CEAT’s stock price surged more than 10% to reach a new high following the company’s announcement that it had reached a final contract to buy Michelin’s Off-Highway construction equipment bias tyre and tracks business from Camso in an all-cash transaction worth roughly $225 million.
The company will be acquired along with two manufacturing sites, worldwide ownership of the Camso trademark, and about $213 million in revenue for CY 2023.
“The acquisition will expand CEAT’s product portfolio in the high margin Off-Highway Tyres (OHT) and tracks segments, which includes agriculture tyres and tracks, harvester tyres and tracks, power sports tracks and material handling tyres,” CEAT said in a regulatory filing on December 6.
After three years of licensing, the Camso brand will be permanently linked to CEAT across all categories.
“The Camso brand is an excellent fit with the growth strategy of CEAT’s Off-Highway Tyre business, thereby improving our margin profile,” said Arnab Banerjee, MD & CEO, CEAT.
In order to improve profitability and lessen dependency on the truck market, brokerage firm Motilal Oswal Financial Services (MOFSL) thinks that CEAT’s management has deliberately concentrated on growing its position in segments including two-wheelers, passenger vehicles (PVs), and off-highway.
“The acquisition will help further bolster its presence in the global OHT segment. However, given the deal size, it is likely to increase leverage (0.45x D/E and 1.2x D / EBITDA as of Sep’24 end) for the company, particularly amid a moderate demand cycle in most segments. The stock trades at 17.5x/13.5x FY26E/FY27E EPS,” MOFSL said.
The price of CEAT shares has increased by more than 39% over the last six months and by 20% in a single month. So far this year, the stock has yielded returns of more than 41%. This contrasts with the benchmark Sensex’s 12.7% advance year-to-date and 6.2% gains in the last six months.
On the BSE, CEAT shares were up 10.32% at ₹3,411.15 a share at 10:00 AM.
