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Reliance Securities
CEAT (Buy)
CMP: ₹1,284.05
Target: ₹1,750
CEAT Ltd is engaged in manufacturing and sale of automotive tires, tubes and flaps. The company manufactures radials for a range of vehicles.
We foresee CEAT’s operating performance to improve further in ensuing quarters with the likely improvement in volume and product-mix on the back of higher replacement demand. Company’s new products has received good response and would help gaining market share to the company. Its improving brand image and network expansion would help on volumes front.
Though there would be near term pressure on business performance, gradual ramp-up in Ambernath plant’s utilisation is expected to aid CEAT’s profitability in ensuing quarters. Moreover, falling raw material cost would expand margins from the current level.
In view of likely pick up in company’s business with new capacity and strong management capability to capitalise from replacement demand, we maintain our positive view on the stock.
Stock’s current valuation of about 13xFY20E appears attractive and we recommend ‘buy’ on CEAT with a Target Price of ₹1,750, valuing the stock at 17.5x FY20E EPS.
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