IGI Logo

Strengthening market position with sustained profitability

During CEAT's Analyst Meet, the management reiterated its aim of enhancing its market position through FY26 by 1) maintaining leadership in the 2W segment (28% market share now), 2) gaining market share in PV/CV to 18-19%/11-12% from 15%/7% now, and 3) doubling export revenue from INR20b currently. However, CEAT expects to continue to improve margins as it focuses on increasing its market share through premiumization and a better product mix rather than offering discounts. Now that the primary capex cycle is complete, the company will continue to incur small-scale, consistent capex going ahead, which should help CEAT maintain sufficient capacities and stable returns. Here are the key highlights:

To gain market share in PV/TBR while maintaining profitability

* CEAT expects 2W replacement demand to be flat and start picking up after 2-3 quarters. It expects high single-digit growth for PV/CV replacement. OE demand is healthy, with 2W OE demand likely to have bottomed out.

* The company has a marginal presence in the southern regions, hence it will focus on gaining market share in the region.

* In 2Ws, its market share increased to 28% in FY23 from 26% in FY19, aided by its expansive distribution network. Going forward, the company plans to cover all niche segments, such as adventure biking, Moto GP version, etc. CEAT charges 2-3% premium vs next peer.

* In PVs, its market share expanded to ~15% in FY23 from ~11% in FY19. However, it is still 3-4% lower than the market leader. The company aims for market leadership in the category by achieving a market share of 18-19% by FY26. In SUVs, its market share is 20-25%. Tyres larger than 15 inches will have a 20–25% greater realization than smaller sizes. The company inidcated scope of price premium of 1-2% in PV category.

* In TBR, the company currently has a market share of 7% and aims to achieve ~11-12% by FY26. There is scope for improvement in tyre prices as they are below the competition. CEAT is working on improving the product’s life cycle by ~10%, which should help it get better pricing.

Exports- Aims to double revenue by FY26 to INR40b

* Africa, Middle East, the SAARC nations were weak, while EU also saw a slowdown in 2HFY23. However, CEAT is seeing a pickup in export markets.

* Export revenue has already grown ~2x in the last three years to INR20b in FY23. CEAT focuses on doubling its export revenue by FY26 to INR40b. The strategy will involve product creation using regional insights from targeted areas and the introduction of new products that will be distinct from the existing ones.

* CEAT is currently developing a product for the US in the TBR category. It will be initially tested under a private name. Once finalized, it will be launched under CEAT brand by FY24-end. Earlier, CEAT was restricted to a single distributor but now that contract has ended. For Brazil, sufficient testing has been done and the company has started supplying TBR, which is gaining traction. It has also launched tyres in construction category.

* The recently launched TBR in Europe is receiving good traction too. Margin in domestic replacement is lower than margin in EU but similar to the US.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer