CEAT may give 100% return over three years: Macquarie

Mumbai: Macquarie has initiated coverage on automotive tyres maker CEAT with a 12-month target price of Rs 2,250 and said the stock can potentially generate 100% return over three years.

The brokerage said that CEAT is a leading brand in the two-wheelers segment with 30% replacement market share and it has been steadily gaining share in the passenger vehicle segment as well.

"We expect a 24% EPS ( earnings per share) CAGR (compounded annual growth rate) over FY17- 20, led by 12% volume growth and improvement in margin. Our estimates for CEAT’s EPS in FY18/19 are 3/13% higher than the Bloomberg consensus," said Macquarie in a note.

According to Macquarie, CEAT had shifted its focus away from the large but highly competitive truck and bus segment to the faster growing and higher margin segments like two-wheelers, passenger vehicles, speciality tyres and exports.

"CEAT has been successful with this strategy as revenue from the focused segment has shown a 25% CAGR since FY10, which has improved profitability," it said.

It sees potential for CEAT’s valuation re-rating as revenue from the consumer-facing segments grows faster, reducing volatility in margins.