Motilal Oswal Assigns Buy On Midcap Tyres Stock, Jumps 126.35% In 1 Yr, Trading Near 52-Week High

Brokerage firm Motilal Oswal assigned Buy rating on the CEAT Ltd. with a Target Price of Rs. 2,375 apiece. The brokerage sees a potential upside of up to 15% from its current level considering the given target price.

CEAT is a Midcap company operating in the Tyre sector. It is one of the largest tyre manufacturers and is one of the fastest-growing tyre companies in India.

Bite-sized capex going forward should bode favorably for higher returns

According to the brokerage, During CEAT's Analyst Meet, the management reiterated its aim of enhancing its market position through FY26 by 1) maintaining leadership in the 2W segment (28% market share now), 2) gaining market share in PV/CV to 18-19%/11-12% from 15%/7% now, and 3) doubling export revenue from INR20b currently. However, CEAT expects to continue to improve margins as it focuses on increasing its market share through premiumization and a better product mix rather than offering discounts. Now that the primary capex cycle is complete, the company will continue to incur small-scale, consistent capex going ahead, which should help CEAT maintain sufficient capacities and stable returns.

Valuation & view

The brokerage said, "We have upgraded our EPS estimates for FY24E/FY25E by 7%/13% to factor in better-than-expected gross margin and improving product mix. A stable volume growth outlook for domestic OEMs (especially PVs and CVs) and an uptick in replacement demand should enable a faster absorption of new capacities and drive benefits of operating leverage. This, coupled with stable RM prices, would lead to a margin recovery in FY24E (+380bp vs. FY23). Moreover, the focus on key strategic areas like PV/OHT (to help margins), along with prudent capex plans (to benefit FCF), should be a long-term growth catalyst for the company."

It added, "Valuations at 14.8x/12x FY24E/FY25E consol. EPS do not fully capture the rampup of new capacities and lower RM costs. Maintain BUY with a TP of INR2,375 (roll fwd to ~13x Jun'25E EPS)."

Stock Outlook

On Friday, the stock last traded at Rs. 2,076.45 apiece, up 0.16% from its previous close. It is trading 4.97% down its 52 week high.

The stock jumped 6.98% in the past week. It gained 11.49% positive return and in 3 months, it gave 45.44% positive return. It gave 126.35% positive return in 1 year. It gave 119.21% positive return in 3 years and 54.91% positive return in the past 5 years.

The stock traded the 52 week high on 25 May 2022 at Rs. 2,185 apiece and 52 week low on 20 June 2023 at Rs. 890 apiece, respectively. It has a market capitalisation of Rs. 8,399.26 crore.

Disclaimer - The stock has been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.