Stock Buzz: Funds inclined to buy Ceat, exit Apollo Tyres

ET Now's Nikunj Dalmia shares his views about Ceat tyres based on market sources. Excerpts:

Nikunj Dalmia: International raw material product prices have hardened .That could be one of the key factors why Ceat could consider a price hike but thankfully for Ceat, rubber prices in last 10-15 days have stabilised and part of the price hike could also benefit company in expanding the operating profit margins.

Ceat has managed to grow in a tough environment and the volume growth what they have reported for Q1 was much higher than the industry average. Good product mix, couple of new tie ups - one with Eicher and Volvo, other one with Bajaj Auto is really helping their OEM market.

Also the replacement demand for Ceat of late has picked up. Funds are also clearly inclined to buy Ceat as there is some degree of disenchantment around Apollo Tyres after the Cooper Tire deal. For funds, the preference is not Apollo Tyres, but Ceat. The stock in an environment where cyclicals are not doing well, auto sales are not strong, is not very far away from a 52-week high. The 52-week high for Ceat is 132, the stock is trading at 121. It is way off from the 52-week low, volumes are okay, rubber prices have stabilised, a product price hike is around the corner, they managed to do it at a run rate which is higher than the industry average and the overarching theme here is valuation which is not all that stretched.

So there are couple of factors which really could fuel that stock in the short term. Funds also are buying into that stock. So my sense is Rs 10-15 in next one week should be around the corner.