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ICICI Securities Report
Ceat Ltd.’s Q1 FY21 operating performance was in line with consensus estimates as Ebitda margins came in at 9.3% (other expenses declined 494 basis points YoY).
Admirably, Ceat hasn’t yet squeezed employee costs (up 573 basis points), possibly the high replacement (approximately 58%) share of business is providing management growth/profitability comfort.
On the balance sheet side, cash outflows have been restricted, gross debt remains stable QoQ at approximately Rs 20 billion.
Demand outlook for FY22 remains modest due to weakness in medium and heavy commercial vehicle demand (both in original equipment manufacturing, replacement segments), however, profitability is likely to remain healthy due to better mix and cost control.
Ceat’s capex cycle is largely behind us with free cash flow generation (Rs 2.5 billion) to start from FY22. Current valuations remain inexpensive as stock trades at approximately 7.2% FCF yield on FY22E basis.
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