Buy CEAT; target of Rs 4159: Motilal Oswal

Motilal Oswal's research report on CEAT

We met CEAT management at the RPG Conference on 3rd Jun’25. In India business, management continues to expect good demand in the tractor and 2W replacement segments even as 2W OEM demand is now slowing down. While PV replacement is likely to post 0-5% growth, PV OEMs are likely to be flat YoY in FY26. Management expects TBR replacement to grow in single digits, and TBR OEMs are likely to post 5% growth in FY26. Further, the full benefit of the decline in input costs is likely to be reflected by 2QFY26. The pricing discipline remains stable, and CEAT has been able to hold on to its pricing so far. It expects to consolidate the Camso acquisition from 2QFY26 onward. CEAT would pay about 60% of the consideration value of USD225m within a month and the balance over the next 1-3 years when it is due. Debt is likely to rise to INR30b by FY26 end from INR19b currently – after considering the standalone capex of INR10b. CEAT’s D/EBITDA is likely to rise to 2x (current 1.3x) once the Camso acquisition is completed, which is comfortable as per management.

Outlook

Given that tariffs would be levied on all regions, management does not expect a material impact of tariffs on CEAT’s operations, including Camso. Overall, we expect CEAT to clock a CAGR of ~10%/16%/35% in revenue/EBITDA/PAT over FY25-27E. We reiterate our BUY rating on the stock with a TP of INR4,159 (based on ~18x Jun’27E EPS).