Buy Ceat, target price Rs 1700: Motilal Oswal

Motilal Oswal has buy call on Ceat with a target price of Rs 1700. The current market price of Ceat is Rs 1364.2.
Time period given by analyst is one year when Ceat Ltd. price can reach defined target.

Ceat Ltd., incorporated in the year 1958, is a Mid Cap company (having a market cap of Rs 5561.69 Crore) operating in Tyres sector.


Financials
For the quarter ended 31-03-2021, the company reported a Consolidated Total Income of Rs 2292.89 Crore, up 3.04 % from last quarter Total Income of Rs 2225.30 Crore and up 45.40 % from last year same quarter Total Income of Rs 1576.92 Crore. Company reported net profit after tax of Rs 145.20 Crore in latest quarter.

Investment Rationale
The near-term outlook is challenging, impacted by demand weakness due to COVID-19 and sharp RM cost inflation. The latter will be gradually passed on over the next 2-3 quarters as demand returns once the pandemic ends. However, cyclical recovery in both OEMs and Replacement will enable faster absorption of new capacities and drive benefits of operating leverage. The brokerage expects revenue/EBITDA/PAT CAGR of ~16%/15%/7% over FY21-23E. Valuations at 10.5x FY23E consolidated EPS doesn’t fully capture ramp-up of new capacities in an improving demand environment, resulting in a recovery in margin. The brokerage maintains Buy rating with a TP of ~INR1,700/share (~13x Mar’23E consolidated EPS).

Promoter/FII Holdings
Promoters held 46.8 per cent stake in the company as of March 31, 2021, while FIIs held 27 per cent, DIIs 13.7 per cent and public and others 12.6 per cent.