On Monday, CEAT Ltd. (CEAT:IN) experienced an adjustment in its stock rating, with an upgrade from 'Sell' to 'Reduce'. The new rating comes alongside a revised price target set at INR 2,232.00, an increase from the previous target of INR 2,160.00. The revision was made by an analyst at ICICI Securities following insights gathered from CEAT's Investor Day held on June 7, 2024.
During the Investor Day, CEAT management outlined several strategic goals, including maintaining its market leadership in the profitable two-wheeler (2W) segment and potentially increasing its market share in passenger cars and utility vehicles (PC/UVs).
The company aims to enhance its pricing power through quality products and strong brand positioning. Furthermore, CEAT is targeting to grow its export revenue contribution to over 25% by the fiscal year 2026, up from the current 18-20%.
CEAT also provided forecasts regarding its original equipment manufacturer (OEM) growth, which is expected to be slower in FY25 due to a high base effect. However, the company anticipates better growth in the replacement and export markets. This prediction is based on the observation that the passenger vehicle replacement market demand has been sluggish since the onset of the COVID-19 pandemic.
The company has allocated a substantial capital expenditure (capex) of approximately INR 10 billion for FY25. This investment is intended to complete capacity additions in the passenger car radials (PCR) and off-highway tires (OHT) segments, as guided by the management.
Despite a roughly 12% decline in CEAT's stock price over the past three months, ICICI Securities values the company using a Discounted Cash Flow (DCF) methodology. The new price target of INR 2,232 is based on an estimated 14 times the company's earnings for FY26, leading to the upgraded stock rating to 'Reduce'.
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