12 Dec , 2024 By : Debdeep Gupta
Shares of tyre manufacturer CEAT rose 5 per cent to Rs 3,328 in morning trade on December 12 after Nuvama Institutional Equities and Motilal Oswal dished out 'buy' ratings on the stock just days after the company entered into definitive agreements with Michelin to buy Camso brand’s Off-Highway construction equipment tyre and tracks business for about $225 million.
Domestic brokerage Nuvama has assigned a price target of Rs 3,640, an upside of nearly 16 per cent from the last closing price of Rs 3,149 on the National Stock Exchange. CEAT shares have rallied 36 per cent since the start of the year.
Post the acquisition, the initial focus shall be on ramping up the capacity and when the Camso brand rights are assigned, it shall foray into agriculture tracks, harvester tracks, and power sport tracks, says Nuvama. "This diversification, along with a pickup in the OHT industry, should help in improving CETA’s share further in high margin OHT/exports space over the medium term," it added.
The acquisition aligns with CEAT's strategic goals of premiumizing its product portfolio, investing in high-margin speciality segments, and accelerating export growth. "CEAT aims to enhance capacity utilization in Sri Lanka, expand into additional track segments, and explore leveraging the Camso brand in agriculture. Post-acquisition, CEAT’s overseas revenues are projected to rise to 26 per cent of the total revenue, with enhanced realizations in the OHT segment," Motilal Oswal said.
On the contrary, Nomura has a neutral call on the stock. With a price target of Rs 3,051 per share, it's a slight downside from current levels. Nomura says that margins are expected to improve to 20 per cent over the next few years, supported by rising demand and cost rationalization. Additionally, the acquisition is anticipated to be EPS-accretive within the next 1-2 years.
At about 10 am, shares of the company were trading at Rs 3,274, higher by 4 per cent from the last close.
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