Buy CEAT; target of Rs 1317: Motilal Oswal

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Motilal Oswal's research report on CEAT

CEAT's 2QFY21 performance was driven by strong demand across segments, favorable mix, lower RM cost and operating leverage. While near-term performance would be impacted by higher OEM share and rubber price inflation, sustained demand recovery would help utilize recent capacity additions, drive FCF generation and balance sheet deleveraging. We upgrade our EPS for FY21/FY22E by 27%/8% to factor in one-time tax benefit in FY21 and expected increase in volume growth. Maintain Buy.

Outlook

Valuations at 13.2x/11.8x FY21/22E consol. EPS does not fully capture the benefit of substantial capacity addition. Maintain Buy with TP of INR1,317.

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