CEAT’s Strategic Acquisition Boosts Stock to Record High

Shares of CEAT Ltd soared 11% to hit a record high of ₹3,449 on December 9, 2024, after the company announced a strategic acquisition of Camso’s Off-Highway Tyre (OHT) and tracks business. The all-cash deal, valued at $225 million, is expected to strengthen CEAT’s foothold in the high-margin OHT and tracks segment.

By 10:20 AM, the stock was trading at ₹3,425, up 10.7% on the NSE. This marks a strong rally for CEAT, with its shares gaining 30% since the start of the year.

Key Highlights of the Acquisition

CEAT entered into definitive agreements with Michelin to acquire the Camso brand's Off-Highway construction equipment bias tyre and tracks business. This acquisition will expand CEAT’s product offerings to include:

• Agriculture Tyres and Tracks
• Harvester Tyres and Tracks
• Power Sports Tracks
• Material Handling Tyres

The deal is executed at approximately a 1x price-to-sales multiple, which brokerages consider reasonably priced.

Brokerage Reactions and Price Targets

The acquisition has received widespread approval from brokerages, many of which have raised their price targets for CEAT’s stock:

1. Axis Capital: Maintains a Buy rating with a target price of ₹3,450, an 11% upside from the last close. Axis appreciates the alignment with CEAT’s focus on high-margin segments but highlights potential integration challenges and pressure on the balance sheet.
2. IIFL: Reiterates its Buy rating with a revised target price of ₹4,000. IIFL believes the acquisition is a good strategic fit and expects it to contribute 7–8% to EPS by FY26.
3. Investec: Retains its Buy rating with a target of ₹3,750, calling the move a strong step for growth in the speciality tyre segment. CEAT remains its top pick in the tyre industry.

Growth Potential in the Off-Highway Tyre Market

The acquisition positions CEAT as a key player in the high-margin OHT market, which includes products for agricultural, construction, and power sports applications. These segments are expected to witness robust growth globally, driven by increasing mechanization in agriculture and demand for durable equipment in construction.

Financial Performance

Despite the acquisition news, CEAT's recent financial performance reflects challenges:

• Q2 FY24 Revenue: ₹3,304.5 crore, an 8.2% increase YoY.
• Q2 FY24 Net Profit: ₹121.5 crore, a 41.5% decline YoY.

The company’s improving topline growth and margin expansion in the OHT segment are expected to offset the temporary dip in profitability.

Investor Outlook

CEAT’s strategic move to acquire Camso’s business aligns with its long-term vision of entering high-margin segments. The acquisition is likely to provide strong revenue synergies, while the optimistic outlook from brokerages signals further upside potential for investors.

Conclusion

The acquisition of Camso’s OHT and tracks business marks a milestone for CEAT, potentially transforming its product portfolio and market positioning. With positive brokerage recommendations and a strong growth outlook, CEAT's shares could continue to rally in the coming months.

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