CEAT's cautious capex approach, leadership poisitioning leave brokerages divided

Over FY25, CEAT is likely to incur capex of Rs 1,000 crore and is currently clocking utilisation levels of 80 percent.

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26 Aug, 2025 12:21

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Brokerages remained divided following CEAT's analyst meeting, where the tyre major reaffirmed its tapered approach to capex while indicating that it will strengthen its leadership position across segments.

Leadership positioning

CEAT aims to maintain its strong position in the  higher margin 2W tyre segment, with a 33 percent market share.

In the PV space, the firm is looking to surpass the number 2 player - with Bridgestone and Apollo Tyres being the top two players - and achieve market leadership in PV in 2-3 years along with better pricing power.

CEAT plans to do this via a higher focus on marketing, expansion of retail network (currently 580 stores) and dealer support. It commands 8-9 percent pricing premium over MRF, which has around 12-13 percent market share.

Also Read | Why the commuter segment will continue to be the sweet spot for CEAT

Bite-sized capex

Over FY25, CEAT is likely to incur capex of Rs 1,000 crore and is currently clocking utilisation levels of 80 percent. Following the capex push, it will not require any greenfield capex for the next couple of years.

The tyre player said its capex is mainly targeted towards growth, and CEAT expects to sustain mid-teens ROCEs as a result of moderating capex costs. "The company re-iterated its focus on ‘bite-sized’ capex, noting that future capex will be smaller and in multiple instalments rather than a large investment.

Exports to boost margins

Over the next years, CEAT will be focused on expanding into export markets, particularly in the US, EU, and Latin America. Nuvama Institutional Equities projected exports share shall increase from 19 percent in FY24 to 21 percent in FY26E. The rising share of the exports segment is likely to be margin accretive for the company.

The EU region is shaping up well for CEAT and would be the focus area as the company expects EU to succeed first among all export markets. The firm has a decent presence in Italy for PCR/TBR with ~1.5 percent market share and it is also expanding in Spain, Germany and France.

In the US, CEAT expects that ramp-up in the US market will be slower, as it needs to establish itself in the country.

Rubber prices weigh

During the meeting, CEAT indicated that recent increase in natural rubber prices (to Rs 193/kg, higher by 17 percent on a sequential basis) is beyond company’s own expectation, while moderation in crude oil prices has given some respite.

Also Read | Rubber prices continue to soar, threaten to hit tyre market

Overall, the RM basket is likely to see a rise of 2-3 percent during the quarter, based on which the firm has hiked prices by three percent to pass on the RM inflation.

Should you buy, sell or hold?

CEAT shares jumped six percent in early trade on June 10. At 1.30 pm, CEAT's stock price was quoting Rs 2,522 on the NSE, higher by 2.7 percent compared to the previous session.

According to Kotak Institutional Equities, CEAT will have to record an EBITDA per kg of Rs 40.5, which is higher by 12 percent from FY24 levels, in the medium-term to justify its CMP, which the brokerage said is 'unsustainable'.

Additionally, the brokerage said the recent uptick, as well as MRF's competitive pricing are key factors to monitor for downside risks.

Nomura reaffirmed its neutral rating on the stock, saying it prefers Uno Minda in the sector. However, the brokerage finds CEAT's valuations inexpensive, given its reasonable ROEs of ~14-15 percent.

Nuvama said it is building in revenue/earnings CAGR of 9 percent/11 percent over FY24–26 supported by growth across OEM, replacement, and export segments and decided to keep its buy rating intact.

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