This multibagger tyre stock gains on robust business outlook, up 127% in a year – should you buy?

Shares of CEAT Limited – a tyre manufacturing company – gained during Friday’s session after the firm’s management gave a strong business outlook during the analysts’ meet on Thursday. The stock grew over 1.5 per cent to touch the day’s high level of Rs 2106.95 per share on the BSE today.

At around 12:05 PM, CEAT shares pared early gains to trade flat with a positive bias at Rs 2080.85 a share. The counter has 52-week high-low level of Rs 2,181.6 and Rs 890 per share on the BSE.

Investors meet highlight:

• CEAT’s management reiterated its aim of enhancing its market position through FY26 by:
• Maintaining leadership in the two-wheeler segment; at present, it has a 28 per cent market share.
• Gaining market share in passenger and commercial vehicles (PV/CV) to 18-19 and 11-12 per cent from 15 and 7 per cent at present, respectively.
• Doubling export revenue to Rs 4000 crore from Rs 2,000 crore currently.
• CEAT expects to continue to improve margins as it focuses on increasing its market share through premiumization and a better product mix rather than offering discounts.
• The company will continue to incur small-scale, consistent capex going ahead, which should help CEAT maintain sufficient capacities and stable returns.

What should investors do?

“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 benefits of operating leverage,” domestic brokerage firm Motilal Oswal said in its report.

This, coupled with stable raw material prices, would lead to a margin recovery for CEAT in FY24E, besides, focus on key strategic areas like PV/OHT (Off-Highway Tires) to help margins, along with prudent capex plans to benefit free cash flow, should be a long-term growth catalyst for CEAT, it said.

The brokerage maintained a ‘buy’ rating on CEAT with a target price of Rs 2,375 per share, which implies almost 15 per cent upside potential on the stock.

Similarly, Nomura has a ‘neutral’ call on CEAT with a lower target price of Rs 1,765 apiece. The global brokerage said capex spends will be fragmented so that it can sustain over 15 per cent return on capital employed (RoCE).

CEAT share price NSE: Past performance.

CEAT shares have given multibagger returns in the last one year as the stock zoomed almost 127 per cent during the mentioned period against 22 per cent rise in the Nifty index.

Year-to-date, the counter is up almost 28 per cent as compared to more than 3 per cent rise in the benchmark index.