Buy Ceat; Target Rs.216 : Sharekhan

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Best call

Research firm Sharekhan has maintained buy recommendation on Ceat with revised target price of Rs 216. At the current levels, the stock is trading at 8.4x its FY2009E earnings and at an EV/EBIDTA of 3.9x.



Result highlights

Ceat's Q1FY2008 results were in line with our expectations. The net sales have risen by 7.8% to Rs 536.4 crore, mainly driven by strong realisation growth due to price hikes and product mix changes. In line with the industry slowdown, the original equipment manufacturer (OEM ) sales declined by 11% year on year (yoy), but the effect of the same was mitigated because of strong growth in the replacement and the export markets.

The operating margins expanded 550 basis points to 9.2% during the quarter as a result of lower raw material cost, price hikes, improved product mix and other efficiencies. As a result, the operating profits grew by 166.3% to Rs 49.4 crore.

Adjusting for the impact of tax provisioning on the extraordinary gain, we estimate that the quarterly profits have grown to Rs 20.4 crore against Rs 0.2 crore same quarter last year. The quarter's results contain extraordinary items relating to refund from excise and income tax and reversal of export benefits granted in earlier years. Profit after tax (PAT) after extraordinary items have grown to Rs 30.4 crore.

Last few quarters have been pretty exciting for Ceat, as it has effected a smart turnaroud during the period and now its margins are comparable with the best in the industry. We expect this strong growth to continue, particularly driven by the replacement and the exports segment. We also expect the company to maintain its margins at these levels going forward. On the basis of strong performances by Ceat, we are raising our earnings estimate for Ceat by 6% to Rs16.9 for FY2008 and are introducing our FY2009 estimates of Rs 21.1.

The slowdown in the OEM segment is expected to continue for another couple of quarters. To counter the same, the company has already put in place strategies to concentrate more on the exports and the replacement markets.

The land sale is expected to be finalised by the third quarter of the current fiscal, while the demerger process is expected to be completed by the end of this fiscal.

At the current market price of Rs 177, the stock is trading at 8.4x its FY2009E earnings and at an enterprise value (EV)/earnings before interest depreciation and amortisation (EBIDTA) of 3.9x. We maintain our Buy recommendation on the stock with a revised price target of Rs 216.

Realisation growth fuels top line

The net sales of the company for the quarter grew by a 7.8% largely on account of realisation gains, while the growth in tonnage terms remained flat. The realisation growth was on the back of price hikes effected in the last one year and product mix changes.

Valuations and view

Considering the strong growth opportunities for the company (particularly in the in the specialty tyre segment), the smart turnaround and the improving productivity, we maintain our positive outlook on the company. The company is also raising its capacity in the off the road (OTR) segment to 45 tonnes a day from 25 tonnes a day by November 2007. The company has also announced to demerge the company into two.one to look the core business and the other, the investment portfolio. For every 100 shares held, the shareholder would get 75 shares of the core company and 25 shares of the new investment company. We believe the move is a positive one, and would lead to greater value unlocking for the shareholders. The de-merger is expected to be implemented during the current financial year. We continue to value the company on sum-of-parts basis. On the basis of strong performances rendered by Ceat in the recent times, we are raising our earnings estimate for Ceat by 6% to Rs16.9 for FY2008 and are introducing our FY2009 estimates of Rs 21.1. At the current levels, the stock is trading at 8.4x its FY2009E earnings and at an EV/EBIDTA of 3.9x. We believe the valuations are very attractive and maintain our Buy recommendation with a revised price target of Rs 216.

Tips

Best Buy

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3. Zee Enter.
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Market Forecast for 02.08.07

The market behaved exactly in tune with the global cues and for the time being check out for the global cues for the next day's trade. today's carnage was so brutal, that almost all the investors are trapped or have lost their hard earned money. if the market fails to hold on to 4339.75 in the coming day, we may see another carnage which may take nifty to a level of 4200+. so be cautious always...

Tomorrow, market may open flat or negative with a gap down of 50-75 points (only if the global cues are negative) with high volatility and remain long only above 4406 with SL 4395 for a tgt of 4465-4490. If it remains below 4400 keep short with SL 4412 for tgt 4280-4225. Avoid trading and play safe.......

since the dow is roaring now, please read the forecast as follows: " Tomorrow, market may open flat or positive with high volatility and remain long only above 4406 with SL 4395 for a tgt of 4465-4490. If it remains below 4400 keep short with SL 4412 for tgt 4280-4225."

POST-MARKET ANALYSIS - AUG 01 2007

BEARS TOOK OVER , SENSEX BELOW 15000

share prices suffered a severe setback today, 1 August 2007. After opening weak under the influence of the US markets, the market kept on declining on intense selling pressure. Weak Asian and European markets dampened the sentiment further. The BSE 30-share Sensex declined below the physcological 15,000 mark and the Nifty fell below 4,400.

All the sectoral indices on BSE tumbled with shares from the real-estate pack suffering the most. However, debutante Everonn systems india posted a strong show on day 1, settling at 242% premium over the issue price.

The fall in the market was accompanied by a surge in turnover on BSE. As per market talks, the fall has triggered margin calls,leading to more selling.

The Sensex lost 635.22 points, or 4.08%, to 14,915.77, as per provisional closing. It opened with a downward gap of 207 points at 15,344.02 and kept on falling to touch a low of 14,910.52 at 15:12 IST on intense selling pressure.

The NSE Nifty slumped 186.20 points, or 4.11%, to 4,342.90, as per provisional closing.

Turnover surged in the last hour of trades on BSE. The total turnover crossed Rs 6000 crore and was at Rs 6267 crore compared to Rs 5,075 crore at 14:30 IST.

The market breadth was weak on BSE with 2,147 shares declining as compared to 533 shares that advanced, while 41 remained unchanged.

All the 30-members of the Sensex pack ended in the red.

India’s second largest cement producer ACC plunged 9.62% to Rs 958 on 3.44 lakh shares. It was the top loser from the Sensex pack.

Reliance Energy (down 7.11% to Rs 737), Ranbaxy Laboratories (down 5.33% to Rs 369.10) and Mahindra & Mahindra (down 4.83% to Rs 693.90) were the other major losers from the Sensex pack.

India’s largest truck maker Tata Morors slipped 4.65% to Rs 666.80 after it reported a 22.2% rise in net profit to Rs 466.76 crore in Q1 June 2007 over Q1 June 2006. Sales moved up 4.7% to Rs 6056.82 crore in Q1 June 2007 over Q1 June 2006.

Bajaj Auto, the country’s second biggest two-wheeler manufacturer, shed 2.76% to Rs 2295 after its vehicle sales fell 7% to 1,85,890 units in July 2007 over July 2006.

Reliance Industries, the country’s largest private sector enterprise, lost 5.25% to Rs 1793 on 15.84 lakh shares. As per reports, RIL is among the 11 winners for oil and gas exploration blocks announced by the Australian government. RIL won the bid for an exploration licence in part of the Bonaparte Basin, off northern Australia. It proposes to spend A$29.8 million over the next six years. This includes the cost of drilling one well. Australia awards oil and gas exploration permits depending on the amount of work bidders pledge to carry out.

India's largest aluminium maker Hindalco Industries tumbled 6.41% to Rs 159.20 after said its net profit in the first quarter remained flat at Rs 602.9 crore due to a sharp fall in alumina prices and a customs duty cut that made imported products cheaper. Hindalco’s revenue rose 9% to Rs 4,677.9 crore in Q1 June 2007 over Q1 June 2006. Hindalco is expected to invest Rs 30000 crore over the next five years in various greenfield and brownfield expansion projects, including the Utkal Alumina project in Orissa.

India’s top small-car maker Maruti Udyog lost 2.13% to Rs 825. The company today, 1 August 2007, reported an 18% rise in sales in domestic market to 52,839 units in July 2007 over July 2006. It exported 5,070 units, up from 1,755 units in July 2006.

Though FMCG and pharma shares, considered as defensive sectors in times of steep market correction, declined, the fall in their prices was relatively low. Dr Reddy’s (down 1.85% to Rs 621.80), ITC (down 2.17% to Rs 167), Hindustan Unilever (down 2.47% to Rs 201), and Cipla (down 3% to Rs 184) edged lower.

Even as the market corrected sharply, Everonn Systems India settled at Rs 478.45 on BSE, a 241.75% premium over the offer price of Rs 140. The huge premium on listing was due to 131.47 times subscription of the IPO. The issue received total bids for 52.58 crore shares compared to total issue of 40 lakh shares.

The Everonn Systems India scrip debuted at Rs 245 on BSE and touched a high of Rs 560 and a low of Rs 245 during the day. About 71.77 lakh shares were traded on the counter on BSE. Everonn Systems India is a fully integrated knowledge management, education and training company.