CEAT Ltd, Buy

CEAT Ltd, Buy

CMP: Rs 181 Target Price: Rs 216

Q3FY2008 Result Update

A mix of hits and misses would perfectly define CEAT’s batting performance this quarter. While the bottom line growth of 63.2%YoY may seem like a flash of brilliance, but a deeper probe would reveal it was just on a lower base of last Q3FY2008. Whereas the replacement sales growth of 22%YoY showed signs of a strong come back, the OEM sales continued to show signs of poor form. We continue to remain positive on the company on the back of new expansions and replacement demand pick up.

Land Sale on the Cards

The company plans to sell 6.4 acres of its Bhandup property. This is expected to go through in Q4FY2008E.

Valuation We expect CEAT to witness robust growth in profitability on the back of strong growth opportunities in specialty tyres, strong turnaround, improved productivity and product mix. We introduce our FY2010E and expect CEAT to report an EPS of Rs 34.9. We value the core business of the company at Rs 210 and continue to value the land bank at Rs 6 per share. We are positive on the company’s prospects and maintain a BUY with a price objective of Rs 216. FINQ, February 4, 2008