Tyre maker CEAT Ltd expects demand to moderate in the December quarter amid a higher year-ago base, the potential impact of El Niño and a recent repo rate increase, even as strong replacement demand for two-wheelers and commercial vehicles provides support.
CEAT Ltd Managing Director and Chief Executive Officer, Arnab Banerjee said during an earnings call with analysts that the company remained positive about underlying demand drivers but anticipated a mixed performance across vehicle categories in the third quarter.
Replacement demand is expected to be led by two-wheelers, particularly in rural markets, where demand remains strong. Medium and heavy commercial vehicle (MHCV) growth is expected to be in the mid-single digits, while passenger vehicle demand could grow at a low-single-digit rate.
Original equipment manufacturer (OEM) demand continues to hold up across vehicle categories, although year-on-year growth could moderate because of a higher base. Farm tyre demand is also showing signs of tapering following weaker agricultural demand after the monsoon deficit.
Q2 revenue grows 23%, volumes rise 10%
CEAT reported revenue growth of approximately 23% year-on-year in the July-September quarter on a standalone basis, supported by underlying volume growth of nearly 10%. Standalone EBITDA stood at ₹461 crore.
The replacement segment grew in the mid-teens, while original equipment and international businesses recorded growth in the high-20% range.
Growth across commercial vehicles, four-wheelers and two-wheelers, as well as the farm segment, remained in double digits, with several categories exceeding 20% growth. Replacement demand was driven primarily by two-wheelers and commercial vehicles, while growth in four-wheeler replacement tyres was relatively muted.
The company also recorded increased demand for premium tyres in the two-wheeler and four-wheeler replacement markets.
OEM sales grew strongly across categories, supported by vehicle demand and increased fitments in premium vehicles and electric vehicles. International business growth was also strong across product categories, with some segments recording growth of around 30%.
International demand recovers, but logistics remain a challenge
CEAT’s international business has benefited from a revival in demand in Africa and Latin America, particularly for two-wheeler and commercial vehicle tyres.
However, elevated freight rates and prolonged, unpredictable transit times continue to pose operational challenges. Sales to the Middle East are improving but remain affected by regional market conditions.
The company expects to pursue price increases in international markets selectively, assessing opportunities country by country and category by category.
CAMSO integration to support margins from FY28
CEAT’s integration of CAMSO, the off-highway tyre and track business acquired from Michelin, is nearing completion, with approximately 85% of customers having transitioned to CEAT and receiving supplies directly from the company.
The remaining customer transition is expected to be completed by the third quarter.
CEAT has established local entities in the US, Canada, the UK, France, Germany and Poland to serve customers directly in these markets, rather than relying on exports from Sri Lanka.
The company expects to gain control over the entire CAMSO value chain, from raw material procurement to customer servicing, in the second quarter of FY28. Installation of upstream equipment at its Sri Lankan plant is progressing as scheduled.
FY28 is expected to be the first full year of CAMSO operating entirely on CEAT’s platform, with the integration expected to deliver margin benefits.
Banerjee said CEAT had visibility of gross margins of 50-55% in CAMSO. Capacity utilisation at the Sri Lankan plant remains below 50%, providing room to accommodate higher volumes.
CEAT expects CAMSO’s volumes in the second half of the current financial year to grow by more than 20% over the actual volume base of the first half. The business is approaching EBITDA breakeven in the second half and is expected to become earnings-per-share accretive at the consolidated level by FY29.
The company is also working to eliminate mark-to-market gains or losses arising from the US dollar loan component between CEAT India and OHT Lanka, with an update on implementation expected by the end of the next quarter.
Frequent, low-dose price increases planned
CEAT plans to implement further price increases in the replacement market during the December quarter to manage cost pressures and protect profitability.
The company intends to adopt a calibrated approach, raising prices frequently but in smaller increments. A small price increase was implemented towards the end of the September quarter, with further increases announced during October.
In international markets, pricing actions will be assessed individually by country and product category to identify opportunities without compromising demand.
The planned increases come as CEAT navigates an uneven demand outlook, with resilient two-wheeler replacement sales and improving international markets offset by potential moderation in passenger vehicles, farm tyres and OEM growth.