CEAT Target Cut to Rs 3600 by Emkay Global Financial

CEAT's Strong Q4 Performance Overshadowed by Challenging Near-Term Outlook

CEAT has reported a robust Q4, driven by a significant 18% year-over-year (YoY) growth in revenue across its replacement, OEM, and international segments. The company's earnings before interest, taxes, depreciation, and amortization (EBITDA) saw a substantial 49% YoY increase, with the margin expanding by 50 basis points (bps) quarter-over-quarter (QoQ) to 14.6%.

However, the near-term outlook appears challenging, particularly in the first half of financial year 2027 (H1FY27). The management expects a further ~15-20% rise in raw material (RM) prices in Q1FY27 compared to Q4FY26. To mitigate this sharp inflation, the company has implemented ~5% price hikes in March 2026, with additional 5% hikes planned for May and June. While this move is likely to drive value-led growth in FY27, it raises concerns about the quantum of cost passthrough in a competitive setup, which could negatively impact demand and margin.

CAMSO's Growth Expected to be Back-Ended

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The ongoing transition phase is expected to result in cost pressures persisting through to FY27, with meaningful margin benefits likely to flow only in FY28E. As a result, CEAT's growth for CAMSO is anticipated to be back-ended.

Downgrade and Target Price Revision

Considering the challenging near-term outlook, we have revised our estimates for CEAT's earnings per share (EPS) for FY27E and FY28E. We have slashed our EPS estimates by ~47% and ~17%, respectively, factoring in a sharp margin reset from 12.3% and 13.3% earlier to 9.6% and 12% now. Based on this revised assessment, we downgrade CEAT to REDUCE from Buy and cut our target price by ~27% to Rs3,600 from Rs4,900, valuing the stock at 20x March 2028E EPS.

Revised Estimates Comparison

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