Investment Rationale
o Robust auto sales outlook to boost demand for tyres
o Acquisition of global brand rights to provide huge potential for growth
o Capacity expansion would enable Ceat to focus on higher margin replacement segment
Outlook & Valuation
We have used the discounted cash flow (DCF) method to value Ceat due to its huge capex plan, the benefits of which would accrue over a longer period. We have arrived at a target price of INR 149 based on a discount rate of 10.1% and a terminal growth of 2%. The target price implies a potential upside of 37% from current levels for an investment horizon of 12 months. Thus, we recommend a Buy on the stock.
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