Buy

GST Rationalization: Structural boost for Automobile industry: Government has announced GST 2.0 reforms thereby reducing GST rates for the automobile sector across the segments and value chain. Small cars, 2-W's up to 350cc, and 3-Ws will now attract 18% GST vs. 28% earlier, while buses & trucks also shift to 18% rate. Farm machinery like tractors & their components have also seen a reduction from 12% to 5%. Total tax incidence for larger passenger cars, SUVs is also reduced from 43-50% to 40%. Apollo tyres stand to benefit from GST rate cut, as the move towards...

We attended CEAT’s analyst meeting on developments in the Camso acquisition. The acquisition (not built in) is in line with CEAT’s capital allocation priorities and supports its 3 growth pillars – premiumization, globalization, higher margin OHT.

Below our estimate, MRF’s Q1 EBITDA fell 9% y/y to Rs10.3bn due to the lower-than-expected gross margin. We expect 9/13/19% revenue/ EBITDA/PAT growth over FY25-28.

Apollo Tyres (APTY)’s 1QFY26 consolidated performance was in line with our estimates. However, while standalone performance was much ahead of our estimates, the European business margin was weaker than expected.

Apollo Tyres (APTY) Q1FY26 operating performance broadly was in-line. Standalone margin was better than our estimate (on lower RM basket) but was offset by weak margin performance in EU.

CEAT logged a healthy Q1 with 10.5% revenue growth led by 9%/1.5% volume/realization growth; overall vol growth was driven by a mid-20s/singledigit growth in OEM/replacement; realization was mostly muted due to headwinds for international business.

CEAT’s Q1FY26 earnings stood at INR1.15b, below our estimate of INR1.5b, impacted by lower-than-expected margins, higher interest costs, and lower other income.

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.

We attended CEAT’s annual analyst meeting. The management retained its mid-single-digit replacement growth guidance. Rural is outpacing urban (key for CEAT’s 2Ws/farm segment) on a favorable monsoon outlook; it is eyeing share gains in PV OEMs amid rising salience of higher-rim size tyres.

Post underperforming domestic peers in FY25, Apollo Tyres (APTY) is aiming to outgrow peers going ahead. This will be led by corrective measures undertaken in the last couple of quarters with respect to addressing product gaps (adding SKUs), hiring key personnel etc.

APTY’s 4QFY25 earnings, although in line with our estimates, have been below par compared with peers. Consolidated PAT (adjusted for one-offs) declined 42% YoY to INR2.7b (in line) due to a 420bp decline in EBITDA margin to 13% (in line).

CEAT reported a strong Q4; revenue growth accelerated to 14% (9M: 9.5%). EBITDAM expanded by 100bps QoQ on 64bps higher gross margins (9% beat on consensus EBITDA).

JKI’s Q3FY25 performance was significantly impacted by high-cost inventory (major hit in Q3; guided to partial reversal in Q4) along with subdued demand from CV OEMs; this resulted in a largely flattish consolidated revenue performance.

Apollo Tyres (APTY) posted a weak 3QFY25, with EBITDA margin down 460bp YoY to 13.7% (vs. est. 14.6%), driven by pressure in the standalone business, although Europe margins improved QoQ.

Apollo Tyres’ (APTY) Q3FY25 standalone EBITDAM was down 100bps QoQ at 11.1% on RM cost increase. EU EBITDA margin increased ~290bps QoQ despite RM price increase, led by higher mix of UHP tires and cost-reduction initiatives.

APTY delivered a steady Q3, with revenue growth accelerating to 5% YoY, surpassing our estimate (by 3%), and driven by strong replacement demand; offset by flattish exports and weak OEM demand.

We upgrade our rating on the stock to BUY as the valuations appear attractive at the current level.

CEAT recorded accelerated revenue growth of 11% in Q3FY25 (~7.9%/1.5% volume /realization growth) with EBITDA ~5% above Consensus’, despite the ~60bps QoQ margin decline to 10.3% amid the ~1% higher RM.