CEAT Ltd. has given a 610% return on a year on year basis as the Auto Ancillary Stocks have rallied on recovery of the Auto sales in the current financial year 2014-15. We had published the analysis on the stock at Rs.302 per share and the current market price of the stock is at Rs.793 per share.
CEAT International 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.
The Company is in the business of manufacture of tyres for Two Wheelers, Three Wheelers, Passenger Cars, Commercial Vehicles and Farm Vehicles. The company supplies to Hero Motocorp and Honda Motorcycle and Scooters India in the Two Wheeler segment, Piaggio, Mahindra and Mahindra, Force Motors, Atul Auto and Scooters India Ltd. in the Three Wheeler segment, Tata Motors, Maruti Suzuki, Hindustan Motors, Eicher Motors, Ashok Leyland and M&M in the Passenger Vehicles and Commercial Vehicles segment and Off the Road (OTR) tyres to companies like Caterpillar, JCB, Escorts International Tractors and Larsen and Toubro Ltd.
The company has a market share of 12% in the Tyre Industry of India and has manufacturing facilities in Bhandup, Nashik and Halol with a capacity of 780 Tons per Day. The company has a 50% market share in Sri Lanka’s Tyre market where it operates through a Joint Venture. CEAT business is derived 55% from replacement demand followed by 23% from OEMs and 23% by Exports. The company exports to countries across Asia, Africa, Europe and America. The company faces competition from other industry players viz. MRF, Apollo Tyres and JK Tyres.
The Indian Tyre Industry has grown at a CAGR of 11% from Rs.286 billion in FY 2007-08 to Rs.430 billion in FY 2012-13. The Exports have grown at a CAGR of 9% from Rs.31 billion in FY 2007-08 to Rs.48 billion in FY 2012-13. The supply to Heavy Commercial Vehicle segment constituted 50% of the Tyre industry sales followed by 15% for Two/Three Wheelers, 11% for Passenger Vehicles, 6% for Light Commercial Vehicles, 4% for industrial segment and 2% for OTR category in the FY 2011-12. The product mix for the Tyre industry is shifting towards Passenger Vehicle segment and Two/Three Wheeler segment from Heavy Commercial Vehicle segment but in a gradual manner. Heavy commercial Vehicle radialisation stands at 20% in FY 2012-13 and is expected to reach 40% in the next four years. Passenger Vehicle radialisation has reached a level of 98% in FY 2012-13.
The entry barriers remain high in the tyre industry due to high initial capital requirement along with high raw material costs and higher working capital requirement amidst tough competition.
The Company reported Sales of Rs.48,810 million with an EBITDA of Rs.3970 million and a net profit of Rs.1480 million in FY 2012-13. The EBITDA margin was 8.13% and the net profit margin was 3% for FY 2012-13 period. The company reported an EBITDA of Rs.1650 million with revenues of Rs.12,630 million for the quarter ended September 2013. The Earnings per share was reported at Rs.35.1 and the Return on Capital Employed (RoCE) was reported at 18.6% and the Return on Equity at 17.2% for FY 2012-13.
The company had a debt of Rs.7220 million at the end of FY 2012-13 with current market capitalization of Rs.10,895 million and Enterprise Value of Rs.18,000 million with a Price to Earnings multiple of 8.63 at Rs.302 per share. The Price to Book Value is 1.31 and the Market Capitalization to Sales ratio is 0.22. Ceat Ltd. had last declared a dividend of 40.00% of Rs.4 per share for the year ended March 2013. The Promoters have a shareholding of 57.11% and the FIIs have a shareholding of 0.03% in the company.