Ladies and gentlemen, good day and welcome to the CEAT Q3 FY 2025 earnings conference call hosted by Anand Rathi Share and Stock Brokers Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing the star, then zero on your touch-tone phone. I now hand the conference over to Mr. Mumuksh Mandlesha from Anand Rathi Share and Stock Brokers Limited. Thank you, and over to you, sir.
Yeah, thanks, Steve. Good afternoon, everyone. On behalf of Anand Rathi Share and Stock Brokers, I welcome you all to the Q3 FY 2025 results conference call of CEAT Limited. From the management side, we have Mr. Arnab Banerjee, Managing Director and CEO, and Mr. Kumar Subbiah, Chief Financial Officer. I would now hand over the call to Mr. Arnab Banerjee for his opening remarks. Over to you, sir.
Hi, good afternoon, and happy New Year to everybody, and welcome to the quarter three earnings call. I'll be taking you through the business updates for the quarter and then hand it over to Kumar for his remarks on financial performance. And after that, we'll have the Q&A. So our Q3 continued with aggressive growth on revenue front, with 11.6% growth in value YoY and 7.9% growth in volume. The standalone profit was INR 96 crores for Q3 FY 2025. Growth momentum was good overall, with 7.9% volume growth over last year, as I said. Our segments of international business and replacement have grown in double-digit value, while the OEM segment is also coming up. It grew about mid-single digit. We have almost matched the all-time high turnover in quarter two, both in value and volume terms. Our turnover was INR 392 crores on the standalone basis.
The international segment managed to grow in double-digit YoY basis, as I mentioned, in the passenger category as well as in two- and three-wheeler category. We witnessed good growth from almost all geographies, but more so from Europe, where even truck-bus radial turnover is also starting moving to a higher level. Replacement markets saw double-digit growth in commercial vehicles, with stronger growth in the radial segment and slightly less flattish growth in the bias segment. We have grown well in two-wheeler, also in replacement, with higher growth coming in from the rural market, where we have a distribution advantage. The growth rate in rural market was almost 40%-50% higher than the growth rate in the urban market. We are seeing a good traction within two-wheeler and scooter markets across all markets in scooter tires across all markets in the country.
This has led to good utilization of capacities in almost all our plants, which is around 75%-80%, sometimes higher than 80%. Halol is very high at about 95%. OEM volumes are coming through and started to grow with increase in market share in two-wheelers, and with more vehicles getting launched with CEAT fitment, we are seeing traction in four-wheelers as well. For the upcoming quarter, we expect OEM growth to accelerate in both two-wheelers as well as four-wheeler segments and also consolidate in the TBR segment, though the overall OEM volume in MHCV segment is negative. In OHT, international business has recorded very good growth in the aftermarket, especially in the European Union, and we expect this strong trend to continue, and when the OEM sales bounce back, the overall OHT volume in international market will also accelerate. We continue to deliver double-digit post-tax ROCE.
In the last call, we had talked about our acquisition of Camso. There is no change in the status because the deal is expected to be closed by the month of May in quarter one. There is no impact of this either on quarter three or in quarter four results in FY 2025. Demand outlook, considering that the monsoon was okay, Kharif harvest should ease food inflation and overall consumer sentiment in the coming months. Government spends in rural infrastructure is strengthening the purchasing power of rural India, and overall market in rural, which supports our farm tires and two-wheelers, are expected to be robust in the coming months. As far as growth is concerned of the market demand outlook, we expect the truck bus segment to grow in high single digits, as well as two-wheeler and farm two-wheeler possibly may grow in double digits as well.
Farm and passenger will be in low single digits. That's what we expect the markets to grow by in the next few quarters, next quarter definitely, and next few quarters. Seasonally, we are seeing a slight dip in north and eastern India, where demand comes down overall in the winter months. In the OEM segment, as you are aware, MHCV is still continuing to degrow in low single digits. Two-wheeler segments in OEM is growing, it has slowed down. The growth has slowed down, but still overall it is growing close to double digits. Passenger car tires, again, the growth has slowed down in low single digits. However, in this segment, as I mentioned, we are focused on increasing our share of business because of accelerated fitment of CEAT in the passenger cars, especially, and two-wheeler vehicles, which are being rolled out.
Yeah, so overall, some more facts on the international market. Our GTM in the US is progressing well. The initial set of regional distributors have been set up. Product feedback is good, and we have a visibility of commitments made by our channel partners in FY 2026, and we expect that this business will now enter a growth phase, at least in the TBR segment in the U.S. Our OHT business in the U.S. is also stable and growing in the aftermarket. As far as margins are concerned, we saw a raw material price escalation of about 1.2% in quarter three over Q2, and business mix and price increase were insufficient to cover up this gap, resulting in a slight margin dip of 0.6% in gross margin, which has translated into 0.6% dip in EBITDA as well.
We have taken price increases in commercial and farm to the extent of 1%-1.5% in quarter three, about 4% in passenger in replacement. These are all replacement. However, we did not take price hike in the two-wheeler segment, barring at the end of quarter three, and those price hikes are going on in the month of January. By end of January, we'll be going up into two three-wheeler as well. We got a good 3%-4% price hike in indexed categories of OEMs, and we got discussion-based price hike in the commercial segment of OEM as well. This was obviously insufficient, as I said, to combat that 1.2% price hike in raw materials. Therefore, apart from two three-wheeler, which I mentioned just now, we will look at further price changes in quarter four in replacement and international businesses.
Now, coming to the strategic part, we are looking at electrification, international business, premiumization, and digital, and we talk about these four pillars in every analyst meet. Our intention to get a pole position in electric vehicles is going well. In two three-wheeler and in four-wheeler electric vehicle launches in OEM, we have roughly about 25% share of business, which hovers around this figure consistently, and we intend to maintain this and gradually inch up this share in the OEM business. In the replacement market, the trend going forward would be to have the tires which are suitable for ICE and electric vehicles, and they have to be electric fit. So there will be no distinction by and large, barring a small range in terms of tires for electric vehicles in the replacement market, and that is the trend internationally as well.
Overall, international business has been a core focus area. Our acquisition of Camso is a significant milestone, which will take us past our milestone of 25% saliency for international business. Our non-Camso saliency continues at about 19%, and in quarter one next year, when we start accumulating this business post that, we intend to reach a figure of 26%, and this volume continues to be margin accretive. Other than Camso, we have had 46+ off-highway SKU launches in Q3, so that organic growth continues. Multiple OEM approvals have come in from ITL, Magna, JD Brazil, and AGCO Massey Ferguson. We have progressed well on channel expansion further for OHT in U.S. market, and we have entered new countries that include Vietnam and Peru. There have been some headwinds in international markets, geopolitical conflicts around the Middle East, and also currency depreciation in Brazil, which are providing some headwinds.
Otherwise, as I mentioned, the GTM in U.S. and the market access in Europe is improving significantly, leading to a very, very good quarter three performance, first of all, in passenger and TBR, and the outlook is also better in future. Sri Lanka's macroeconomic situation is in a positive trajectory. The new government has come in with a huge mandate. It has taken control. Tourism foreign remittances were recorded the highest ever in the last five years, and our Sri Lankan business also is going to be robust in the coming future. It is slated to meet its top line and bottom line targets for the current financial year. Premiumization is the third pillar on which we are focusing on. And again, I would repeat that Camso acquisition is actually a premium brand acquisition in the OHT segment, with realization far ahead of the value and quality segments.
Once it comes with us, we would like to retain the premium strategy, the premium positioning, and the premium pricing, and offer the value at the premium end to our customers, mostly in Europe and U.S. In keeping with the tradition of premiumization, we have launched a new innovative tire in the scooter tech segment, in the two-wheeler segment called Secura Life, which has got a very, very high product life without compromising the grip of the tires. We have also got fitted on the Mahindra Thar Roxx, which is a five-door Mahindra vehicle, and many more SUVs are also coming up with 17-inch plus fitment.
Our 17-inch plus rim tire, which we track in terms of the overall business, is slated to hit 25% of OE fitment within the next few quarters, and that is one metric which we track because the repercussion on replacement demand will be positive going forward if we get such fitments in the larger SUV vehicles. We also got recognition and awards from OEMs such as Daimler for the service level and quality. On digital, we are proud to announce that our Chennai plant has been designated as a World Economic Forum Lighthouse. This is the second plant of CEAT which got this recognition, and this is for effectively leveraging advanced fourth industrial technologies to achieve and maintain operational excellence. All this is to reduce scrap, to improve energy efficiency, to improve manpower productivity, and to remove defects and improve quality.
So this will also see a reflection going forward in terms of efficiencies in margin. The organic traffic on our website grew by 25%, and leads from premium SUV users increased by 42%. Conversion from website leads for premium SUV customers increased to 17%. Brand positive sentiments moved up 47%, and there was a 166% increase in average interactions per post YoY. Our CapEx was about INR 250 crores for quarter three, and we maintained the overall guidance of around INR 1,050 crores for the full year. We'll stay within that. And we had an enabling approval from the board on Nagpur expansion of two-wheeler capacity to 100K tires per day, which may be executed within our overall CapEx governance, which is bite-sized CapEx of around INR 1,000 crores year -on -year.
Our Halol plant received international sustainability and carbon certification, ISCC PLUS approval, and ISO 20400 certification, highlighting our commitment to sustainable procurement and ethical sourcing. So on sustainability, we continue our focus on renewable power generation and sourcing of raw material, natural rubber, particularly through alternate source, which are more energy efficient, and it has gone up by 26%. Rolling resistance in our tires have gone down by 5%, which are all moving towards fighting global warming and making a sustainable future happen. So that's about kind of sums up our strategy of pursuing double-digit aggressive growth. Outlook for quarter four is acceleration of growth from 11%, 11.6% further. Raw material expected to go up from flattish to maybe 1%, 0% -1%, depends on the way in which crude and currency depreciation moves.
And so we are looking at expansion of our Chennai capacity and increase in market share in the passenger segment, especially in the SUV segment going forward. With this, I would like to pause here and hand over the call to Kumar for his remarks.
Thank you, Arnab. Good afternoon, ladies and gentlemen, and thank you for joining our Q3 FY 2025 joining call. I'll share some further financial data points with you all, post which we can enter Q&A session. Overall revenues, consolidated revenue for the quarter two that almost INR 3,300 crores, year-on-year growth of about 11.4%, and very similar to the revenue that we achieved in quarter two. The revenue growth was driven by all segments, double-digit growth in all segments, replacement, exports, and OEM, and with a good mix of volume and price growth.
Our consolidated operating margin, which is EBITDA for the quarter, stood at INR 346.3 crores, translating to a 10.5% margin. This is about 387 basis points contraction year-on-year and 64 basis points contraction quarter on quarter. The margin drop is primarily on account of increase in raw material prices, the net increase in raw material prices, which we could not pass it on to customers in this cumulative period. Coming to gross margins, our gross margin for the quarter stood at 36.9%. On year-on-year basis, our gross margin contracted by about 450 basis points. Through some effective cost management, we reduce the impact of the same on operating margin to the extent of about 63 basis points. Raw material price basket has marginally increased in quarter three compared to previous quarter, in line with our expectations that we had shared in the last call.
While most of the raw material prices moved in line with our expectation, international rubber prices remaining at a level of $1,900-$2,000 was a surprise with respect to our own assessment. Overall, our EBITDA margin contracted by about 64 basis points quarter -on -quarter, largely on account of increase in raw material prices. Crude has remained largely range-bound during most part of the quarter in the range of $70-$75, except very recently it's eased towards $80, and otherwise it remains constant. Rupee has been seeing some slide in the last one to one and a half months, driven by factors like foreign portfolio investors pulling out of Indian market, leading to outflow of currency, Chinese currency depreciating, and also general appreciation of U.S. dollars against the global currencies.
Coming back to rubber, domestic rubber prices had started to cool off during the course of the quarter from a peak of INR 250 per kg, which is a 15-year high in quarter two. Largely, the rubber prices in the local market is now currently around INR 190 per kg. As I mentioned earlier, international rubber prices are in the range of $1,900-$2,000 level, which, as per our understanding, at least $150-$200 higher than the normal range at which it should be operating relative to the prices of other commodities. In case of crude, as it remained in $70-$75, though there were some corrections in the prices of crude derivatives like butadiene, caprolactam, the correction has been lower than the drop that we saw in crude oil prices. Considering all these factors, we'll continue to keep a close watch on our raw material situation.
We did bring down our overall covers of natural rubber during the course of the quarter with the hope to buy raw materials at the right levels as and when the prices normalize. We expect overall raw material prices for the quarter three to be largely in line with quarter two, with a minor variation of plus or minus 1%, as Arnab had already shared with you. Coming to capital expenditure, we incurred a CapEx of INR 283 crores during the quarter. Cumulatively, in the first nine months of the year, we incurred about INR 713 crores. All this is cash outflow towards capital expenditure, and we stand by our full-year estimate of CapEx to the tune of approximately around INR 1,050 crores and balance amount we expect to spend in quarter four. The entire CapEx of INR 283 crores that we incurred in quarter three was funded through internal approvals.
Working capital, I think we shared in the last quarter, about some increase in working capital in the previous quarter, largely on account of increase in raw material inventory, particularly natural rubber due to increase in lead times. We are happy to share with you that working capital was brought down by about INR 84 crores during the quarter, and we still think that there's an opportunity for us to normalize working capital more in quarter four. We generated healthy operating cash flow during the quarter.... INR 1,835 crores as of end of the quarter. And here I would like to mention that the drop in debt level happened towards the end of the quarter, okay, and as things normalized. And average debt during the quarter was slightly higher than the previous quarter, though we managed to bring it down towards the end of the quarter.
With all this, our debt-to-EBITDA on a consolidated basis stands at a healthy level of 1.22, and debt-to-equity is at a healthy level of 0.43. Employee costs remained largely at the same level as in quarter two. Other expenses were managed during the quarter. Considering the little bit of pressure on account of raw material costs, we kept the tight control on cost, and therefore the margin impact was restricted only to the extent of difference between the price increase and increase in raw material cost. Coming to depreciation for the quarter, there was some increase in depreciation, largely arising out of commissioning of new facilities, expansion of our truck and bus radial tire plant, the new plant in Chennai, and we expect depreciation to be at current level going into the next quarter. Interest costs increased primarily due to the reasons that I mentioned.
Average debt level during the quarter was a little higher, and also banks increased the MCLR in the range of 10 basis points to 20 basis points, and therefore it had some impact. And last is that as we capitalized assets, okay, borrowing to the extent of capital associated with capital assets would also go into profit and loss account. Overall, the consolidated profit after tax for the quarter stood at INR 97 crores compared to INR 181 crores in the same period of last year and INR 121.45 crores in quarter two. The quarter two INR 121.45 crores also had non-operating income of about INR 16 crores received from our joint venture entity in Sri Lanka.
We are happy also to inform you that during the quarter, the credit rating agency CARE carried out annual surveillance and affirmed rating of AA for long term and A1+ for the short term, with a positive outlook, which is a move from neutral outlook that they had taken in the previous year to a positive outlook. As you would recall, we had shared with you in the previous quarter, India Ratings also carried out a similar annual surveillance, okay, in the previous quarter, and India Ratings had also changed the outlook from neutral to positive during the quarter. Both the credit rating agencies now have maintained or affirmed the same credit rating of AA for long term with a positive outlook. With that, now we can open the floor for Q&A.
Thank you very much. We will now begin the question and answer session.
Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Jinesh Gandhi from Ambit Capital. Please go ahead.
Yeah, hi sir. A couple of clarifications. First, one is you mentioned Nagpur two-wheeler and capacity expansion is 20,000 per day. Is that correct?
Yeah.
Okay, got it. And secondly, exports which are?
I just want to clarify Arnab had mentioned it's an enabling approval that we have taken.
Okay. Sure, sure, sure. Yeah. That's fine. And secondly, we mentioned that exports are 19%, but we expect that to go to 26% in FY26 because of U.S. ramp-up.
Is that understanding also correct?
No. When we start integrating the turnover from Camso.
Oh, because of Camso, yeah.
100% international, it will go to 26%.
Got it. Got it. Secondly, with respect to the underlying demand, so we are continuing to see a fairly good traction on the replacement side. Any red flags which you're seeing on the replacement demand side, given that some of the OEM side growth is moderating, any red flags on the replacement which you're looking at from FY 2026 perspective?
The passenger side demand is modest, I must say, in replacement, which is, I mentioned, mid-single digits. And the OEM growth also had been modest this year. But then last year, OEM growth has been good. So the base is high. The vehicle park is high. So we'll have to wait and see how the demand goes in the replacement for passenger.
For two-wheeler, demand is very robust, especially in scooter, also in motorcycle, and it's particularly robust in less than 50,000 tons. For MHCV, it is, as usual, in high single digits, I mean, mid-single to high single digits, which is pretty good, actually, and we expect that to continue.
Okay, okay. Got it. And last question is with respect to our exports. So what percentage of our exports would be coming from U.S. now?
Percentage is difficult to mention. Europe will be highest for us. Europe and Latin America would be higher than U.S. at this point in time. Even Middle East is high. U.S. will become a big market for us in the next two years' time, with OHT leading the way, and now truck bus radials, and finally, passenger car radials. It's not very high at present.
Okay, okay.
Do you see any benefit of these tariffs which are being threatened to put on Chinese imports, given that China probably will have a much higher share of tire imported in the U.S.? So do you expect to benefit if some of these tariffs actually come through?
We'll have to wait and see because the Chinese manufacturers have also moved to newer and newer locations. You must have read about a new plant coming up in Cambodia, recently, and in Mexico, right? So the competition will remain in some form or the other from different geographies from Chinese manufacturers. So we don't expect too much of a change for the U.S. market in the near future.
Got it. Got it. Great. I have a few more questions, but I'll follow back in too. Thank you.
Thank you. The next question is from the line of Siddharth Bera from Nomura.
Please go ahead.
Yeah. Hi there. Thanks for the opportunity. So if I'm correct, you mentioned that the overall volume growth has been 7.9% in the quarter.
Yes.
So if I use that, it seems that the ASP increase sequentially has been largely flattish, and this is despite a lot of price increases we have done across segments in the quarter three. So can you just help us understand, is it because of mix or anything else why the ASPs are flattish?
You're referring to quarter three versus quarter two, is it?
Yes. Yes, sir.
Quarter three to quarter four, overall realization moved up by about 1.5%-1.6%. Realization per kg at aggregate level. Okay. And so the quarter on quarter has that additional 1.5% growth in the price.
Okay. Okay. Understood.
Okay. Okay.
Yeah.
See, the revenue number, operating income includes non-sale amount a little bit. Okay.
So any movement there may not allow you to understand exactly, but please, in your understanding, assume that there was a 1.5% growth in price overall at aggregate level. Obviously, the percentage varied depending on the category and segment, but at aggregate level, 1.5% growth was there in price.
Got it, sir. And towards the quarter end, what was the amount of price hike we have taken in two-wheelers, and how much increase do you expect at an overall level to further take place in the current quarter?
It's a very small nominal increase because you would understand that there has been no increase, I think, for at least three to four quarters now in two three-wheelers. The market has been robust, so we had focused on growth.
It's a very nominal increase of around 1%, and it will be in small steps, but there'll be multiple steps through quarter four and maybe in quarter one on two-wheelers, as well as opportunities in other categories.
Understood. So sir, basically, two questions here. Why, despite a very strong demand in two-wheelers, we have not sort of been able to take up the prices? Is it because of competition or anything else which is sort of leading this price increase? And secondly, how much price increase do you think we will need more to probably go back to our targeted margin levels, given that commodities are sort of flattening out and we probably won't see a very meaningful drop in the coming quarters?
Yeah, it is because of competitive situation, and the growth has been most robust here, so that's the redeeming point.
With commodity prices flattening out, it is actually easier to plan for a price hike than when it is going up. That's point number two. Point number three is that two- and three-wheelers have a higher proportion of synthetic rubber. So to that way, to that extent, the sharp hike of natural rubber was less impactful on two-wheeler and three-wheelers, but we have a gap to fulfill there, so that's why we are now intending to take it up in small steps. So there may be five, six steps also to make up the pricing gap.
Got it. Got it.
And so lastly, with this export push from the current segment, do you see generally, if I look at the segments, exports should be more profitable, and now with the currency depreciating as well, do you think there can be a lot of support that can come from the export markets as well?
Yeah. So export, those three focus areas of E.U., U.S., and Latin, there is headwind in Latin, but U.S. is now going to grow because we have geared up at least in two segments, which are OHT and TBR, with passenger going to come in FY 2026. Europe has started doing very well and at a very good margin. In all these three focus areas of OHT in aftermarket and truck bus radial has started moving up, and passenger, we have done very well in Europe as well in quarter three.
So out of these three, two are definitely firing, and the other areas are also doing fine. So our order book is good. So we definitely would like to grow at double digit. We have grown in double digit in Q3. We'll continue to grow in double digit in Q4 and thereafter in exports, which is margin accretive, as you said.
Understood, sir. Thanks a lot. I'll be back in the queue.
Thank you. The next question is from the line of Raghunandan from Nuvama Research. Please go ahead.
Thank you, sir, for the opportunity. Sir, can you share the utilization level currently in TBR, PCR, and two-wheeler?
TBR, yeah, Halol plant is fully utilized, and Chennai is ramping up, so it's strictly difficult to measure the utilization, but we are selling whatever we are producing by and large. So utilization in TBR is very high.
In two-wheeler, which is our Nagpur plant, again, utilization would be 90% kind of levels at this point of time, which is why we took an enabling approval from the board for expanding Nagpur. And passenger, again, Chennai is scaling up, so we have very high utilization at Halol, almost 90%-95%. And Chennai, again, difficult to measure because it is in the ramp-up phase, but pretty high utilization, but we have a runway in front of us at Chennai.
Understood, sir. So at Chennai, you would still have space for further brownfield expansion, and fair to assume, just wanted to reiterate your stance that next two to three years, all the expansion will remain brownfield?
Next two to three years, Chennai, there is a lot of space. You are correct.
We'll continue to incrementally expand Chennai, and we have now taken an enabling resolution on Nagpur, so we will go incremental in Nagpur also. We'll keep on expanding it. And TBR, of course, is in an expansion phase, so yes, most of it will be brownfield. OHT at Ambarnath is also brownfield, so in fact, all of it will be brownfield.
Understood, sir. And what would be the broad CapEx for FY 2026? Would it be in the same range, INR 1,000 crores-INR 1,100 crores?
No, see, we are in the midst of our annual planning exercise now. Okay. So as far as current year is concerned, I think we have clear visibility to the INR 1,050 crores kind of CapEx. And maybe we'll share an update once we complete our annual planning, which has a long-term demand plan, long-term supply plan, and next year's plan, etc.
So we'll share that maybe in the next quarterly call.
Understood, sir. And also in terms of U.S. market potential, and assuming that over the next two years, you are saying that it will become a reasonably high-sized portion of our exports. If you can talk a bit more on when the new products are getting introduced in the PCR space, what kind of markets you are targeting, and possibly in the next two, three years, would you expect U.S. to be 20%, 30% of your exports?
Yeah. So the U.S., if you are looking at the product market fit, U.S. is a completely different market from Europe, which is again completely different from India. So our toolkit is the same: study the local market, gather insight not only about the product but about consumer usage, which we did for OTR, for TBR, and for PCR.
And if you are saying 20%-25%, it's possible. It's not impossible to reach that kind of a figure in the international business basket. Europe, as a geography, considering all kinds of products, is nearing 10% of our entire turnover. It is still single digit, so that's the biggest area which is growing. And U.S. is very small now, but that's the aspiration. You're right. And so the product platforms in passenger, you mentioned passenger particularly, are, I think, 10%-20% similar to Europe, but the product platform and the performance characteristics are different. So we have developed the full range accordingly, and we will ensure on our GTM in passenger in next financial year, FY 2026.
Thank you very much, sir. Just a last question. On a volume basis, how has been our market share in two-wheeler, PCR, TBR versus last year?
TBR, there has been a steady gain, but it's a very consolidated market with the top three players occupying a large chunk of the market. So we are playing in the balance, but we are gaining share. We are close to maybe double digit, but still in single digit. There has been a gain. Passenger is mostly steady with plus minus 0.2% up and down over the quarters. So that's how the market share has been in the place.
Got it, sir. Thank you very much. I'll fall back in the queue.
Thank you. The next question is from the line of Joseph George from IIFL. Please go ahead.
Hi. Thank you for the opportunity. I have two questions. One is in relation to price hike.
So what I wanted to understand was, of all the price hikes that you have taken in the third quarter, how much is reflected in the third quarter results, and how much will be the flow-through into 4Q? So for example, if you hike prices at the end of the quarter, then that flow-through will happen in 4Q. Can you just quantify that?
Well, I think I don't recall the exact month, but roughly 50% would have reflected in quarter three and would flow through into quarter four. And there will be further price hikes in quarter four.
Okay. So would like 100 basis points or something flow into 4Q based on the price hike that you've already taken?
A little less than that.
Okay. Okay. Great. The second question I had was in relation to the interest expense.
For the quarter, I noticed that it spiked to about INR 75 crores. I know you mentioned that average debt was higher, but closing debt was lower. But if I do a simple math, which is INR 75 crores for the quarter, if I annualize that, it works out to about INR 300 crores. Your closing debt was less than INR 2,000 crores. If I do a simple math there, 300 divided by 2,000 works to an interest cost of about 15%. Even if I assume that the average debt in the quarter was 10% higher, say 2,200, even then it works out to 13.5%. Now, these numbers are mind-blowing. So I want to understand what exactly is your cost of debt at this point, and what is the direction of that number?
Okay. No, the finance cost that you see, interest is one of the components in that. Okay.
There are also banking-related costs, which is in that number, but not very significant. See, in addition to the debt, we also have some security deposits that we have received from our dealer channel. And there is a corresponding liability also, which is corresponding residuals also there in the current assets. So the deposits that we get from dealers also carry some interest. Okay. So that interest needs to be that is also part of this finance cost.
Okay. So for the debt that is there on the books, I'm not referring to the deposits from the distributors, dealers, etc. But for the debt on the books, what is the average cost of debt?
Yeah. See, it's closer to about 8% mix of both long-term and short-term.
Okay. Great. Thank you. That's all I have.
Thank you.
The next question is from the line of Kaushik Poddar from KB Capital Markets. Please go ahead.
This Camso acquisition, will it be funded by debt or fresh equity?
Camso. Camso will be a mix of both. Needless to say, this is fungible, whether debt or internal accruals. And so far, in the last three years, most part of the CapEx, we funded through our own internal accruals. So we have enough amount of even CapEx during the quarter also, as I mentioned, INR 283 crores of CapEx was entirely funded through internal accruals only. So theoretically, we always assume whenever we carry out an exercise, one-third would be equity and two-thirds would be debt for the purpose of evaluation of proposals.
In reality, last five or six years, if you really look at it, where we have spent close to about INR 5,000 crores, less than one-third of that got funded through debt, and more than 80% got funded through internal accruals. So it will be a mix of both. Okay. Cash generated from the operations, depending on wherever it is required, the operating cash flow would be deployed. Okay. With this, assuming it is $225 million overall, okay, and some amount we will pay a little later, okay, and over a one-year period or 18-month period, only two-thirds of that amount incrementally will remain as our debt, and one-third by end of the cycle, it would be done through internal accruals.
Okay. Okay. As things stand today and as you foresee a little bit into the future, realistically, when can we get back to that 14% EBITDA margin?
No, see, in a four or five-year cycle, okay, we always have one and a half years where the commodity prices move up very fast. Okay. In our industry, look, when the commodity prices significantly increase within a short period of time is when margins go to the lower end of the range, which let us assume 10%-15% range, let us assume. It tilts towards the lower end of the range, which has happened from INR 150 per kg to two and a half quarters back, touched INR 250 in Indian market. Okay. And similarly, crude also has this tendency of suddenly moving up from $70- $100, $110, and it stays there for a period of time. Very rarely, we had occasions where commodities went down by 30%-40% at a short notice, but commodities do go up by that level.
At that point in time, generally, it takes about six to nine months for us to pass on instances of any increase in commodity costs, okay, in the form of a price increase after a little bit of a correction. So not very far from now, we were at 14%+ level, quarter four of last year, quarter three of last year, latter part of quarter two of last year, we were closer to that particular range. Okay. And as was mentioned in Arnab's initial introductory speech, okay, we expect quarter four raw material prices to be at quarter three levels, stable levels. In those circumstances, when raw material prices are at least stagnant, I know it is still very high.
If you ask us, we feel natural rubber international prices are at least $200 higher than the level at which it should be operating based on the relative prices of other commodities. And similarly, the crude derivative prices should have corrected a little more. This is what a common sense logic says, but in reality, it has not happened. Okay. So when the raw material prices remain at quarter four, quarter four at quarter three level, any price increase that we take would be margin positive. Okay. And let us assume raw material remains even at that current elevated level for two quarters or two quarters to three quarters, we should get back to slightly higher end of the range of margin. And that is what we expect it to be.
So if raw material remains maybe quarter one, quarter two level, we would be higher than the mid-range, which if we assume 10%-15% level, that's where we see. Difficult to predict, but that's the way it can move.
So by third quarter or fourth quarter of next year, can we see our margin going to around 14%? Is it the way we are looking at it?
Two quarters back.
Provided raw material remains at this kind of level. Yeah.
Yeah. Two quarters back, we were 14%. Okay.
Yes.
And we looked forward. Internally, we will always try to get it earlier. Okay. We will work towards that. Okay. While we don't want to guide you like that, but internally, that's the direction in which we would like to move.
So the takeaway I have is that from the peak of the raw material price, in six to nine months, the hike in raw material price gets passed on. Is that the right way to look at it?
It takes that much time to pass on most incidents of raw material cost. That's the way it happens.
Okay.
Once it remains stable, okay, it takes almost six months for it to be fully passed on.
Great. Great. Thanks. Thanks. Thanks for this clarification. Thank you.
Thank you. Next question is from the line of Jinesh Gandhi from Ambit Capital. Please go ahead.
Yeah. A couple of questions. One is on the capacity expansion side. So we have this enabling approval for two-wheelers, and we are expanding capacity on the OHT side.
Apart from these two, any other expansions which we are either doing right now or looking to add capacities going forward?
Yes. I'll explain the CapEx framework, which is being consistent for some time now and will be so in future. You're right about Ambarnath OHT, and you're right about the enabling approval. We are also carrying on incremental addition of capacity to Chennai in passenger car tires as well as in truck bus radial tires. So it's all flexible, gradual. Sometimes we'll do a civil somewhere, an upstream equipment somewhere, downstream equipment somewhere. But our CapEx guidance overall is bite-sized, which we have been maintaining. This year, it was 1,050. We have not yet formed an opinion of what it will be next year, but it will be in a similar range. It will be bite-sized.
We will never have a CapEx plan of INR 3,000 crores in one year, etc., going forward. So it will all fit into that scheme of things. Right now, everything is brownfield, so very easy to manage.
Okay. And for Chennai, PCR and TBR, what kind of capacity addition should we budget for?
Chennai is a continuous process. There is no end game. For example, right now, we have been talking about 20,000. That may go up to maybe another 7,000-8,000. That may further go up by another 7,000-8,000. So it will go, and within that 7,000-8,000, in a year, we may do only 2,000. So it can go up to 35,000-40,000 tires in Chennai in the brownfield peak capacity. Right now, we are at about the halfway mark, you can say so. Truck-bus radial, similarly, we are at less than halfway mark.
It can go up to maybe 3,000 overall, and we have an approval for that from the board. But we'll do it in a very measured way, in a very, very tight and measured way. Right now, we are about less than 30% of that figure. So we'll keep adding every year.
Okay. So TBR at Chennai would be what would be the peak capacity we can do from the curre nt infrastructure?
3,000.
3,000 per day?
That's right.
Got it. Got it. Okay. And Kumar, from the tax rate perspective, how should we think about the tax rate? I mean, at consolidated, obviously, Sri Lanka will have its influence. But for the first nine months, we have seen it to be close to about 28% at consolidated level.
No. Okay. See, the best way to understand ETR is on standalone. Okay. So consolidated may sometimes be a little bit confusing.
Okay. And now, there's hardly any difference both in revenue as well as in profits between CEAT standalone and CEAT consolidated. Sometimes our JV in Bangladesh loss in case we are incurring that may have a marginal impact on income tax ETR. So ETR, we are close to about 26% in that range on a standalone basis. And as there are no more tax benefits available, so therefore, ETR would be closer to that range only.
Got it. Got it. Great. Thanks, and all the best.
Thank you. Ladies and gentlemen, you are requested to limit your questions to one per participant as there are several people waiting for their turn. The next question is from the line of Nandan Pradhan from Emkay Global Financial Services. Please go ahead.
Hi. Am I audible?
Yeah.
Yeah. Hi.
So I just wanted to know your thoughts about the volume and the value growth for next year across segments. And also, if you could shed some light on what is driving your outperformance in the OEM category versus the competition, how are the market share gains playing out?
So you wanted to know the market growth for next year?
So your thoughts on how do you see CEAT's volume and value growth across segments next year?
Next year, next calendar year or financial year, right?
Next year. Yes. FY 2026.
Yeah. FY 2026, first of all, it will depend on the market growth, which I shared earlier. And we would continue to push strongly on the passenger side, which is passenger car tires and two-wheeler in replacement. And TBR will maintain the momentum.
International business with the operationalization of the Camso, I think there'll be synergies kicking in for the OHT segment gradually, maybe in the second half of the year. That will be a strong focus in the sense OHT is now about 15% of our turnover, and that will almost double or more than double with the acquisition. A lot of synergies will kick in. OEM, you asked how will we increase. In OEMs, there has been a long it takes a lot of effort in homologation and getting approvals. Those approvals are gradually coming in now. In passenger car tires across OEMs, several vehicles are getting launched. Some got launched in Q3, Q4, Q1, Q2, like that. That is completely visible. There could be one or two months delay here and there, or it may be threefold. Our capacities are aligned.
Plant approvals are aligned, so we have a fairly good view of how much volume and hence share of business will increase in OEM in both four-wheeler and two-wheeler.
Thank you so much.
The next question is from the line of Vijay Pandey from Nuvama. Please go ahead.
Hi. Hi. Thank you for taking my question. There are two questions. One is I wanted to check what is your raw material exposure in terms of natural rubber and synthetic rubber? How much of the total cost will be from raw material, natural rubber, and synthetic rubber?
Okay. See, while natural rubber, it's easier to explain because there are not many grades of natural rubber available, only two different sources of natural rubber, one being India and another being imports. Largely, Indian rubber is called a sheet rubber, and imports, at least what we do import, is largely block rubber.
Currently, local natural rubber prices are in the range of INR 190 per kg. International natural rubber prices are in the range of $1,900-$2,000. That translates to INR 205 per kg to INR 210. So that is what happens. Synthetic rubber has different grades of synthetic rubber. One is called polybutadiene rubber, which is PBR. Then another one is SBR. And within them also, there are multiple grades. Okay. And the prices vary depending on the grade of synthetic rubber. And generally, synthetic rubber prices currently are in the range of INR 150-INR 225 per kg, varying between grades. That is the way it is.
Okay. And in terms of exposure, is it 30% natural rubber and 30%? Is it evenly distributed or?
In value terms, it's possible. In volume terms, natural rubber could be about 25%. Okay.
Synthetic rubber could be also closer to that number. In value terms, they would be close to about 30% each.
Okay. Okay. Can you please expand on the capacity expansion plan that you are adding the new capacity in the two-wheeler and three-wheeler segments? You can a little bit explain about what is the kind of revenue and expectation from that capacity expansion? That would be important.
See, I think we took an enabling approval for Nagpur. I think Arnab just explained about overall capital framework for us. Okay. We tried to create some upstream capacities available and keep on adding downstream as we see demand is the CapEx, capital expenditure framework that we have. Our capital allocation determines how much to allocate for each of the key categories.
In case of two-wheeler, we took an enabling approval so that we could plan some upstream over a period of time.
Okay.
And currently, as Arnab also earlier mentioned about capacity utilization of two-wheeler plant at Nagpur, we also outsource some two-wheelers. Okay. We are in the range of 85%-90% kind of capacity utilization level. We can still get a little more from the existing plants. Okay. And the two-wheeler has grown this year well in the first nine months of the year in the replacement segment. Okay. And it is almost about 30% of our revenue. That's the way we see overall.
Thank you. Ladies and gentlemen, this will be our last question. It's from the line of Garvita from Seven Islands PMS. Please go ahead.
Hello. So my question is around the raw material thing.
So we have insoluble sulfur as one of the raw materials for manufacturing tires, right? I wanted to understand what is the percentage share of insoluble sulfur in manufacturing one tire or in two tires?
We don't have that information immediately available. If you could reach out to our Investor Relations, Arjun, we will share the details through him. Is that okay?
Works for me. That's fine. Thank you.
Thank you very much.
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for their closing comments.
Yeah. Thank you very much for attending the call. And again, wish you a very Happy New Year and looking forward to seeing you again in April. Thank you.
On behalf of Anand Rathi Share and Stock Brokers Limited, that concludes this conference.
Thank you for joining us, and you may now disconnect your lines.