Emkay Global Financial' research report on CEAT
We attended CEAT’s annual analyst meeting. KTAs: 1) The management retained its mid-single-digit replacement growth guidance. Rural is outpacing urban (key for CEAT’s 2Ws/farm segment) on a favorable monsoon outlook; it is eyeing share gains in PV OEMs amid rising salience of higher-rim size tyres. 2) CAMSO acquisition (not built in) unlocks USD1.2bn potential as CEAT will gain control of the CAMSO brand after 3Y; the mgmt expects margin to expand beyond historical levels in 2-4 quarters (after consolidation in Q2), led by efficiency gains, price rationalization, and operational synergies. 3) CEAT’s pricing strategy stays competitive, with premiumization focus on select categories to drive share gains. 4) RM outlook flattish in Q1 and Q2 vs earlier expectation of benefit from Q2 (refer to Strong Q4; healthy outlook, margin expansion ahead). Margin gains could accrue from second half of Q2 provided commodity prices soften further. We like CEAT, given its superior growth prospects on higher exposure to consumer-facing categories and sustained share gains. Margin revival looks promising, contingent on stable RM (refer to IC: Emerging 'consumer' leader; best-placed to resist RM volatility).
Outlook
The demand and margin cycle for the tyre industry is turning positive. Our estimates remain unchanged. We retain BUY with our TP of Rs4,100.
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