Buy Ceat, target price Rs 1600: JM Financial

JM Financial has buy call on Ceat with a target price of Rs 1600. The current market price of Ceat is Rs 1619.8. Time period given by analyst is one year when its price can reach defined target.

Ceat, incorporated in the year 1958, is a mid cap company (having a market cap of Rs 6512.06 crore) operating in tyres sector.

Its key products/revenue segments include automobile tubes, other operating revenue, scrap, royalty income, others for the year ended March 31, 2022.


Financials
For the quarter ended June 30, 2022, the company has reported a consolidated total income of Rs 2821.14 crore, up 8.70 per cent from last quarter total income of Rs 2595.28 crore and up 47.68 per cent from last year same quarter total income of Rs 1910.28 crore. Company has reported net profit after tax of Rs 2.60 crore in latest quarter.

The company’s top management includes Mr.H V Goenka, Mr.Atul C Choksey, Mr.Ranjit V Pandit, Mr.Haigreve Khaitan, Mr.Paras K Chowdhary, Mr.Mahesh S Gupta, Mr.Pierre E Cohade, Ms.Priya Nair, Mr.Arnab Banerjee, Mr.Anant Vardhan Goenka, Mr.Vinay Bansal. Company has SRBC & Co LLP as its auditors. As on June 30, 2022, the company has a total of 4 crore shares outstanding.

Investment Rationale
Given the recent correction in NR and crude prices and back-to-back price increases, the brokerage expects gradual recovery in EBITDA margin to sustainable 10-12%. They introduced FY25 estimates and ascribe a 14x PE multiple to arrive at Sept’23 TP of INR 1,600. Inability to take price hikes, weakness in replacement sales and reversal in recent RM cost correction are key risks.

Promoter/FII Holdings
Promoters held 47.21 per cent stake in the company as of June 30, 2022, while FIIs owned 22.45 per cent, DIIs 11.15 per cent.