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STOCK IN FOCUS
* CEAT closed 0.6% higher as against Nifty falling marginally by 0.1% yesterday.
* We foresee CEAT’s operating performance to improve further in ensuing quarters with the likely improvement in volume and product-mix on the back of higher replacement demand. Company’s new products like Milaze X3 and Puncture safe tyre has received good response and would help gaining market share to the company. Its improving brand image and network expansion would help on volumes front.
* Though there would be near term pressure on business performance, gradual ramp-up in Ambernath plant’s utilisation is expected to aid CEAT’s profitability in ensuing quarters. Moreover, falling RM cost would expand margins from the current level.
* In view of likely pick up in Company’s business from 2HFY19 with new capacity and strong management capability to capitalise from replacement demand, we maintain our positive view on the stock.
* Post recent fall, Stock’s current valuation of ~12.7xFY20E appears attractive and we recommend BUY on CEAT with a Target Price of Rs1750, valuing the stock at 17.5x FY20E EPS.
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