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Integration of Camso to be a key monitorable

Benefits of lower input costs to be visible in 2QFY26

We met CEAT management at the RPG Conference on 3rd Jun’25. In India business, management continues to expect good demand in the tractor and 2W replacement segments even as 2W OEM demand is now slowing down. While PV replacement is likely to post 0-5% growth, PV OEMs are likely to be flat YoY in FY26. Management expects TBR replacement to grow in single digits, and TBR OEMs are likely to post 5% growth in FY26. Further, the full benefit of the decline in input costs is likely to be reflected by 2QFY26. The pricing discipline remains stable, and CEAT has been able to hold on to its pricing so far. It expects to consolidate the Camso acquisition from 2QFY26 onward. CEAT would pay about 60% of the consideration value of USD225m within a month and the balance over the next 1-3 years when it is due. Debt is likely to rise to INR30b by FY26 end from INR19b currently – after considering the standalone capex of INR10b. CEAT’s D/EBITDA is likely to rise to 2x (current 1.3x) once the Camso acquisition is completed, which is comfortable as per management. Given that tariffs would be levied on all regions, management does not expect a material impact of tariffs on CEAT’s operations, including Camso. Overall, we expect CEAT to clock a CAGR of ~10%/16%/35% in revenue/EBITDA/PAT over FY25-27E. We reiterate our BUY rating on the stock with a TP of INR4,159 (based on ~18x Jun’27E EPS).

Following are the key takeaways from our interaction

Update on Camso

* In CY24, Camso revenue declined to ~USD150-160m from USD200m in CY23, as the company raised prices (higher than peers), which led to lower volumes. Camso’s existing business is FCF positive.

* The acquisition price was USD225m (about INR19b). CEAT plans to pay this amount as below: 1) CEAT will get full rights over the Camso brand over three years – 20% of the consideration value to be paid over three years; 2) Michelin would provide some interim support for customer service and inventory storage in different parts of the world for about 12 months (20% of the consideration for finished goods to be paid in a year); and 3) the balance 60% of the value would be paid once all approvals are received – expected by 1st Jul’25. The 60% of USD225m (about INR12b) would be funded through a mix of debt and internal accruals.

* While Camso has sufficient headroom for growth, there are certain upstream machines that were supported by Michelin. Though Michelin would continue to support Camso for up to three years, CEAT would invest in these machines soon so that it need not depend on Michelin (with capex of USD25-30m).

* Debt is likely to rise to INR30b by FY26 end from INR19b currently – after considering the standalone capex of INR10b as well.

* CEAT’s D/EBITDA is currently at 1.3x and is likely to rise to 2x once the Camso acquisition is completed (at INR30b debt). Even at that level, CEAT is comfortable with its leverage ratio.

Tariff impact

* The US has levied a 44% tariff on imports from Sri Lanka. However, negotiations are ongoing and CEAT does not expect a 44% tariff.

* In terms of exports from India, auto components are in the 25% tariff bracket currently (so 25% + current 4%).

* The Indian government’s negotiation with the US may also influence these tariffs.

* In case these tariffs are levied and US demand reduces as a result, CEAT’s plans to focus on the US as the key growth driver may take a backseat in the near term.

India business update

* CEAT is seeing good traction in farm and 2W replacement. However, 2W OEM volumes are now decelerating. Scooters are seeing good demand relative to motorcycles and this trend is expected to continue in FY26.

* PV replacement is expected to grow at modest 0-5%. PV OEMs are expected to be flat in FY26.

* TBR replacement can grow in mid-single digits. CV OEMs are likely to post 5% growth in FY26.

* Input costs remain benign and the full benefit of the same is likely to be reflected by 2Q. CEAT still has about 3% under-recovery in margins.

* Pricing discipline remains stable and it has been able to hold on to its pricing in a declining raw material environment.

Capacity update

* Capacity utilization: 2Ws’ (including outsourcing) utilization stands at 70-80%. TBR is fully utilized (90%), and even PCR is high at 80-85%.

* In 2Ws, CEAT has a capacity of 80k tyres per day. Along with some outsourcing capacity. CEAT is adding 20k tyres per day at Nagpur, which will take this to 100k tyres per day over a period.

* In PCR, CEAT has a capacity of 20k tyres per day in Chennai, which can go up to 35k tyres per day over a period, based on demand conditions.

* TBR capacity stands at 1,000 tyres per day and CEAT expects to increase this initially to 1.5k tyres per day, then to 2.2k and finally to 3k over a period.

* At Ambernath, the company has OHT capacity of 70 tpd, which is expected to increase to 160 tpd over a period.

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