PL Stock Report - CEAT (CEAT IN) - Analyst Meet Update - Good progress despite challenges - Accumulate

CEAT (CEAT IN) – Himanshu Singh – Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: ACCUMULATE | CMP: Rs2,073 | TP: Rs2,260

Analyst Meet Update - Good progress despite challenges

Quick Pointers:

§ International business expansion maybe back ended, looks aggressive

§ Focus on EV, SUVs and D2C market place should help gain share

We attended investor meet of CEAT where the management updated on its FY26 vision and strategy. Over the next three years CEAT aims to gain market share across segments while maintaining leadership in 2Ws and gain leadership in PVs in replacement market. CEAT’s focus on key trends like EV tyres, SUV tyres and increasing digital reach should help the company in the long term. It aims to grow its international business by 2x by FY26, helped by positioning its brand in the value segment in the international market.

In FY24, CEAT sees mix of replacement and exports segment to improve and OEM mix to fall. It sees volumes growth could be in the range of low to mid-single-digit in major segments with replacement demand outperforming. Exports market recovery might be slow due to slowdown in Europe in FY24. CEAT expects RM cost to remain in a range and will have to pass on benefits to customer in FY24. In the near-term, impact on export volumes, moderation in growth and higher interest costs may put pressure on profitability. Yet correction in commodity cost coupled with cost control would aid margin expansion, in our view. Maintain ‘Accumulate’ with revised TP of Rs 2,260 (Rs 1,800 earlier) at 15x Mar-25E (earlier 14x) consolidated EPS driven by EPS increase of 26%/17% in FY24/FY25, largely on recent change in RM cost.

CEAT presented its 2026 vision wherein it will focus on electrification, premiumisation, adopting digital technology and international market. Market share improvement across segments: CEAT has improved its market share across 2W, PV and CV segments, and aims to gain market leadership in PV segment with 16-18% market and maintain its 2W leadership, this will happen on the back of association with OEMs, launch of new platforms in the EV space, focus on key trends like higher SUV dominance. Premium category mix increases by >2x since FY19: Ceat is premiumising its product range and saw more than 2x increase in contribution from premium range over the last 4 years together in PV (FY19: c9% to FY23: c28%) and 2Ws (FY19: c13% to FY23: c23%). Maintain EV leadership, invest in R&D: CEAT has gained EV leadership in the 2W space with more than 40% market share with OEMs. It is supplier to EV start-ups as well as established OEMs. CEAT has launched multiple EV platforms across PV, 2W and commercial EV use cases and is investing to innovate further. Double international business by FY26: CEAT is working on doubling its international business by focusing on US and Europe markets majorly. It is planning to grow both Off-Highway and PV & TBR tyres by increasing SKUs. It has grown SKU’s in OHT segment by 1.7x and in PV & TBR by 1.5x since FY19. Using digital to expand reach: CEAT is using D2C channels to reach wider audience in the replacement market. Currently, c6% of PV replacement sales comes from D2C channels. Capacity addition with low capex: CEAT can increase its capacity by 1.3x with little investment and thus will not require significant capex in near term.

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