The Hindu Business Line : Ceat: Buy

LONG-TERM investors can contemplate equity exposure in Ceat. It is among the major tyre producers and has a presence across all major segments of the industry.

The recent restructuring initiatives and the pick-up in demand are likely to provide an impetus to growth.

Ceat, which has considerable brand equity, has a presence in key segments including truck and bus, passenger car radials and two-wheelers.

With a notable presence in the original equipment and replacement market, Ceat is well-positioned to capitalise on any improvement in business fundamentals.

Aided by the improvement in automobile production, Ceat reported an improved performance for March 2003.

The turnover for this period rose 9 per cent to Rs 1,488.3 crore. But post-tax earnings increased manifold to Rs 18.4 crore from Rs 2.4 crore.

Apart from the improvement in the automobile sector, the soft trend in raw material price that prevailed in the first half of the previous fiscal helped the company recorded a sharp growth in bottomline.

However, the impact of the sharp increase in cost of inputs such natural rubber and nylon tyre cord is manifest in the performance over the recent quarters.

For the first six months of this fiscal, the turnover increased 6 per cent to Rs 786.2 crore while post-tax earnings declined by 15.5 per cent to Rs 10.4 crore..In a recent restructuring move within the RPG group, the rubber division of the group company, Harrisons Malayalam, has been transferred to Ceat.

This would have a positive impact on Ceat's profitability on account of savings in raw material cost.

Given the recent spike in rubber prices, the performance is likely to improve significantly once the restructuring exercise takes effect.

Apart from savings on raw material front, the demand for tyres too is likely to pick-up in the near term.

The normal monsoon and the pick-up in economic fundamentals are expected to boost tyre demand. These factors would have a beneficial influence on Ceat's business.