Ceat hits new summit; zooms over 46% so far this May on strong Q4 results

Shares of Ceat hit new life-time high at Rs 2,078, up 5 per cent on the BSE in Wednesday’s intra-day trade, extending its rally after margins expansion of the company were back to double digit in the January-March quarter (Q4FY23). The stock surpassed its earlier record high of Rs 2,030 on December 27, 2017.

Thus far in the month of May, Ceat has outperformed the market by surging over 46 per cent, as compared to 1.6 per cent rise in the S&P BSE Sensex.

Drop in raw material prices and maintaining product realization helped in the expansion of gross margins and earnings before interest, taxes, depreciation and amortization (Ebitda) margins by 422 bps during Q4FY23.

Ceat crossed an important milestone of Rs 10,000 crore of revenue during the course of the Q4FY23 and ended the financial year with revenue of Rs 11,263 crore. The company delivered a strong growth of 21 per cent in FY23, contributed by both volume and price.

The growth during the year was largely driven by OEMs and specialty & passenger category tyres. On exports, Ceat said it continue to face pressure as a result of the global economic headwinds, largely spurred by the ongoing war and the currency devaluation.

However, the management said the company has begun to see some recovery in exports and the replacement market, especially in the commercial category. The management is hopeful that the coming quarters will see further uptick in growth, as commodity prices remain stable, and the global inflation slows down.

Analysts at Prabhudas Lilladher raised its EPS estimates by 10 per cent each for FY24/25, to factor in strong beat on margins led by lower commodity costs (8-9 per cent lower QoQ) and management commentary.

In Q4FY23, CEAT’s revenue was helped by volume growth of 7 per cent QoQ, however, blended realizations were lower QoQ due to mix and discount. Raw material basket was lower by 8-9 per cent QoQ (gets passed on to clients with one quarter lag) and helped EBITDA margin to grow by 560bps, the brokerage firm said in result udpdate.

In the near-term, impact on export volumes, moderation in growth and higher interest costs may put pressure on profitability. Yet correction in commodity cost coupled with cost control would aid margin expansion, in our view, it added. The stock is however trading above brokerage firm’s target price of Rs 1,800 per share.

Technical View

Bias: Positive

Target: Rs 2,190; Rs 2,315

Support: Rs 1,965; Rs 1,932

Pursuant to the sharp rally at the counter, Ceat is seen trading firmly above its key moving averages on the daily chart, and the stock is seen treading near-about the higher-end of the Bollinger Bands.

As per the weekly charts, the near-term bias is likely to remain bullish as long as the stock trades above Rs 1,932. Similarly, the monthly chart suggests that the bulls are likely to have the upper hand as long as the stock trades above Rs 1,965.

On the upside, the stock could rally to Rs 2,190 - Rs 2,315 indicates the yearly Fibonacci chart.

(With inputs from Rex Cano)