Ceat Ltd - Stock Idea

Ceat Ltd. (Ceat), part of the RPG group, is the fourth largest tyre manufacturer in India. The company operates two manufacturing plants situated in Nasik and Mumbai (Bhandup). The company is also setting up a Greenfield plant at Halol (Gujarat).
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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