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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Kelani Tyres PLC - Invest for the future

Kelani Tyres PLC - Invest for the future

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1Kelani Tyres PLC - Invest for the future Empty Kelani Tyres PLC - Invest for the future Thu Feb 11, 2016 1:50 pm

EquityChamp

EquityChamp
Moderator
Moderator
Background
The company is 50% equity investor in CEAT-Kelani Joint Venture which manufactures and sells CEAT brand tyres in Sri Lanka and overseas. The JV is the no.1 player in Truck/Bus, 3 wheeler, Agriculral tyres and passenger car/van tyres and no.2 in Motor Cycle tyres in Sri Lanka

Operations of the JV
Production stood at 15,440 MT in FY 2014/15 with a 1% annual compounded growth rate from 2010/11 FY.The company maintained an annual compounded growth rate of 6% for the the same period recording total sales of Rs9.4bn in FY 2014/15. The company embarked on significant operational efficiencies coupled with favourable raw material prices during the same period which has resulted in an improvement in gross margin from 21% in 2010/11 to 34% in 2014/15. The same efficiencies has doubled the JV PAT margin to record 16% in FY 2014/15. Further the borrowings have been reduced by a significant amount to record arround 200mn in FY2014/15 from a high of over Rs1.4bn in FY2011/12 which has significantly reduced the interest cost over the years.

Company Performance
Company recorded a PAT of Rs717mn for FY 2014/15 and a PAT of Rs617mn for 9 months ended 31st Dec 2015. The company has generated an impressive ROE of 24% for FY 2014/15 as well as 9 months ended 31st December 15. The company's balance sheet is near 'zero' debt where 99% of the total assets have been financed through equity.

Future Outlook - Opportunities & Challenges
The CEAT brand has rooted strongly in the domestic market due to its reliability and durability together with relatively lower price compared to other imported brands in Sri Lanka so that domestic volumes will continue to rise.

The global outlook for tyres from sources of origin such as Sri Lanka will be bleak due to substantial supply over demand. Further the prohibitive duties imposed by US Government on chinese tyre imports wil lead China start dumping tyres to alternate markets including Sri Lanka. However the effect of this challenge will be managed through strong domestic volumes coupled with SL Government backing to restrict imports through taxes.

Valuations
The company is likely to record a PAT in excess of Rs850mn for FY 2015/16 (E) and surpass a PAT of Rs1bn in FY 2016/17 (E) with a forward PE of 6.4x based on 2015/16 earnings and a forward PE of 5.4x based on 2016/17 earnings @ the current market price of Rs70. if you value the stock even for a 50% discount to the PE of manufacturing sector this stock should be worth a minimum of Rs120/- by next year. Further with their policy of paying 20% of their profits as dividends the shareholders can expect an annual dividend  in excess of 2 rupees for the next two financial years.

Recommendation
Strong BUY @ current price levels and take advantage from the current depressed market sentiments.

Thanks

D.G.Dayaratne


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Pl see annual repot for 2014/15

Pl read ful report if possible






QUOTE
imposing prohibitive duties on Chinese tyre imports which has forced Chinese manufacturers to start dumping to alternate markets
in Africa, Middle East and Asia including Sri Lanka.
Although we did not experience the negative effects of this in Sri Lanka up to now, it is possible that this situation would have
serious repercussions on volumes and margins in our business beginning next financial year (15/1

UNQUATE



Last edited by D.G.Dayaratne on Sun Feb 14, 2016 6:08 pm; edited 1 time in total (Reason for editing : typig mistake)

Joe007


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
Thank you Equitychamp

EquityChamp

EquityChamp
Moderator
Moderator
Trading at a forward PE of 5.2x under current price of 67.30. Massively undervalued compared to manufacturing sector.

EquityChamp

EquityChamp
Moderator
Moderator
Reminder of the valuation. Still below 70/-.

EquityChamp

EquityChamp
Moderator
Moderator
TYRE still available @ 73/-. Remember this will be one billion profit company by next year.

crnsuranjith


Senior Equity Analytic
Senior Equity Analytic
yes. this is real l/t investment for those who want get big profit in the future. 

big thanks to you ec and others (who are honest contributors) doing good volunteering job on the forum.

EquityChamp

EquityChamp
Moderator
Moderator
So what do you think. Here TYRE has reported a PAT of Rs252mn for Apr-Jun 16 quarter. YoY growth is 54% and QoQ growth is 77%. Well intact to my original estimates. The Ceat-Kelani JV is doing absolutely fine.

@ The current price the forward PE multiple is 4.6x. I see an easy path for at least a 30% price appreciation. The share was trading around 80/- a year ago. So holders of TYRE will be winners and the new investors still time is there with this steep discounted trading price level.

nimantha80


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
I guess players are missing in this

chamil1


Manager - Equity Analytics
Manager - Equity Analytics
@EquityChamp wrote:So what do you think. Here TYRE has reported a PAT of Rs252mn for Apr-Jun 16 quarter. YoY growth is 54% and QoQ growth is 77%. Well intact to my original estimates. The Ceat-Kelani JV is doing absolutely fine.

@ The current price the forward PE multiple is 4.6x. I see an easy path for at least a 30% price appreciation. The share was trading around 80/- a year ago. So holders of TYRE will be winners and the new investors still time is there with this steep discounted trading price level.

Thanks EC for picking up TYRE early and analysing

EquityChamp

EquityChamp
Moderator
Moderator
Tyres shows very bullish pattern. I recon it was down due to less attention. But the way goes now it will touch the 52week high very soon. It has now moved to 66/-, a 10% appreciation within one week.

GL

EquityChamp

EquityChamp
Moderator
Moderator
TYRE crossed 70 mark today. Who ever bought @ 60s could have 20% profit by now. Journey to be continued.

Thanks

Yahapalanaya

Yahapalanaya
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
I had short term target for Tyre and exit @72.5 with 12% capital gain.

EquityChamp

EquityChamp
Moderator
Moderator
Still holding the ground @ 70/-. The time is not yet to stop investments. I advice to establish positions now with 1-2 quarters of holding plan. ASPI stagnation will be temporary for sure.

EquityChamp

EquityChamp
Moderator
Moderator
Fell to lower 40s with steady decline in profits. However can see a good improvement in the latest quarter report. Is the time right for taking positions ?

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