Buy CEAT; target of Rs 3650: Emkay Global Financial

Emkay Global Financial is bullish on CEAT has recommended buy rating on the stock with a target price of Rs 3650 in its research report dated September 03, 2024.

Broker Research

September 04, 2024 / 12:05 IST

buy

26 Aug, 2025 12:21

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Emkay Global Financial's research report on CEAT

We initiate coverage on CEAT with BUY and TP of Rs3,650 (17x Sep-26E PER; likely upside: 31%). Despite street concerns about margin volatility due to spike in RM prices, our analysis points to gradual de-linking of tyre industry profitability from the underlying RM (gross margin 4-5% higher now than the corresponding RM level 2Y ago). Backed by best-in-class R&D, industry-leading marketing spends, and OEM relationship focus, CEAT has outperformed across parameters in the last 5Y, with leadership in consumer categories (now #1 in 2Ws; strong #3 in PCR), and is showing greater resilience to RM volatility vs peers. We build in RM-led pressure in the near term; price hikes, accelerating growth, and sustained high utilization are seen driving margins back to FY24 levels thereafter (30% EPS CAGR over FY25E-27E), with RoCE at ~19%.

Outlook

We build-in 10%/30% revenue/EPS CAGR over FY25E-27E. Healthy profitability growth along with calibrated capex spends (growth over coming 2-3 years to be supported by brownfield) would help further strengthen the balance sheet and boost RoCE to ~19%. Holistic improvement in positioning and financials would drive a re-rating in our view; we initiate coverage on CEAT with BUY and TP of Rs3,650/sh at 17x Sep-26E EPS, with potential upside of 31%.

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