Ceat Ltd. share price target

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.

Attended CEAT’s conference call on its recent strategic acquisition (press release) of Camso (maker of high-margin Off-Highway bias tyres and tracks for compact construction equipment) brand’s business assets from Michelin, along with 2 plants in Sri Lanka at ~1x CY23 EV/Sales, for USD225mn (similar to replacement cost; includes global Camso brand access)

Ceat’s takeover of Camso would expand its presence in the higher profitability OHT segment. Further, it would also strengthen its presence in construction equipment (CE) globally. It would also add OEMs and distributors (key for success).

Ceat Ltd (CEAT)’s 2QFY25 performance was impacted by higher RM costs, leading to a 100bp contraction in operating margins QoQ, which stood at 11% (est. 11.5%).

CEAT’s Q1FY25 EBITDAM stood at 12%, down ~350bps QoQ vs. consensus 12.5%, led by ~300bps lower GM. Raw material basket (RMB) cost was higher by 5% QoQ in Q1FY25 led by a surge in natural rubber cost.

At its analyst meet, CEAT management highlighted its focus on: i) strengthening its brand presence in the domestic replacement segment, ii) expanding into export markets,
particularly in the US, EU, and LatAM, and iii) reaffirming its cautious approach to capex, which should help CEAT sustain its double-digit ROCE.

CEAT’s 4QFY24 results disappointed despite healthy volume growth in the
replacement and exports segments. Margins were hit by higher ad spending
and extended producer responsibility (EPR)-related provisions.
Management has provided high single-digit volume growth guidance for
FY25.

CEAT’s Q1FY24 EBITDA margin at 13.2% (up ~40bps QoQ) beat consensus estimate of 12%, driven mainly by ~100bps QoQ gross margin improvement. The margin expansion resulted from a decline in raw material basket (RMB) cost (down ~1.5% QoQ) and better product mix.