CEAT Share Price: Prabhudas Lilladher said that CEAT’s 4QFY21 consolidated results missed estimates, as margin came lower at 11.4% (-130bp YoY/ 340bp QoQ) led by raw material headwinds and lower replacement mix. As gross margins are anticipated to remain weak in H1 due to RM inflation (+8-10% increase in Q1) and weaker mix (replacement share to normalize to 60% v/s 65% in H2), Prabhudas Lilladher said it expects margins to remain weak in 1QFY22.

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Prabhudas Lilladher cut FY22/23 consolidated EPS by 14.1%/9.5% as they built in:

i)    high Raw material cost
ii)   weaker mix

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However, Prabhudas Lilladher are positive on CEAT led by factors such as:

i)    healthy FY22/23 outlook for PVs/CVs (accounts for ~57% of revenue)
ii)   continue market share gains in PVs/truck segment led by ramp up in capacities
iii)  cost control measures

Consequently, Prabhudas Lilladher said that it maintains accumulate rating with revised price target of Rs 1472 (earlier Rs 1667), based on 16x Mar-23 consol EPS (unchanged). CEAT trades at 18x/15x FY22/23 consol EPS (in-line with 5yr LPA).

Key takeaways from the CEAT concall:
1)      Demand outlook in the near term is uncertain. However, expect strong growth in both OE/replacement segment due to low base
2)      Expect gross margins to remain under pressure in Q1 led by anticipated 8- 10% increase in Raw Material coupled with lower replacement mix
3)      Gained market share of 4-5% for PVs and 2% for truck replacement in FY21
4)      Taken an average price increase of 3% in Q4 while expect another price hike in Q1
5)      Capex guidance at Rs11.5-12b for FY22 (of which Rs10b is for project capex and balance for maintenance capex)
6)      Inventory is less than the normal due to ramp up process across plants
7)      Current capacity for Specialty tyres is at 33 tons/day. Plans to increase capacity to 45 tons/day by June and another 55 tons/day over next 9 months.