Buy CEAT; target of Rs 4600: Emkay Global Financial

Emkay Global Financial' research report on CEAT

We attended CEAT’s analyst meeting on developments in the Camso acquisition. KTAs: 1) 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. 2) CEAT plans to invest USD171mn in upstream capacities and working capital (part of USD225mn deal value; balance USD44mn payable after 3Y for the brand). 3) FY26 revenue run-rate of USD130-140mnpa (FY23: USD213mn); near term subdued on phased customer transition and margin softness, amid interim sourcing from Michelin; margin to inch up to high teens, to 20% in 4-6Q. 4) Camso’s US/EU exposure: 50/36%, which is competitive despite tariffs (20% in SL; no local US manufacturing). 5) Due to Rs10bn core capex and Michelin payout (USD137mn), a Rs10-12bn debt hit is seen in FY26; consol leverage to be comfortable. Despite Camso’s near-term softness, CEAT poised to disproportionately benefit from demand upturn, on strong consumer facing segment exposure, sustained share-gain across categories, exports/OHT focus with LT benefits from Camso (refer to Voice of the head: Cusp of entering a new league).

Outlook

We highlight potential ~4-6% near-term earnings risk, on transitory headwinds at Camso (expected at 12-18M on the RM front and much less on the sales front, per management), though likely to lead to ~13% EPS accretion on normalized basis; retain BUY; TP: Rs4,600, at 20x Jun-27E PER.