Target: ₹3,651
CMP: ₹3,089.50
Ceat seems well poised to ride the growth wave while prudently navigating the steep RM inflation trends. Demand outlook stays unchanged; high single to early double digit volume growth is likely in FY25.
Going forward, focus on high-margin segments like exports, PCR (high rim sizes) and OHT over TBR (low ROCE biz) to aid volumes and margins. Exports are a key growth lever, led by new SKU launches for PCR, TBR and agri radials in key markets like Europe and US. We expect consistent price hikes, and recent RM basket correction (both NR and brent crude declined by 24/11 per cent from its recent peak) to support margins from Q4-FY25 even though gross margins to stay weak even in 3QFY25.
We have built in Revenue/EBITDA/Adj.PAT CAGR of around 13/12/10 per cent for FY24-27E, tweaking FY25-26 EPS by 2-3 per cent to account for NR volatility, which is partially offset by a favourable mix.
Valuations at 19x/13.6x FY26/17 consol EPS (vs 10yr LPA of around 18.6x) seem reasonable and are yet to reflect the improved positioning. Reiterate ‘Add’ with TP at ₹3,651 (SoTP)
Sustenance of price hikes and NR volatility remain the key thing to watch for margins ahead.