der 5%-10%
REDUCE - the stock is relatively expensive and/or has achieved its fundamental value and the upside is limited to un-
der 5%. Profits must be taken on every rise, if any position made.
EXIT - the stock has no more room for upside, and valuations are stretched. The company is overvalued and hence one
must “sell” the stock and exit from the counter as there is a possibility of a correction of more than 10%.
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