Buy call for CEAT

CEAT hosted an event for investors and gave them a tour of its Chennai facility, highlighting its focus on digitization and advanced manufacturing processes. As a result, the time taken to obtain Original Equipment Manufacturer (OEM) approvals from this new plant has reduced to 25 months, compared to the previous five years required for a new greenfield capacity. The company remains committed to strategic areas such as passenger vehicles, two-wheelers, and off-highway tires to improve margins, while also expanding into international markets and increasing business in electric vehicles. These efforts, combined with sensible capital expenditure plans to enhance free cash flow, are expected to drive long-term growth for the company.Despite the potential benefits from new capacities and reduced raw material costs, the current valuations at 16.6 times and 15.3 times the estimated earnings per share for FY24E and FY25E respectively are not fully reflecting these advantages. Therefore, the recommendation is to buy CEAT shares with a target price of INR3,290, based on approximately 15 times the estimated earnings per share for FY26.