Buy CEAT; target of Rs 3290: Motilal Oswal

Motilal Oswal's research report on CEAT

CEAT hosted the investing community, followed by a plant visit to its Chennai facility showcasing its factory, which is focused on digitization and advanced manufacturing processes. Following these practices, OEM approvals from this new plant have now dropped to 25 months (vs. five years from a new greenfield capacity). The company continues to focus on key strategic areas such as PV/2W/OHT (to help margins), along with the expansion in international markets and increasing business in EVs. This, along with prudent capex plans (to benefit FCF), should be a long-term growth catalyst for the company.

Outlook

Valuations at 16.6x/15.3x FY24E/FY25E consolidated EPS do not fully capture the benefits from the new capacities and softening of RM costs. We reiterate our BUY rating with a TP of INR3,290 (roll forward to ~15x FY26E EPS).