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CEAT to acquire Camso brand’s OHT business

CEAT has entered into an agreement with Michelin to acquire Camso brand’s Off-Highway construction equipment bias tyre and tracks business. Prima facie, we see this deal as strategic positive for CEATs’ long-term goal of expanding its presence in Off-Highway Tyres (OHT) business. Acquisition of Camso’s business is expected to help CEAT widen its product portfolio (into bias tracks and construction tyres) besides gaining access to global customer base (international OEMs and premium OHT distributors). While we await more details on business and financial metrics of Camso (concall scheduled on 11th Dec’24), our calculations suggest - this acquisition comes at a TTM EV/EBITDA of ~7x and will likely be EPS accretive (by c.5%). We currently have a BUY rating on CEAT with TP of INR 3,500 (15x FY27E EPS).

Key highlights:

* About Camso: Camso is a premium brand in construction equipment tyre and tracks with strong equity in EU and North American aftermarket and OE segments.

* CEAT has entered into a definitive agreement to acquire Camso brand’s Off-Highway construction equipment bias tyre and tracks business from Michelin.

* Under this transaction, CEAT will acquire two manufacturing facilities in Sri Lanka and global ownership of the Camso brand, after an initial 3 year licencing period.

* Rationale: This acquisition is expected to help CEAT expand its product portfolio in the Off-Highway Tyres and Tracks segment. Further, it is also expected to give CEAT access to its global customer base (international OEMs and premium OHT distributors).

* Financials of acquired business: Revenue: USD 213mn (INR 18bn); EBITDA: NA; PAT: NA.

* Consideration: All-cash deal valued at ~USD 225 mn.

* Valuation: Basis our estimate, deal is valued at ~7x TTM EV/EBITDA. (Refer cal. below).

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