India Small Cap Tour: Ceat's Q2 May Fail to Reflect Good Performance of Its OEM Partners

India Small Cap Tour: CEAT Riding the Growth in Passenger Vehicle Segment

India: Even as Market Share Falls, Commercial Vehicle Tyres Continue to Dominate Industry Revenue

Equity Analyst, LightStream Research

Chacko Jacob

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

<p>In 2Q, <a href="https://www.smartkarma.com/entities/18722" target="_blank" data-smartkarma-citation="entities:18722:1">Ceat Ltd (CEAT IN)</a> managed to overcome the GST blues and make a quick turnaround from the preceding quarter that saw its PAT plummet nearly 98.6%. Based on management's ambiguous comments on restocking by dealers, we estimated that growth will normalise only after two or three quarters. However, the stronger than expected showing in 2Q along with new developments in the market have made us take a bullish stance on the company.</p><ul><li>Anti-dumping duty on Chinese tyre imports will support Ceat's CV (commercial vehicle) business from which it draws 33% of its revenue.</li><li>Ceat's new plant in Nagpur, producing 2-wheeler tyres, has gone live and the company has also commissioned the second phase at the Halol plant to meet the demand in the PV (passenger vehicle) segment. </li><li>The company plans to foray into the high-margin OHT (off-highway tyres) space soon and has begun testing its products globally.</li></ul><p>While natural rubber prices have declined from their highs in the middle of the year, uncertain weather patterns can play spoilsport to the company's margins. However, on the whole, we have raised our outlook for the company based mainly on the above points. </p>

In 2Q, Ceat Ltd (CEAT IN) managed to overcome the GST blues and make a quick turnaround from the preceding quarter that saw its PAT plummet nearly 98.6%. Based on management's ambiguous comments on restocking by dealers, we estimated that growth will normalise only after two or three quarters. However, the stronger than expected showing in 2Q along with new developments in the market have made us take a bullish stance on the company.Anti-dumping duty on Chinese tyre imports will support Ceat's CV (commercial vehicle) business from which it draws 33% of its revenue.Ceat's new plant in Nagpur, producing 2-wheeler tyres, has gone live and the company has also commissioned the second phase at the Halol plant to meet the demand in the PV (passenger vehicle) segment. The company plans to foray into the high-margin OHT (off-highway tyres) space soon and has begun testing its products globally.While natural rubber prices have declined from their highs in the middle of the year, uncertain weather patterns can play spoilsport to the company's margins. However, on the whole, we have raised our outlook for the company based mainly on the above points. 

Ceat: La Nina May Play Spoilsport in 2H; Restocking Post GST Served Well By ADD Imposed on Imports