Ceat Targets To Double Export Revenue By FY26, Say Brokerages

Ceat Ltd. targets to double its revenue from exports in the next three years and increase market share in the passenger vehicle segment, according to brokerages.

The tyre maker is targeting 25% of its revenue from exports, they said.

"Ceat focuses on doubling its export revenue by FY26 to Rs 40 billion," said Motilal Oswal Financial Services citing interaction at the company's analyst meet. "The strategy will involve product creation using regional insights from targeted areas and the introduction of new products that will be distinct from the existing ones."

Shares of the tyre manufacturing company gained 0.83% to Rs 2,084.15 apiece, compared to a 0.48% rise in the Nifty 50 as of 10:45 a.m. on Friday.

Of the 22 analysts tracking the company, 14 maintain a 'buy', three recommend a 'hold', and five recommend a 'sell', according to Bloomberg data. The average 12-month consensus price target implies a downside of 6.4%. 

Here are the key takeaways from the meetings with brokerages:

Nomura:

• The brokerage remains 'neutral' on the stock, with a target price of Rs 1,765 apiece, implying a downside return potential of 14.85%.

• The company expects growth in the international business to be driven by the E.U., U.S., and LATAM markets, mainly in agri-radial tyres.

• It expects growth from the U.S. market to be slower as it needs to establish itself in the country.

• In the domestic business, Ceat is targeting market share gains through product premiumisation.

• Capex will be Rs 7 billion for FY24, and it is comfortable to grow at the current installed capacity. The company said future capex will be smaller and in multiple installments rather than one big investment.

• Demand for truck and passenger car radial tyres is increasing.

• International business contribution to increase from 18% to 25%.

• Management highlighted that the company’s distribution network in two-wheelers is strong and that it will push for more throughput.

• The company is expecting raw material prices to remain 1-2% higher quarter-on-quarter.

• Promotional expenses will increase in line with scale, primarily to increase visibility, and advertisement spends will be maintained as a percentage of sales.

Phillip Capital

• Phillip Capital maintains 'neutral' rating with a price target of Rs 2,119, implying an upside of 2%.

• The company is expecting replacement demand to pick up only after three to four quarters; a market share rise in the OEM segment should translate to a gain in the replacement segment in due course.

• Marketing costs in the first quarter are always seasonally higher due to IPL-related spends, and the company wants to improve media visibility from 25–26 weeks p.a. to 36–37 weeks p.a.

• Debt might go up slightly in the first quarter of FY24 as the negative working capital of Q4 of FY23 may reverse.

Motilal Oswal Financial Services

• The brokerage maintains a 'buy' rating with a price target of Rs 2,375, implying a potential upside of 15%.

• The company expects 2W replacement demand to be flat and start picking up after two to three quarters.

• It has a marginal presence in the southern regions. Hence, it will focus on gaining market share in the region.

• Ceat has made good inroads with e2W OEMs, resulting in a market share of over 40%. Since e2W supplies have been picking up recently, replacement demand has yet to kick in.

• A stable volume growth outlook for domestic OEMs (especially PVs and CVs) and an uptick in replacement demand should enable a faster absorption of new capacities and drive the benefits of operating leverage.