Chola Securities is bullish on CEAT has recommended buy rating on the stock with a target price of Rs 1994 in its research report dated February 05, 2018.
Chola Securities' research report on CEAT
CEAT, part of the RPG group, is one among the top four tire manufacturers in India with a total manufacturing capacity of >1000 MT/day & manufacturing plants situated in Nashik, Bhandup (Mumbai),Ambernath, Halol, and Gujarat, the company manufactures all tires: Truck & Bus (33%), 2W/3W (32%), Passenger vehicles (14%), LCV (12%), Off Highway (12%). In terms of market, replacement contributed 62% of the sales while OEM and exports make up 26% and 12% of the sales, respectively. CEAT has a robust distribution network consisting of over 4,500 dealers, 33 regional offices and more than 500+ C&F agents. CEAT commands >12% market share in the T&B segment, 7% in the Passenger car segment, 16% in LCV segment and 22% in the 2/3W segment.
We introduce FY20 estimates (Revenue/EPS: +11.4%/+13% YoY) and roll over valuations on FY20 estimates. At CMP, the stock is trading at P/E of 14.7X/13x on FY19E/FY20E EPS, respectively. We arrive at a revised price target of INR 1,994 based on P/E of 16x FY20EPS and maintain BUY rating on the stock. Risks: Further increase in rubber & crude prices can negatively impact margins.
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