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Ceat SENSEX

Fundamental Pick

Initial Coverage

CEAT LIMITED

9th August 2011

Ceat Ltd is a one of the leading manufacturer of tyre in India with a market share of 12% of Indian Tyre Industry. Today Ceat’s portfolio consist of various segment such as heavy duty trucks and buses (T&B), light commercial vehicles (LCVs), passenger cars (PC), earth-movers and forklifts (Specialty segment) and 2‐wheelers. Ceat is manufacturing over 10 million tyres in a year. The Company derive over 65% of its revenue from the replacement segment. With the growth in Indian Automobile segment and company’s focus towards increasing the capacity to cater the demand of the tyre industry will lead to healthy growth of the company. Looking at the Industry and the company’s strong growth prospects, we initiate coverage on the stock with 'BUY' rating and a price target of `125.

INVESTMENT ARGUMENT:

Growth in OEM to fuel Revenue

Indian Automobile industry has witnessed strong recovery from the recession. Automobile domestic sales has grown at a CAGR of 27% over FY09-11. In FY11 Passenger Vehicle (PV) has grown by 29% fol-lowed by Commercial Vehicle (CV) which grew by 27% and 2/3 wheelers by 26%. Increase in the Auto demand will directly lead to demand for the tyres from OEM and the robust growth witnessed in last two year will lead to replacement demand. CV is contributing >65% to the company's sales followed by PV 12% and 2/3Wheelers 10%.

Operating margin boosts up: with increased Focus on Replace-ment business.

Replacement segment has better margin as compared to OEM. In FY11 the replacement segment contributed 66% to the company’s revenues. Going forward the company plans to increase this to 70-75%. We believe shift toward the higher margin business will over-all improve the operating margin of Ceat.

Currently the company has a sales network of 34 regional offices and over 3500 dealers out of which 100 are exclusive CEAT shoppes and 96 Ceat Hubs. Going forward the company plans to increase the number of Shoppes from 100 to 200 by FY13E and Ceat Hubs to 260 from 96. On an average T&B tyres are replaced after a period of 12-18 months and PC tyres are replaced in 24-48 month.

Key Share Data

NSE Symbol CEATLTD

BSE Code/Group 500878/B

Bloomberg Code CEATIN

Reuters Code CEAT.BO

Equity Capital (` Cr) 34.24

Face value ` 10

Market Cap. (` Cr) 300

52W H/L 195/84.25

Avg. Daily Volume 150790

Sector TYRES

Sensex 16990

Nifty 5119

Share Holding Pattern

Promoter 49.20%

FII 1.80%

DII 17.78%

Public & Others 31.22%

Stock Returns in (%)

1Mth 3Mth 6Mth

CEAT -17.82 -8.38 -4.55

BSE AUTO -9.36 -10.51 -1.20

Research Analyst

Dipti Saraf [email protected] # +91 79 26666717

Rating : Buy

Target Price : `125

Upside : 35%

Time Frame: 15-18 month

CMP : ` 91.3(as on 08/08/11)

Page : 1

CEAT LIMITED

Expansion of Production Capacity

Ceat commissioned its Halol (Gujrat) Plant in FY11. The plant has an in-stalled capacity to produce 150 tons per day (tpd). Further company is planning to enhance its production capacity of Nasik plant by 35tpd from the current 165tpd to 200tpd. Apart from capacity expansion at Halol And Nasik plant company has also expanded it capacity to 5.5 lakh tyre per month from 2.5 lakh tyre per month at Ace tyres (Out Source Partner)

Decline in Raw material price helps to increase the margins.

Over 70% of its total cost of production is raw material cost. In last fi-nancial year we have witnessed all time high rubber prices and even crude oil price showed a spurt. Although the price has corrected from its peak; going forward we believe that there is space for further 10-15% correction in rubber prices. In FY11, despite the industry witness-ing a hike of 63% in natural rubber prices; the company passed on the hike to its end customer with a lag, due to which company’s EBIDTA margin was adversely affected. In FY11 and in Q1FY12 the company hiked its product prices by 9-10% throughout all segments. We expect the rubber prices to hover in the range of `150-200 over FY12E & FY13E which will help company to record higher operating profits.

Healthy Financial and Valuation

We expect the revenue and profit of Ceat to grow at a CAGR of 22% and 116% to `5382 and `128 Crs respectively over FY11 to FY13E. At the CMP of ` 91 the company is trading at multiples of 0.36X and 0.28X of its FY2012E and FY2013E Book Value (BV) of `251.45 and `321.34 re-spectively. We initiate coverage on CEAT with a BUY rating and a price target of `125 in 15-18 month. Historically the company is trading be-tween P/BV band of 0.4-0.8, we conservatively take the multiple of 0.5 with its FY2013E BV of `321.34.

Page : 2

FY09 FY10 FY11E FY12E FY13E

Revenew (` crs) 2366.50 2807.47 3468.93 4381.62 5148.83

YoY 2% 19% 24% 26% 18%

EBITDA (` crs) 9.02 280.55 93.50 198.10 247.67

EBITDA (%) 0% 10% 3% 5% 5%

PAT (` crs) -16.11 161.03 22.28 95.64 130.51

PAT (%) -1% 6% 1% 2% 3%

DEPS (`) -4.71 47.03 6.51 27.93 38.12

BV (`) 142.63 183.62 189.59 215.21 249.81

ROE (%) -3% 26% 3% 13% 15%

ROCE (%) -1% 19% 4% 9% 10%

Ceat, 12%

MRF, 27%

Birla, 11%

JK, 16%

Apollo, 19%

Others, 15%

Source: Company, Monarch Research

Figure 1: Industry Scenario

CEAT LIMITED

About the Company

Page : 3

Ceat Ltd is a one of the leading manufacturer of tyre in India. It is a part of RPG group. Company caters all segments of the automobile industry and some of the Off The Road (OTR) products as well. Today Ceat’s portfolio consist of various segment such as heavy duty T&B, LCVs, PC, earthmovers and forklifts (Specialty segment) and 2‐wheelers.

The company was incorporated in 1958, in collaboration with TATA Group as Ceat Tyres of India Ltd. In 1982 RPG Group took over the com-pany and named as CEAT LIMITED. Ceat is manufacturing over 10 million tyres in a year. In FY11 the com-pany's market share was nearly 12% in the Indian Tyre Industry. The company has improved its market share by 1% as compared to last FY10. The Company derive over 65% of its revenue from the replace-ment segment. Company has 3 manufacturing facilities 2 in Maharashtra (Nasik and Bhandup) and 1 in Gujarat (Halol). It has a strong sales network consist-ing of 34 regional offices and over 3,500 dealers of which approxi-mately 100 are exclusive dealers running the CEAT Shoppe outlets for the PC segment and 96 run the CEAT Hubs for the T&B segments.

Ceat also has global Presence with 20% revenue comeing from the ex-port market. The company exports to nearly 112 countries across Asia, Africa, Europe and America.

CEAT LIMITED

Page : 4

Ceat has associated Joint Venture (JV) in Sri Lanka named as CEAT Ke-lani. In FY10 the company increased its stake in this JV to 54.84% from the initial level of 18% . As a result of this, CEAT’s investment arm-Associated CEAT Holdings Company (Private) Limited (ACHL) has be-come its subsidiary. ACHL controls 50% stake in the operating company. Kelani has showed good growth in FY11 registering an increment of 29% in its net sales. As Compared with Ceat’s standalone margin, the margin of Kelani is better, resulting to better margin in consolidated books.

Tyre Industry

Nearly 5% of the global demand and supply is contributed by the Indian Tyre Industry. The industry has registered significant growth in FY10 with a turn over of `25,000 crs, resulting in the growth of 12-13% over FY09. This growth is expected to be predominantly driven by an increase in volumes rather than average realizations. Average realization for FY10 was ~ `185 Per Kg. In FY10 total Tyre export was `3625 crs. In India there are 36 tyre manufactures out of them top 10 players contribute ~95% of the total production

The Indian tyre industry is enjoying strong growth and will continue to do so on the back of the country’s fast paced GDP growth, growth in the automobile industry, faster development of road infrastructure, increas-ing levels of radialisation as well as growing demand from the OTR seg-ment. Radialisation level in India is still very Low as compared to the developed nations . India has matched the global radialisation in the PC segment i.e of 98% as compared with the average global level of 95%. But in the case of LCV and Heavy Commercial vehicle (HCV) the average global level is of 60% where as India has reached only 18% in LCV and 12% in HCV. Going forward with the development in the India infrastruc-ture this radialisation level will improve

Tyre industry is highly sensitive to its raw material. Nearly 72% of the total cost of production is raw material cost.

Exhibit 1: Raw Material Cost

Raw Material % to Raw Material Cost

Natural Rubber 43% Nylon Tyre Cord 18% Carbon Black 11% Rubber Chemical 5% Butyl Rubber 4% Poly Butadiene Rubber (PBR) 5% Styrene Butadiene Rubber (SBR) 5% Others 9%

Source: ATMA, Monarch Research

54% 55% 56% 58% 58%62%

46% 45% 44% 42% 42%38%

0%

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2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

'000 Tonnes

Production Imports Tyre Cons. Non Tyre Cons.

CEAT LIMITED

Tyre Industry

Page : 5

Nearly 55-60% of the total rubber production in India is utilized by the tyre segment. Tyre industry imports high amount of syn-thetic rubber (PBR, SBR) mainly due to unavailability of the same.

Following is the trend of the India’s Rubber Production, Con‐sumption and the Imports

There are also few drivers which generates the import demand of the raw material

No domestic Production of Butyl Rubber and Styrene Butadi-ene Rubber of tyre.

Production of Nylon Tyre Cord Fabric, Polybutadiene Rubber, Rubber Chemicals, Steal Tyre Cord, Polyester Tyre Cord insuf-ficient to meet domestic demand.

Duty-free imports permitted against export of tyres; domes-tic demand not sufficient to meet complete requirement; technical and commercial considerations

Business strategy to have multiple sources of supply.

Source: ATMA, Monarch Research

Figure 2: Rubber Production and Consumption

CV67%

2/3W10%

Car/Jeep12%

Others11%

0

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Domestic PV sales

CEAT LIMITED

Investment Arguments

Page : 6

Growth in OEM to fuel domestic demand

Indian Automobile industry has witnessed strong recovery from the re-

cession. Automobile domestic sales has grown at a CAGR of 27% over

FY09-11. In FY11 PV has grown by 29% followed by CV which grew by

27% and 2/3 wheelers by 26%. As per Society of Indian Automobile

Manufacturers (SIAM) estimation in FY12E CV sales are expected to in-

crease by 14-16% whereas PV by 10-12% . Over the next 3-4 years PV is

likely to grow at a CAGR of 6.3% from 2009-2014 according to Automo-

tive Component Manufacturers Association (ACMA). Indian automobile

industry is likely to grow at a CAGR of 14% over 2009-2020 as per Ernest

and Young (E&Y) estimates. The car manufacturing capacity is estimated

to increase to 5.7million units by 2015 from 1.48 million units in 2009.

Increase in the Auto demand will directly lead to demand for the tyres

from OEM and the robust growth witnessed in last two years will lead to

replacement demand in coming years. OEM is contributing nearly 14-

15% to the total top-line of Ceat and replacement nearly 66% from re-

placement market rest is from Export market.

CV is contributing >65% to the company's sales followed by PV 12% and 2/3Wheelers 10%. Government’s focus towards the infrastructure im‐provement and building roads across the country (i.e. construction of 33000 km Roads) will lead to strong growth for CV.


Source: SIAM, Monarch Research

Figure 3: Domestic PV & CV Sales

Figure 4: Segmental revenue of Ceat

CEAT LIMITED


Page : 7

Operating margin boosts up: with increase Focus on Replacement busi-ness.

Ceat being an auto ancillary has limited bargaining power with OEM. Replacement segment has better margin as compared to OEM. In FY11 the replacement segment contributed 66% to the company’s revenues. Going forward the company plans to increase this to 70-75%. We be-lieve shift toward the higher margin business will overall improve the operating margin of Ceat.

To increase the market share in the replacement market Ceat has exclu-

sive outlets for its end customer. Ceat has made outlets for PV know as

“CEAT Shoppes” and for T&B as “CEAT Hub”. Currently the company has

a sales network of 34 regional offices and over 3500 dealers out of

which 100 are exclusive CEAT shoppes and 96 Ceat Hubs. Going forward

the company plans to increase the number of Shoppes from 100 to 200

by FY13E and Ceat Hubs to 260 from 96. This would increase the com-

pany’s reach to the end customer resulting in the higher replacement

sales.

On an average T&B tyres are replaced after a period of 12-18 months and PC tyres are replaced in 24-48 month. Strong sales of consumer ve-hicle which was witnessed in 2009 will result to strong replacement de-mand in this financial year.


Figure 5: Segmental revenue of Ceat

Company is increasing its sales

network, by increasing total

number of dealer and its exclu-

sive outlets know as Ceat

Shoppes and Ceat Hub will

lead to increase in the replace-

ment business of the company.

160 175 200 200

230 240 240 220

590 175

120140

170

205

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FY10 FY11 FY12E FY13E

Nasik Bandup Halol Outsource


Figure 6: Capacity Expansion Plan.

MT/Day

CEAT LIMITED


Page : 8

Expansion of Production Capacity

Ceat commissioned its Halol (Gujrat) Plant in FY11. The plant has an in-stalled capacity to produce 150 tons per day (tpd). The plant was com-missioned on 25th march 2011. By September 2011 the plants is ex-pected to run on full capacity. Further company is planning to enhance its production capacity of Nasik plant by 35tpd from the current 165tpd to 200tpd. Current capacity of the company is 560tpd after the comple-tion of Nasik plant and full utilization of Halol plat by the end of FY12 the company’s production will be 700tpd. The current capacity at Bhandup Plant is 240tpd. Apart from capacity expansion at Halol and Nasik, the company has expanded its capacity to 5.5 lakh tyre per month from 2.5 lakh tyre per month at Ace tyres which is outsourcing partner of the Company.

At Halol plant the Company is basically involved in the production of Ra-dial tyre which will lead to company's strong footprints in the Radial tyre segment . Radial tyres are more efficient as compared to cross ply tyre in terms of fuel efficiency and longer life.

India lags far behind other major economies in terms of radialisation. The radialisation level in Western Europe, North America, Central Europe is around 100%, 96%, 95% respectively and the world average radialisation is around 65%. Whereas Indian radialisation level is at 9.1%. This proves there is vast potential for the Radial tyre segment in India. In India PC has moved towards radialisation and approximately 98% of PC tyres are Radial tyre. In T&B segment still radialisation is not that popular mainly because of the Poor Indian Infrastructure. Today T&B segment has been radialized approximately to 12%. Govt’s focus towards improvement of infrastructure will lead to Radialisation. Com-panies across the sector is focusing on increasing radial capacity to util-ize the potential of the structural shift.

Industry move towards radi-

calization will lead to high op-

portunity for the company.

Company’s Halol plant is in‐

volved in radial tyre. In T&B

segment India is way far from

the average global standard of

radialisation

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RSS4 Prices Per kg RSS3 Bangkok Prices per kg

CEAT LIMITED


Page : 9

Decline in Raw material price helps to increase the margins.

Primary raw materials required for the production of tyres are Natural Rubber, Nylon Tyre Cord fabric, Carbon black and Crude etc. Over 70% of its total cost of production is raw material cost. In last financial year we have witnessed all time high rubber prices and even crude oil price showed a spurt. This spurt in the raw material cost has adversely af-fected the margin of the company. Although the price has corrected from its peak; going forward we believe that there is space for further 10-15% correction in rubber prices.

Ceat basically procures rubber from the domestic market; only for syn-thetic rubber and some portion of natural rubber it is dependent upon the imports. In FY11, despite the industry witnessing a hike of 63% in natural rubber prices; the company passed on the hike to its end cus-tomer with a lag, due to which company’s EBIDTA margin was adversely affected.

The rubber prices have cooled down from their peaks as can be ob-served from the chart below. The spread between International rubber prices and Domestic rubber prices is also narrowing. In FY11 and in Q1FY12 the company hiked its product prices by 9-10% throughout all segments. We expect the rubber prices to hover in the range of `150-200 over FY12E & FY13E which will help company to record higher oper-ating profits due to low material costs and higher realizations.

70%65%

57% 55%

64% 66% 69% 70% 71%77% 79%

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6% 5% 5% 5% 4% 1% -1%

-10%

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90%

% of Sales EBIDTA Margins

Figure 7: Gap between Increase in Rubber price and Price hike Figure 8: Cost of RM as % of Sales & EBITDA Margin.

Figure 9: Indian and International Rubber Price


Source: Rubber Board

CEAT LIMITED


Page : 10

Other Arguments:

Acquired the CEAT brand from Pirelli

Ceat is focusing on the expansion of its export segment. Till FY10 the company was able to sell its product in 9 south Asian countries under the brand name of Ceat. But was unable to sale in Europe and Latin America. For these countries company use to sell its product under the brand name of “Altura”. In FY11 The company has acquired the brand name CEAT from Pirelli in October 2010 for nearly 9 mn Euro (`55 Crs). By this acquisition the company is able to sell its product across the globe under the brand name of Ceat. This acquisition will allow the com-pany to command premium In Europe and Latin America Market. By this acquisition the company also gets a right to out source tyres from China or Vietnam or any other developing countries under the brand name of CEAT.

Relocation of Bhandup Plant

Ceat has a plan to relocate its Bhandup plant. For that company has al-ready bought 50 acre land at Ambernath in Thane (Maharashtra). Cur-rently Bhanudup plant is spread over 31 acres of the land. Relocation of the plant is taken into consideration to improve the operating margins. Some of the problem faced at Bhandup plant are 1) This facility comes under Mumbai region so the goods produced there has to face Octroi duty applicable in Mumbai which is higher as compared to Thane dis-trict. 2) the facility at Bhandup is based on old technology which result in lower efficiency (in terms of production and higher energy cost). By the sale of Bhandup land company will be able to generate cash of nearly `400-500crs which will be used in the development of Ambernath facility Company has sold 7 acre of its Bhandup plant in FY2007 at `130crs and the amount was utilized in funding the Halol Facility.

Company has a plan to complete this relocation process within two year. For this new facility company will be more techno savvy that would help the company to reduce the man power required and shift toward automation. The Company has started offering Voluntary Retire-ment System (VRS) to the Employees.

Relocation of plant will lead to

improvement in operating

margins

CEAT LIMITED


Page : 11

Healthy Financial growth

We expect the revenue and profit of Ceat Ltd to grow at a CAGR of 22%

and 116% CAGR to `5382 Crs and `128 Crs respectively over FY11 to

FY13E. Growth in sales is mainly due to the growth of the OEMs and it is

assumed that in India there would be high growth in CV segment as per

SIAM guidance. Further, the company is also in the expansion mode and

the improving utilization level should result in higher operating margins.

Apart from growth in OEM, Replacement segment will also generate

strong revenue for the company with higher operating margin. None-

theless the penetration of the Brand name Ceat will help the company

to get strong export market with brand recognition.

The operating margin and net margins are expected to increase by

191bps and 151bps respectively by FY13E. Operating and Net Profit are

expected to growth at a CAGR 57% and 116% over the period FY11 to

FY13E respectively resulting in operating and net profit of `280 Crs and

`128 Crs.

Source:

2,850

3,602

4,568

5,382


Sales

289 113 222 280

165

27

99 128


Operating Profit Net Profit

`in Crs

9.5%

2.9%

4.5% 4.8%5.4%

0.7%

2.0% 2.2%


EBIDTA Margins PAT Margin

26

4

13 15

20

4

9 11


ROE ROCE

CEAT LIMITED

Valuation

Page : 12

Ceat Ltd is a one of the leading manufacturer of tyre in India with a mar-

ket share of 12% of India Tyre Industry. Today Ceat’s portfolio consist of

various segment such as heavy duty T&B, LCVs, PC, earthmovers and

forklifts (Specialty segment) and 2‐wheelers. Ceat is manufacturing

yearly over 10 million tyres in a year and over 65% revenue comes from

the replacement business. With the growth in Indian Automobile seg-

ment and company’s focus towards increasing the capacity to cater the

demand of the tyre industry will lead to healthy growth of the company.

We expect the revenue and profit of Ceat to grow at a CAGR of 22% and 116% to `5382 and `128 Crs respectively over FY11 to FY13E. At the CMP of ` 91 the company is trading at multiples of 0.36X and 0.28X of its FY2012E and FY2013E Book Value (BV) of `251.45 and `321.34 re-spectively. We initiate coverage on CEAT with a BUY rating and a price target of `125 in 15-18 month. Historically the company is trading be-tween P/BV band of 0.4-0.8, we conservatively take the multiple of 0.5 with its FY2013E BV of `321.34.

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EPS CEPS

CEAT LIMITED

Concerns

Page : 13

Raw material Cost

Prices of key Raw material (Natural Rubber and Crude Oil) are on rise.

Margins are getting pressurized due to continuous rise in rubber prices.

Since Ceat was unable to pass the complete raise the company has suf-

fered high on margins. Going forward with the cool down in the rubber

price and increasing the realization level the company will improve the

operating margins

World Economy concerns

Slower than expected global recovery could impact future growth pros-

pects and our earnings forecast

Fluctuation in Currency

~ 21% of the company’s revenue comes from its exports thus the com‐

pany is exposed to currency Risk. Any adverse movement in the cur-

rency can have a substantial impact on the company’s revenue.

Increasing Competition

Ceat faces threat from China in radial tyre. To control this threat com-

pany’s plat at Halol is basically involve in manufacturing of Radial Tyres.

Delay in Relocation of Bhandup Plant.

Today Bhandup plant has highest production capacity out of all the

there facility. Ceat is planning to shift its Bhandup facility to Ambernath

to save Octroi Cost and to improve operational efficiencies resulting in

improvement of Operating Margins. The complete relocation will be

completed in two years and the process will be done in phases. Any de-

lay in shifting plant would result in negative impact on margins.

CEAT LIMITED

Profit & Loss

Page : 14

Balance Sheet

Ratios Cash Flow

` in Crs.

YEAR 2011 2011 2012E 2013E

Net Sales 2,850.43 3,602.39 4,568.46 5,382.38

Growth (%) 26.38 26.82 17.82

Expenditure 2,561.92 3,488.94 4,346.47 5,102.24

% to Sales 89.88 96.85 95.14 94.80

EBITDA 288.51 113.45 221.99 280.14

EBIDTA Margins (%) 10.12 3.15 4.86 5.20

Depreciation 27.49 35.94 38.69 43.38

EBIT 261.02 77.51 183.31 236.77

Other Income 41.07 52.13 66.07 77.82

Interest 57.28 79.96 96.43 124.58

PBT 244.81 49.68 152.94 190.01

Tax 79.63 14.42 50.59 61.71

PAT 165.18 27.44 99.19 128.30

Growth (%) (83.39) 261.48 29.35

PAT Margins (%) 5.79 0.76 2.17 2.38

YEAR 2010 2011E 2012E 2013E

SOURCES OF FUNDS:

Share Capital 34.24 34.24 34.24 34.24

Reserves Total 594.96 613.20 704.38 820.66

Net Worth 629.20 653.49 744.67 860.95

Total Debt 673.63 1,050.51 1,187.29 1,310.75

Minority Interest 10.41 - - -

Total Liabilities 1,334.54 1,729.79 1,957.74 2,197.48 APP. OF FUNDS:

Goodwill 3.28 20.48 20.48 20.48

Gross Block 1,292.85 1,923.50 2,070.43 2,321.44

Less: Acc. Depri 495.26 530.30 568.99 612.36

Net Block 797.59 1,393.20 1,501.44 1,709.08

Capital WIP 234.01 127.23 250.00 200.00

Investments 43.42 42.96 42.96 42.96

Total Current Assets 1,058.34 1,256.32 1,450.50 1,726.58

Inventories 417.20 586.94 588.75 694.55

Sundry Debtors 390.33 489.78 660.99 778.61

Cash and Bank 140.98 48.90 35.12 67.70

Loans and Advances 109.83 130.70 165.63 185.72

Less Total Curr. Liab. 802.10 1,110.40 1,307.64 1,501.62 Total Assets 1,334.54 1,729.79 1,957.74 2,197.48

YEAR 2010 2011E 2012E 2013E

From Operations

Profit Before Tax 244.81 41.86 149.78 190.01

Depr. & Amort. 27.49 35.94 38.69 43.38

Interest paid 57.28 79.96 96.43 124.58

Operating profit 299.84 152.34 284.90 357.97

Inc/(Dec) in Working Capital (17.55) 10.44 (10.72)

(49.53)

Tax Paid (54.64) (19.09) (50.59) (61.71)

Net cash generated 227.65 143.69 223.59 246.73

Cash Flow from Invest-ing Activity

Purchase of Fixed Asset (270.87) (517.59) (269.70) (201.01)

Net Cash used in in-vesting activity (263.97) (488.07) (269.70) (201.01)

Changes in capital structure

Inc. in Shares capital - 6.05 - -

Interest Paid (64.30) (79.96) (96.43) (124.58)

Inc/(Dec) in Loans 30.05 333.73 136.78 123.46

Dividend Paid 10.03 (27.03) (8.01) (12.02)

Net Cash From Financ-ing (24.22) 232.79 32.33

(13.14)

Total Inflows (60.54) (111.59) (13.78) 32.57

Opening cash Balance 201.52 160.02 48.90 35.12 Closing cash Balance 140.98 48.43 35.12 67.70

YEAR 2010 2011E 2012E 2013

Profitability(%)

Operating Margin 10.12 3.15 4.86 5.20

Net Margin 5.79 0.76 2.17 2.38

(ROCE) 19.56 4.48 9.36 10.77

Valuation Ratio

P/BV 0.50 0.48 0.42 0.36

P/CEPS 1.62 4.92 2.26 1.81

EV/EBITDA 2.93 11.58 6.59 5.55

Debt/Equity 1.07 1.61 1.59 1.52

Current Ratio 1.32 1.13 1.11 1.15

Du Pont

Tax Burden 0.67 0.55 0.65 0.68

Interest Burden 0.81 0.38 0.61 0.60

Operating Margin 0.11 0.04 0.05 0.06

Asset Turnover 2.14 2.08 2.33 2.45

Financial Leverage 2.12 2.65 2.63 2.55

ROE 26.25 4.20 13.32 14.90

Valuation

Earning per share 48.24 8.01 28.97 37.47

CEPS 56.27 18.51 40.27 50.14

BV 183.76 190.86 217.48 251.45

GROWTH RATIOS (%)

Net Sales - 26.38 26.82 17.82

EBITDA - (60.68) 95.67 26.19

PAT - (83.39) 261.48 29.35

CEAT LIMITED

Page : 15

DISCLAIMER: The information and views presented in this report are prepared by Monarch Research & Brokerage

(p) Ltd ( hereinafter referred as MRBPL) and is based on our analysis and upon sources that we consider reliable. We,

however, do not vouch for the accuracy or the completeness thereof. This Newsletter is for restricted circulation and not

for public distribution. The information furnished in this document is solely for your information and must not be repro-

duced or redistributed in any manner. All having excess to this document are required to observe such restrictions. The

information in this document is for personal information and we are not soliciting any action based upon it. Recipients

of this report should rely on their own investigation and take their own professional advice. Recommendation in this

report may or may not suit risk reward ratio of individual investors and hence should not be completely rely upon. The

analyst of this document certifies that the views expressed in this document are his or her personal views on the subject

and most accurate to the best of his/her knowledge. MRBPL and/or its affiliates, officers, directors, employees, remis-

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RATING SCALE:

BUY - the stock is available at cheap valuation and has an upside of more than 20% and should be bought at the prevail-

ing price.

ACCUMULATE - the stock is fundamentally sound, however may/may not be available at cheap valuation. The up-

side is between 10%-20% and the stock can be bought on dips.

HOLD - the stock is nearing its fair value and should be approached with caution. The upside value for this stock is un-

der 5%-10%

REDUCE - the stock is relatively expensive and/or has achieved its fundamental value and the upside is limited to un-

der 5%. Profits must be taken on every rise, if any position made.

EXIT - the stock has no more room for upside, and valuations are stretched. The company is overvalued and hence one

must “sell” the stock and exit from the counter as there is a possibility of a correction of more than 10%.

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