Brokerage firm Nomura downgraded shares of tyre manufacturer CEAT Ltd. to ‘Reduce’ with a price target of Rs 2,141 apiece, indicating a downside of over 14 percent from Wednesday's closing price.
Explaining the rationale behind the downgrade, Nomura said that the risk-reward seems unfavourable for CEAT at present. It said that the replacement demand recovery is likely to remain slow, though commodity tailwinds are already factored in.
Nomura mentioned that the company’s EBITDA margins in the June quarter were ahead of forecasts, mainly led by increase in gross margins. EBITDA refers to earnings before interest, tax, depreciation and amortisation.
CEAT’s EBITDA margin stood at 13.2 percent in the June quarter compared to 5.9 percent in the corresponding period in the same quarter a year ago.
During the earnings announcement, CEAT’s chief financial officer Kumar Subbiah had said that the company's improved product-mix and procurement efficiencies helped improve its gross margins, leading to an improvement in overall margins both sequentially and year-on-year.
On Tuesday, CEAT reported a net profit of Rs 144.6 crore for the June quarter compared to Rs 9.3 crore in the same quarter a year ago.
The company’s revenue stood at Rs 2,935.2 crore in the June quarter, up 4.1 percent against Rs 2,818.4 crore in the corresponding period of the preceding fiscal year. At the operating level, EBITDA stood at Rs 387.2 crore during the quarter over Rs 164.8 crore in the year-ago period.
Shares of CEAT are trading 1.4 percent lower at Rs 2,460.80. The stock has rallied nearly 20 percent over the last one month.
