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CEAT Ltd

| Q2 FY26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤17th Oct 25

Summary : CEAT delivered strong Q2 FY'26 results with robust growth and margin expansion, driven by GST benefits, CAMSO acquisition, and premiumization, despite US tariff uncertainties and seasonal Q3 softness.

Management Perspective positive : Management expressed satisfaction with Q2 performance, calling it a 'good quarter' and 'strong performance.' They highlighted 'robust single-digit growth' prospects, 'successful' CAMSO integration, and 'positive' impact of GST. They also noted 'comfortable' debt levels and 'enough leverage' for growth.

Concall Report Analysis & Insights

Business Overview

  1. CEAT reported strong Q2 FY'26 results with 12.2% Y-o-Y standalone value growth.
  2. Consolidated revenue grew 14.2% Y-o-Y to Rs. 3,773 crores, driven by volumes, price, and mix.
  3. Standalone EBITDA reached Rs. 507 crores, with a 13.7% margin; consolidated EBITDA margin was 13.5%.
  4. Gross margin expanded over 400 basis points quarter-on-quarter due to lower raw material prices and improved realization.
  5. OEM segment grew strongly in mid-20s, and international business grew in high-teens.

Future Growth Prospects

  1. GST rate reduction is expected to boost demand for low-ticket vehicles in rural and semi-urban areas.
  2. Indian tyre market is positioned for robust single-digit growth due to favorable tax policy, EV adoption, and premiumization.
  3. Replacement demand for two-wheelers is expected to grow 7-8%, MHCV at mid-single-digit.
  4. CAMSO acquisition positions CEAT as a leading player in the premium OHT segment, expected to be margin-accretive.
  5. Focus on product development for EVs and premiumization, with new launches like SecuraDrive CIRCL and RockRad.

Management Insights

  1. The Indian tyre market entered a favorable phase in Q2, supported by GST announcement and improved consumer sentiment.
  2. CEAT achieved strong Q2 performance with significant Y-o-Y growth and margin expansion.
  3. CAMSO acquisition is progressing well, with integration efforts successful and no surprises in the first month.
  4. Company is focusing on digital and AI implementation to personalize customer journeys and improve efficiency.
  5. Management expects raw material prices to remain stable in Q3 and aims for continued double-digit growth with steady margins.

Signs of Skepticism

  1. CAMSO's one-month performance is deemed 'in line with what we paid for,' but management admits it's a 'very small sample size' and not fully reflective.
  2. The full impact of US tariffs on CAMSO is expected to be passed on over 'two to three quarters,' implying current absorption.
  3. Management stated they are 'not very clear' on the exact absorption of 20% US duty for Sri Lanka, estimating around 50:50.
  4. Q3 is projected to be 'equal to or slightly lower than Q2 turnover' due to seasonality, despite strong Q2 momentum.

Risk Factors

  1. Subdued activity in early September due to GST anticipation led to trade down-stocking and deferred purchases.
  2. US market faces tariff uncertainties, with a 50% punitive tariff on OHT sales, impacting growth.
  3. Passenger car segment growth shows concern, potentially zero to very low single-digit.
  4. Q3 is typically a weaker quarter due to seasonal trends, with lower demand in northern and eastern India.
  5. Rupee depreciation impacts imported raw material costs, potentially offsetting price benefits.

Good To Know

  1. Overall capacity utilization is 80-85%, with total CAPEX for FY'26 expected around Rs. 1,000 crores.
  2. CAMSO acquisition involved a total cash outflow of Rs. 1,232 crores, increasing consolidated debt to Rs. 2,944 crores.
  3. Debt-to-EBITDA stood at 1.8x and debt-equity at 0.64x as of September 30th, considered comfortable.
  4. CEAT is a leading exporter of passenger car tyres from India to various geographies.
  5. The company launched 90% sustainable bio-based material tyres (SecuraDrive CIRCL) and a premium mining tyre (RockRad).

Key Drivers

  1. GST cut boosts demand.
  2. CAMSO acquisition drives growth.
  3. EV adoption expands market.
  4. Premiumization strategy yields results.

Key Analyst Discussions

Competitive Environment

  1. Q: How is the US market responding to price hikes due to increased duties? A: Tariffs are partially passed on, with full impact expected in 2-4 quarters; CEAT's US base is low, so growth is not an issue.
  2. Q: Does CAMSO see incremental market share benefit from different duty rates? A: CAMSO faces 20% duty from Sri Lanka to US, with no relative advantage over other countries; Michelin has partially passed on prices.

Market Trends & Consumer Behavior

  1. Q: How is the market reacting to the GST cut in India? A: Demand has picked up, and CEAT passed on 100% of the GST benefit to customers; no price hikes are planned.
  2. Q: What is the segment-wise replacement demand outlook for Q3/Q4? A: MHCV 5-6%, passenger soft (0-low single-digit), two-wheeler 6-7%; Q3 is seasonally weaker.

Financial Highlights

  1. Q: How was CAMSO's Q2 revenue and EBITDA, and Q3 outlook? A: One month of CAMSO data is in line with expectations, but full value chain control will take 5-6 quarters.
  2. Q: What was the overall volume growth for the quarter? A: Overall volume growth for Q2 was 11% plus.
  3. Q: What is the breakdown of CAPEX spend? A: Total CAPEX for H1 was Rs. 415 crores, including R&D, plant maintenance, and expansions for TBR and passenger car tyres.
  4. Q: What are the internal debt-to-EBITDA targets? A: Peak debt-to-EBITDA should not exceed 3x, and debt-equity not beyond 1x; current levels are 1.7x and 0.6-0.7x respectively.

Product Composition

  1. Q: What is the bifurcation between price and mix for realization growth? A: Realization improvement contributed about 1% to gross margin, driven by strong OEM and international business growth.
  2. Q: Was the channel mix (OE vs. replacement) negative this quarter? A: Overall realization improved; strong international and OEM growth largely offset lower replacement demand.

Strategic Considerations

  1. Q: When will CEAT start selling CAMSO directly to customers? A: The sales side will be in CEAT's hands in 3-4 quarters, while full value chain control (upstream equipment) will take 5-6 quarters.
  2. Q: How will CAMSO's 50% capacity utilization ramp up? A: It will ramp up gradually in the first couple of quarters, with a steeper gradient possible once direct customer handling begins.