Edelweiss Securities is bullish on CEAT has recommended Buy rating on the stock with a target price of Rs 1918 in its research report dated February 2, 2018.
Edelweiss Securities' research report on CEAT
CEAT’s Q3FY18 operating performance came broadly in line with our estimate. Management has raised FY19 capex to INR15-17bn (from ~INR10bn), largely directed at PV tyres. While this reflects management’s growing confidence in growth prospects, we anticipate margin pressure in the near term due to: (1) sharpened focus on low margin PV OEMs—an imperative for long-term brand building in the replacement market; and (2) higher opex. Also, we believe limited capacity in CV tyres (~45% revenue) will lead to muted volume growth.
OutlookWe estimate EPS CAGR of 35% over FY18-20. We believe the stock should trade in the 12-15x PE band depending on its product mix, capex cycle and rubber prices. At CMP, the stock trades at 13.9x/12.0x FY19E/FY20E PER. We maintain ‘BUY’ with revised TP of INR1,918 (PER of 14x FY19E).
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