In a move to expand its off-highway tyres business, Ceat has announced the acquisition of the Camso brand from the Michelin group for $225 million. The deal is expected to boost Ceat’s international presence, particularly in the premium construction tyre and tracks segment.
Following the announcement, several brokerages have weighed in on the acquisition’s potential impact on the company’s financials and future growth.
Nomura Sees Execution Risk
Nomura maintained a ‘neutral’ rating on Ceat, with a target price of Rs 3,051 per share. While the deal aligns with Ceat’s strategy of premiumisation and international expansion, there are near-term execution risks to consider, it said. These include weak demand sentiment, potential restructuring costs, and macroeconomic volatility in Sri Lanka, where the Camso plant is located.
The research firm acknowledged that Ceat’s acquisition of Camso, which had global revenues of $1.2 billion in 2023, would expand the company’s OHT exposure to 25% of its projected revenue by financial year 2027. However, Nomura remains wary of potential challenges in leveraging the Camso brand to its full potential.
The brokerage expects the deal to be EPS-accretive within one-two years, with a slight positive impact on fiscal 2027 financials.
Nuvama Positive On High Margin Potential
Nuvama, on the other hand, expressed a more positive outlook, upgrading its target price for Ceat to Rs 3,640 per share, up from Rs 3,360. The acquisition of Camso, which has a premium brand presence in the OHT and tracks segment, will significantly enhance Ceat’s high-margin business.
The research firm forecasts an annual revenue per earnings growth of 14%/12% over financial year 2024-27E, due to the expanded international footprint and the strategic inclusion of Camso’s distribution networks.
The brokerage also highlighted the growth potential in the compact construction tyres and tracks market, which is valued at $2 billion, with Camso holding a 10-20% market share in the segments. Nuvama expects margin expansion from the current mid-teens to around 20% in the long term, as Ceat integrates the business and improves operational efficiency.
The acquisition will provide Ceat with access to new customers and help diversify its product offerings, especially in agriculture and power sport tracks, Nuvama said.
Nirmal Bang Sees EPS Accretion, Strong Synergies
Nirmal Bang also took a bullish view on the acquisition, maintaining a ‘buy’ rating on Ceat with a target price of Rs 3,661 per share, indicating an upside potential of 16% from the current market price.
The brokerage emphasised the synergistic fit between Ceat’s existing business and the Camso acquisition, noting that the deal would enable Ceat to expand its OHT portfolio and increase its exports.
Nirmal Bang also acknowledged the potential risks associated with the transaction, including an increase in debt due to the $225 million acquisition cost, which will be financed through a mix of internal accruals and debt.
Despite this, the brokerage expects EPS accretion of ~7% by financial year 2027, driven by the addition of Camso’s premium specialty tyre products and the anticipated margin improvements. With the Sri Lanka plant’s capacity utilisation expected to increase by 35%, Ceat will be well-positioned to capitalise on the growing demand for OHT tyres, the brokerage said.
The Camso acquisition is a move that will bolster Ceat’s position in the high-margin OHT market, it said. However, the varying stances reflect different views on the risks involved in integrating the business and the potential for near-term challenges.
While Nomura expresses caution over execution risks and macroeconomic volatility, both Nuvama and Nirmal Bang are more optimistic, forecasting long-term growth and profitability improvements from the acquisition.
. Read more on Markets by NDTV Profit.Nomura expressed caution over execution risks and macroeconomic volatility. While Nuvama and Nirmal Bang are more optimistic, forecasting long-term growth from Ceat’s new acquisition. Read MoreMarkets, Business, Notifications
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