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Acquiring Camso brand off-highway Construction equipment bias tyres and tracks business from Michelin

* CEAT has entered into a definitive agreement with Michelin, to acquire Camso brand's off-highway construction equipment bias tyre and tracks business.

* This acquisition includes two Sri Lanka-based plants and global ownership of the Camso brand, after a 3-year licensing period.

* Camso is a premium brand in construction equipment tyres and tracks with strong equity and a solid market position in the EU and North American aftermarket and OE segments.

* The all-cash deal is valued at ~USD225m and includes a business with revenues of ~USD213m as of CY23.

* The acquisition will enhance CEAT’s product portfolio in the high-margin off-highway tyres (OHT) and tracks segments, including agricultural tyres and tracks, harvester tyres and tracks, power sports tracks, and material handling tyres.

* With this move, Michelin intends to focus on radial technology tires. This transaction is expected to help strengthen the financial performance of the Specialty tire business.

* CEAT has scheduled a conference call for analysts and investors on Wednesday, 11th Dec’24, at 16:00 to give details of this acquisition.

* Mr. Anant Goenka, Vice Chairman, RPG Enterprises, said, “This acquisition has significant strategic consequence for CEAT as it catalyzes the company’s journey toward being a leading tyre maker globally. Camso is an industry leading brand in the off-highway tyre market built through many years of investment in creating product superiority and manufacturing excellence, nurtured through the Michelin parentage. Most importantly, we found a great cultural alignment between Camso and CEAT because of our TQM way of working.”

* Mr. Arnab Banerjee, MD & CEO, CEAT, said, “The Camso brand is an excellent fit with the growth strategy of CEAT’s Off-Highway Tyre business, thereby improving our margin profile. Access to the most premium customers, a high-quality brand and a qualified global workforce is what excites us the most about this acquisition. The track segment is a technologically superior segment with a limited number of global players. We also found high synergies between the two brands, CEAT and Camso, and are confident that both will benefit tremendously from their complementary capabilities and positioning.”

* Mr. Nour Bouhassoun, Senior Vice President, Beyond Road Business Line at Michelin, said, “Michelin firmly believes that CEAT is the right fit to carry on our bias tyres and tracks for compact construction equipment business. Both our companies are fully committed to ensuring a smooth transition for our employees and business continuity for our customers and suppliers. With this operation, Michelin is continuing to reshape its Beyond Road business, in line with the Group's sustainable growth strategy”.

Valuation and view:

Management has strategically focused on increasing its share in segments like 2Ws, PVs, and off-highway to enhance margins and reduce reliance on the truck segment. The acquisition will help further bolster its presence in the global OHT segment. However, given the deal size, it is likely to increase leverage (0.45x D/E and 1.2x D / EBITDA as of Sep’24 end) for the company, particularly amid a moderate demand cycle in most segments. The stock trades at 17.5x/13.5x FY26E/FY27E EPS.

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