Ceat Ltd - Stock Idea

Feb. 4, 2011 - PRLog -- 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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