27th May 2013
STRONG BUY
CEAT Ltd.
TARGET
Rs. 150
Sector
CMP
1 Year TP
SENSEX
SENSEX P/E
NIFTY
NIFTY P/E
CEAT
P/E
3.0
Scrip Details
Market Cap
Nominal Value
Share Capital
52 Week H/L
BSE Code
NSE Code
: Tyres
: Rs. 107
: Rs. 150
: 20,031
: 17.35
: 6,083
: 18.19
Investment rationale
 CEAT Ltd. (CEAT), a flagship company of the RPG
conglomerate, has been on the Indian road since 1958 and has run up
to be one of the best tyre manufacturers in the business.
Industry
10.66
: Rs. 364 Crs
Rs. 10/Share
: Rs. 34 Crs.
: Rs 125 /Rs 87
: 500878
: CEAT
Shareholding Pattern (%)
Categories
Promoters
FII
DII
Others
TOTAL
Mar’13
54.24
0.03
11.26
34.47
100.00
This Tyre takes you to a million places
Mar’12
52.11
1.81
12.90
33.18
100.00
 Offering the widest range of tyres to leading Original Equipment
Manufacturers (OEMs) across the world, it caters to various
segments, which includes heavy duty trucks and buses, light
commercial vehicles, earthmovers and forklifts (specialty segment),
tractors, trailers, passenger cars, motorcycles, scooters and autorickshaws.
 CEAT acquired the brand name ‘CEAT’ from Italian Tyre
Manufacturer Pirelli in October 2010 for Rs. 55 Crs, which has
helped CEAT set up a robust distribution network in Latin
America and the EU, and command a premium as well. With 55%
of its revenue coming from international operations, this
acquisition is set to give the export revenues of CEAT a huge push
in the near future.
 CEAT posted an exceptional performance for FY13, with
revenues rising by 8% from Rs. 4,675 crs in FY12 to Rs. 5,070 crs
in FY13. EBITDA saw a whopping 66% jump from Rs. 274 crs in
FY12 to Rs. 455 crs in FY13. PAT stood at Rs. 120 crs, a
Script Performance vs. Broader Indices
phenomenal 567% more than the PAT of Rs. 18 crs in FY12.
 Recommendation: CEAT has done a turnaround with its
performance in the last 6 years. CEAT has a market cap of just Rs.
364 crs, with its top line pegged at Rs. 5,070 crs (13.9 times its
market cap). With the rubber prices falling in the last year and the
auto industry recovering, CEAT is poised to be of great value to
its investors. We recommend a ‘STRONG BUY’ on CEAT with a
1 Year Target Price of Rs. 150/share.
(Rs. In Crs.)
FINANCIAL PERFORMANCE (Q4FY13)
Particulars
Total Income
EBIDTA
PAT
EPS (Rs.)
EBITDA Margin (%)
PAT Margin (%)
Eq Sh. Cap
Reserves
CEAT Ltd.
Quarter Ended
Q4FY13
Q3FY13
Q4FY12
1352
1252
1273
144
110
142
65
22
49
18.95
6.56
14.26
11%
9%
11%
5%
2%
4%
34
34
34
-
% Change
Q-o-Q
Y-o-Y
8%
6%
31%
1%
195%
33%
-
Mar'13
5070
455
120
35.1
9%
2%
34
738
Year End
Mar'12
4675
274
18
5.31
6%
0%
34
631
%Chg
8%
66%
567%
-
NVS Research
CEAT – Company Profile
 CEAT, a flagship company of the RPG Conglomerate, was first established in 1924 at Turino in
Italy and manufactured cables for telephones and railways. In 1958, CEAT came to India, and CEAT
Tyres of India Ltd was established in collaboration with the TATA Group. In 1982, the RPG Group
took over CEAT Tyres of India, and in 1990, renamed the company CEAT Ltd.
 CEAT has captured over 12% of market share, manufacturing about 10 million tyres every year.
CEAT owns two bias tyres manufacturing facilities in Maharashtra (Bhandup & Nasik) and has also
set up a greenfield radial tyre manufacturing facility at Gujarat (Halol).
Revenue Segmentation
Volume Growth
120
2.5
100
2
1.59
80
61
60
54
53
51
1.79
1.87
2010
2011
2.03
2.15
1.5
1
40
19
20
20
0
24
22
23
25
23
25
0.5
0
Q1FY13 Q2FY13 Q3FY13 Q4FY13
Exports
OEMs
Replacement
2009
2012
2013
Volume (lakh MT)
Key highlights
 Robust growth in Replacement market: More than 50% of CEAT’s revenues come from the
Replacement market, and the Replacement market has grown in the last year, which is expected to
give a boost to the company’s future earnings.
 Volume growth: CEAT has seen a volume growth of 6% on a YoY basis and an 8% volume growth
on a CAGR basis from FY09 to FY13. This was mainly on account of higher growth in the OEM
segment and softening of the raw material prices, the combined effect of which led to an EBITDA
expansion for the full year.
 New Product Development: CEAT has lined up a premium range of SUV radial tyres called CZAR
and a healthy pipeline of 100 plus product launches in FY14. This gives CEAT some positivity in
terms of volume growth going ahead.
 Capacity Expansion: The plant in Halol has also ramped up and production is at about 80% plus
utilization at the close of the year. With an increased capacity, and new product ideas lined up, the
future growth and revenues of CEAT look quite promising.
CEAT Ltd.
NVS Research
Past Years’ Financial Performance
Financial performance
Particulars
Revenue
EBIDTA
PAT
EPS
EBITDA Margin
PAT Margin
FV
Eq. Sh. Cap
Reserves
Stock Price
MCAP
BV
P/BV
P/E
MCAP/Rev
MCAP/EBIDTA
PAT/MCAP
FY13
5070
455
120
35.1
9.0%
2.4%
10
34
738
107
364
227.1
0.47
3.05
0.07
0.80
33%
(in Rs. Cr.)
FY12
4675
274
18
5.31
5.9%
0.4%
10
34
631
88
301
195.6
0.45
16.66
0.06
1.10
6%
FY11
3603
153
26
7.73
4.2%
0.7%
10
34
613
103
351
190.3
0.54
13.34
0.10
2.29
7%
FY10
2874
311
162
47.45
10.8%
5.6%
10
34
595
149
507
185.0
0.81
3.14
0.18
1.63
32%
FY09
2558
52
-16
2.0%
-0.6%
10
34
449
35
118
142.1
0.24
0.05
2.27
-14%
 Past Years: CEAT has seen a complete turnaround in its performance in the last 5 years, having
improved its margins steadily and considerably in times of pressure. Revenues saw a robust growth of
19% on a CAGR basis from Rs. 2,558 crs in FY09 to Rs. 5,070 crs in FY13. EBITDA grew at a
phenomenal 72% CAGR from Rs. 52 crs in FY09 to Rs. 455 crs in FY13. PAT fluctuated
between FY09 and FY13, but the company posted an impressive PAT of Rs. 120 crs in FY13, a
difficult year for the industry.
 FY2013 performance: In a year where the raw material prices played havoc with the industry, CEAT
posted an exceptional performance for FY13, with revenues rising by 8% from Rs. 4,675 crs in
FY12 to Rs. 5,070 crs in FY13. With expenses remaining more or less in line with last year,
EBITDA saw a whopping 66% jump from Rs. 274 crs in FY12 to Rs. 455 crs in FY13. PAT stood
at Rs. 120 crs, a phenomenal 567% more than the PAT of Rs. 18 crs in FY12.
 Impact of raw material prices: Over 70% of CEAT’s cost is the cost of raw materials, of which
~43% is natural rubber. Natural Rubber prices in India peaked last year in April-May and SeptOct 2012 to about Rs. 200/kg, which severely hit most of the industries. CEAT made a conscious
effort to improve its EBITDA and PAT margins, which enabled it to maintain its performance
even in these times of pressure, . The raw material prices are falling now, and currently stand at Rs.
169/kg. These trends, backed by CEAT’s performance in the past, augur well for the company
going ahead.
CEAT Ltd.
NVS Research
Peer Comparison
Financial performance
Particulars
Revenue
EBIDTA
PAT
EPS
EBITDA Margin
PAT Margin
Share Capital
Reserves
FV
CMP
MCAP
P/E
BV
P/BV
MCAP/Revenue
PAT/MCAP
Mcap/EBITDA
(in Rs. Cr.)
CEAT
Apollo
JK
Balkrishna
Mar'13 Mar'13 Mar'13E Mar'13E
12889
5814
3313
5070
1456
506
683
455
613
104
372
120
12.15
25.3
39.14
35.1
9%
11%
9%
21%
2.4%
4.8%
1.8%
11.2%
50
41
19
34
3366
588
1061
738
10
1
10
2
107
118
118
272
364
5878
482
2584
3.0
9.7
4.6
6.9
227.1
68.3
153.4
113.7
0.5
1.7
0.8
2.4
0.1
0.5
0.1
0.8
33%
10%
22%
14%
0.8
4.0
1.0
3.8
MRF
Sept'13
1494
237
63
82
16%
4.2%
4.24
2854
10
15400
6530
189.0
6741.1
2.3
4.4
1%
27.5
 CEAT is currently trading at a very low P/E of 3.0x, which is the lowest as compared to its peers.
This indicates that CEAT has immense potential and grossly undervalued with respect to the other
firms in the industry, which makes it a very attractive investment.
 CEAT is trading at a P/BV of 0.5, which yet again is one of the lowest in the industry, and compared to
its other peers, CEAT is relatively undervalued.
 Higher PAT/MCAP ratio of CEAT than its peers indicates that the company is undervalued. CEAT’s
PAT/MCAP ratio is higher at 31% when compared to the other giants like Apollo and MRF.
 CEAT’s EBITDA and PAT margins are slightly on the lower side due to the fluctuating raw
material prices and subdued auto demand. However, these are on an improving trend and the fact
that CEAT has shown a superb result indicates that the company can perform in times of pressure
also. This is an encouraging sign for the company in the coming times.
Recommendation
 Touted as one of the most reputed tyre brands in the country, CEAT has done a turnaround with its
performance in the last 6 years. Armed with strong financials, CEAT has a market cap of just Rs.
364 crs, with its top line pegged at Rs. 5,070 crs (13.9 times its market cap). With the rubber prices
falling in the last year and the auto industry recovering, CEAT is poised to be of great value to its
investors. We recommend a ‘STRONG BUY’ on CEAT with a 1 Year Target Price of Rs.
150/share.
CEAT Ltd.
NVS Research
NVS BROKERAGE PRIVATE LIMITED
Corporate Office: 702/703, Embassy Centre, Nariman Point, Mumbai- 400 021.
EQUITY RESEARCH DESK
Mr. Nalin Shah
Mr. Jesal Shah
Mr. Rau Thakur
Mr. Percy Wadia
Ms. Devanshi Dhruva
Ms. Malavika Madgula
Ms. Manisha Thakkar
Boardline
: 61539100
Tel
: 61539105 / 09 / 10
Fax
Email
Web
: 61539134-35 / 66315520
: research@nvsbrokerage.com
: www.nvsbrokerage.com
EQUITY DEALING DESK
Mr. Nalin Shah - 9322213615
Mr. Rau Thakur - 9820993839
Mr. Raju Mudhupog
Mrs. Poonam Sawant
Mr. Santosh Kashyap
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others. It should not be considered to be taken as an offer to sell or a solicitation to support any security. The
information contained herein is obtained and collated from sources believed reliable and we do not represent it as
accurate or complete and it should not be relied upon as such. The opinion expressed or estimates made are as per the
best judgment as applicable at that point of time and are subject to change without any notice. NVS Brokerage Pvt. Ltd.
along with its associated companies/ officers/ employees may or may not, have positions in, or support and sell
securities referred to herein.
CEAT Ltd.
NVS Research