India's third-largest tyre maker Ceat's Anant Goenka said the acquisition of French company Michelin's Camso brand of off-Highway tyres give the company an foothold into the premium segment, which typically attract higher margins.
Share of the tyre-maker hit a record high after the acquisition the Michelin-owned global brand Camso and its Sri Lankan units, rising nearly 10% in early trade on December 9.
In conversation with CNBC-TV18, Anant Goenka, Vice Chairman, Ceat said the acquisition's 'most exciting' aspect is the 'high quality, premium' brand itself, which will help increase the market share in the higher end of the business. "The deal give us stronger position into the export markets," Goenka said, referring to the North American and European markets. "We get access to +40 OEMs and +200 distributors at the high-end, premium segment of the market. So, to us, this is what is most exciting for us," Anant Goenka said referring to the high synergy from the acquisition. The company plans to fund the acquisition 30% via equity and 70% from debt.
Once Ceat completes the acquisition of Camso brand over the next three years, it will also be able to sell conveyor belt tracks over time, and it also lays ground for Ceat's entry into the compact construction equipment business, the company said. Ceat also gets access to all categories of the premium end of the market where Camso can expand, Ceat said.
Camso is a Canadian brand which Michelin acquired in 2018 for $1.45 billion, and makes tyres for tractors, harvesters and bulldozers with a $1.2 billion turnover. Read More.
The Off-Highway Tyre (OHT) business is higher margin compared to the general tyre segment. In this specialty segment, Ceat had launched more than 46 SKUs during Q2FY25, underscoring its focus in this high margin category. Harsh Goenka, Chairman of Ceat called the deal 'game-changing', one that will strengthen the company in the global Off-Highway Tyre market.
Ther tyre segment has been growing at a compounded annual growth rate (CAGR) of 2%, while the track segment has a CAGR of 6-7%.
"A large part of this business is into tracks, or conveyor belts used in construction of agri equipment segment. In addition to customers and hitech business, we get great quality technology, where the number of players in the world are very few. We are excited about growing the tracks business globally," Goenka added.
"The track segment is growing faster and (also) has a larger premium play with the customers yet to figure out the right applications of tracks in construction and mining, which means there is a lot of scope for higher penetration in the track segment. So, between the two, tyres and tracks, the latter is more attractive, where CEAT will focus on growth," CEAT MD and CEO Arnab Banerjee told PTI.
Goenka said under President-elect Trump, the Sri Lankan assets could be a good opportunity for India to tap into the US market, if there is a move to veer away from Chinese exports.
With new 20% of the new two-wheelers being launched being electric, Ceat has also positioned itself strongly with a 30% share of business there, which it expects could go up further with few new approvals.
Ceat said its OEM business has been slower in the second quarter, while tractors and two-wheelers have seen better growth rate, but margins may remain under pressure during the third quarter. "Q3FY25 will see some pressure on the margins. Rubber prices went up from Rs 150 / kg to Rs 250 kind of levels two months ago. This has cooled down and we did take a price hike in October. So, we believe by Q4FY25 margins should get better," said Anant Goenka. For FY25, the company said it may see slightly lower margins compared to a year ago.
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