Buy CEAT; target of Rs 4000: Emkay Global Financial

Emkay Global Financial's research report on CEAT

We 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). The acquisition forms part of CEAT’s focus on premium, OHT (ie off highway tyres), and exports (mix of OHT/exports to rise to ~25% each vs ~15%/~19-20% now). Camso’s double-digit market share (market size: ~USD2bn) and strong presence in North America/Europe (90% of sales) complement CEAT’s organic efforts to date. The mgmt expects synergies in channel and clients to lead to further market-share gains, with dual-brand play possible going ahead; after expiry of the 3Y licensing arrangement, other segments (Agri, power sports, harvesters) would potentially open up (revenue of acquired business at USD213mn vs overall Camso revenue of USD1.2bn).

Outlook

Our estimates are unchanged; we retain BUY and raise TP to Rs 4,000 at 18x Dec-26E PER (rolled over; multiple upgraded from 17x, with OHT valued at 25x, in line with Balkrishna Industries).

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