Shares of tyre manufacturer CEAT were locked in the upper circuit on September 14 after the company’s management laid out the strategic roadmap in its annual investor meet. Increasing market share across key segments and ramping up exports are some of the key focus areas for the management.
The scrip gained 20 percent in trade today, ending at Rs 1,661 apiece on the NSE.
CEAT has increased its presence in the high-end premium PCR (Passenger Car Radial) tyres and is the preferred supplier for Mahindra & Mahindra’s XUV700, noted Elara Capital.
The company is set to convert a portion of its underutilised TBB (truck-bus bias) capacity to OHT (off highway tyres), which augers well for margins, as per analysts. Management expects to achieve 10-12 percent margin in the long term, along with 18-20 percent PCR market share.
Of the Rs 900 crore capex planned for FY23, Rs 500 crore was done in H1 FY23. “It may undertake capacity expansion for OHT, subject to demand. Peak revenue potential at full utilization post FY23 capex is Rs 13,000 cr,” according to Elara Capital.
The company aims to double exports revenue to Rs 3500 crore by FY26 from Rs 1800 crore in FY22. CEAT OHT tyres have been well received in Europe and are priced lower by 20-25 percent, informed the management in its investor meet.
Also Read: Tyre stocks in fast lane: How far does the road go?
Elara Capital has an ‘Accumulate’ rating on the stock with a target price of Rs 1,600. “The raw material cost basket grew 2-3 percent QoQ in Q2FY23 and CEAT has taken price hikes to partially offset it. Moderation in commodity cost coupled with further price hikes in Q3 would aid margin expansion,” it noted.
“A stable raw material basket would be a key trigger. We expect gross profit per tonne to fall slightly in FY23E to Rs 84,000 from Rs 85,700 and then improve to FY20 levels in FY24E at Rs 90,000” it added.
Meanwhile, Nomura has a Neutral call on the stock with a target price of Rs 1,273. Capex spend will come down to Rs 600-700 cr from FY24,” believes the brokerage firm.
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