On Monday, an analyst from Investec reaffirmed a positive stance on CEAT Ltd. (CEAT:IN), maintaining a Buy rating with a price target of INR2,900.00. The analyst highlighted the company's strong position in the two-wheeler (2W) segment, where it holds approximately a 33% market share, and its ambitions to become a leader in the passenger vehicle (PV) segment. Currently ranked third with a 16% market share in the PV category, CEAT is also forging significant ties with electric vehicle (EV) manufacturers, boasting a 20-25% share of business across various categories.
CEAT's management expressed optimism about domestic growth, particularly in the replacement segments for passenger vehicles and trucks and buses (T&B). While the demand for 2W original equipment (OE) remains robust, the company anticipates a subdued demand for PV/T&B in the fiscal year 2025 estimates (FY25E). Additionally, CEAT is planning to expand its export share from the current 19% to approximately 25% over the coming years. This strategy includes increasing its presence in the off-highway tire (OHT) segment and entering the PV and truck and bus radial (TBR) tire markets in the United States.
The company intends to manage capital expenditures prudently, focusing on minimal spending to enhance capacity rather than pursuing greenfield capacity expansion in the near term. This approach is aimed at keeping overall capital expenditures in check. Despite near-term margin pressures anticipated due to rising raw material costs and Extended Producer Responsibility (EPR) regulation, the management expects that a favorable product mix and price increases will partially mitigate these effects.
Investec's analysis suggests that CEAT's current valuation at 12.5 times the fiscal year 2026 estimated earnings per share (FY26E EPS) compares favorably with its 5-year average of approximately 16 times. The firm's outlook reflects confidence in CEAT's strategic initiatives and market positioning.
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