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Key takeaways from Investor Day 2024

We recently attended CEAT’s Investor Day to understand company’s medium-term growth strategy. Over the next 2 years, the company aims to gain leadership position in PV replacement segment (currently it is No.3 player with 16% mkt. share) and targets c.400bps market share expansion in T&B replacement market. Medium-term focus is on growing OHT/ exports and entering new export markets (incl. US). Near-term demand remains strong led by healthy replacement segment. Industry has witnessed good pricing discipline in the recent past. Given the RM basket has once again started to increase, we see this pricing discipline to continue. Bite-size capex strategy is expected to maintain / drive ROCE. We maintain BUY with unchanged Mar’25 TP of INR 3,200 (15x FY26e EPS). Ability to mitigate inflationary pressure through price hikes remains a key monitorable.

* Aims for leadership in PV tyres and market share expansion in T&B tyres: CEAT indicated that its position in 2W replacement segment continues to remain strong with 33% market share, leading No.2 player (MRF) by c.500bps (CEAT tyres are priced at 2-3% premium). In the PV replacement segment, CEAT is marginally behind No.2 player with 16% market share and is aiming for leadership position over the medium term (FY26). To attain leadership position, focus is to a) capture customer’s mindshare (through marketing campaign), b) expand retail presence (through CEAT Shoppe) and c) improve dealer profitability. Its TBR market share currently stands at c.7% and the company aims for 12- 13% market share (i.e. similar to CV OEM mkt. share currently) in the medium-term. This will be led by deepening geographical penetration (esp. southern India) where it’s positioning is relatively weak.

* Medium-term focus on expanding OHT / International business: CEAT currently has 850+ SKUs for OHT tyres and plans to add 100+ SKUs every year. Strategy is to focus on emerging segments and fast-go-to-market approach. This is expected to drive rapid growth in global OHT market. Over the next 2 years, the company aims to increase revenue share from OHT segment from c.16% in FY23 to c.25%. Overall, in the international business, LATAM and Middle-East remains key geographies so far. EU remains a large opportunity area esp. for OHT segment (both OE and replacement). Further, CEAT is aiming to expand its presence in US with the launch TBR tyres in 2QFY25 followed by PCR tyres in Q4FY25 Rising share of OHT tyres / Exports segment is likely to be margin accretive for the company.

* Targeting double-digit replacement growth in FY25: CEAT has guided for double-digit growth in 2W and PV replacement segment led by recovery in underlying replacement demand (PVs are travelling more kms/day) and rising premiumisation (in both 2Ws and PVs). In 2W segment, CEAT is pivoting into premium tyres used in cruising and touring, away from commuter bikes. In the PV replacement segment, CEAT expects larger rim size (>17 inch) tyres share to increase from 7-8% currently to 25-30% over next 2-3 years. In the CV segment, OEM growth is expected to moderate but it expects CV replacement demand to grow by 6-8% (similar to LT avg.).

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