Ladies and gentlemen, good day, and welcome to the CEAT Camso acquisition update 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 once the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Mumuksh Mandlesha. Thank you, and over to you, sir.
Thank you, Alarik. Good morning, everyone. On behalf of Anand Rathi Share and Stock Brokers, I would like to welcome you all to CEAT's Camso acquisition update call. I thank the management for taking time out for this call. To represent the management, today we have with us Mr. Arnab Banerjee, our Managing Director and CEO, Mr. Kumar Subbiah, CFO, and Mr. Amit Tolani, Chief Executive, CEAT Specialty. We'll begin the call with opening remarks from the management, post which we'll open the floor for the Q&A. Over to you, sir.
Yeah, hi, good afternoon, and welcome to CEAT's Camso Acquisition Update Call. I am joined today by Kumar Subbiah, our CFO, and Amit Tolani, who heads our specialty business. I would like to thank all of you for taking the time and joining us today. I'll take you through a short update on transaction, after which Kumar shall share the key financial implications, and Amit is also around for answering specific business-related questions in the Q&A. As you know, last December, CEAT had entered into a definitive agreement to acquire Camso brands of highway construction equipment, bias tires, and rubber tracks business from Michelin Group in a deal valued at $225 million.
Following our guidance in the last earnings call, it gives us immense pleasure to inform you that we have closed the acquisition transaction with effect from 1st September 2025, and all the regulatory approvals are in place. Our investment in Camso marks one of the largest FDI or Forex inflows into Sri Lanka's manufacturing and export sector. This acquisition is significant for CEAT, granting us global access of a premium brand, along with two manufacturing facilities in Sri Lanka. For CEAT, this acquisition reiterates our commitment towards the three pillars of our growth strategy: premiumization, globalization, and investment in the high-margin Specialty sector. We stay with our outlook that in the medium term, once everything stabilizes, this business should be margin accretive and could deliver high teens to 20% operating margin. Camso gives CEAT the ability to considerably widen its product base into construction tires and tracks.
With a strong presence in Europe and North America, CEAT stands to gain access to 40+ global OEMs and 200+ premium OHT distributors, accelerating its vision to be a significant player in off-highway mobility segment. CEAT's OHT business now has 900+ products. To start with, there is very good complementary, complementarity between CEAT and Camso. At CEAT, we also have a long history of successfully operating in Sri Lanka through our JV with Kelani Tyres over the last 26 years. Hence, we are well positioned to enhance the operational activity in Sri Lanka for the Camso plants. We know the ecosystem, regulations, and people well. The capacity is roughly 250 metric tons per day and split equally almost between tires and rubber tracks.
The Camso facilities have been operational in Sri Lanka for the last three decades, servicing global demand and is in world-class shape under Michelin patronage for the last seven years. Current utilization of the plant is about 50%, thus leaving a significant upside in terms of plant capacity. As we have closed the deal, for ensuring business continuity, we shall sell the products in the interim to Michelin team, who shall continue to service all the customers on our behalf. We endeavor to take over direct relationships with all customers as soon as possible. At the other end, since the plant is a carve-out from a complex Michelin supply chain, we have to continue buying semi-finished goods from Michelin till we set up our own upstream equipment, namely the mixer and the calender. This will take up to 18 months, approximately.
Hence, for the next four to six quarters, our turnover and margins will be lower in this transition phase, where we have a supply and offtake arrangement in place with Michelin. As we take over the business from Michelin, there will be a geography and customer-wise phase transition, as I mentioned, to take over the entire value chain. About 1,500+ highly skilled workforce, encompassing manufacturing, R&D, have been added to our team. We are putting in place a strong global sales structure to ensure smooth customer transition. We also see a strong cultural and operational fit between Camso and CEAT, including high emphasis on customer experience and employee experience, which is close to CEAT's Total Quality Management culture and people management approach.
Michelin Group and CEAT have worked very closely in transitioning this business to us across value chains, and will continue to do so in the coming quarters. As we begin this chapter, I sincerely thank you for your continued trust and support. With this, I'll pause here and hand over the call to Kumar for his remarks.
Thank you, Arnab. Good morning, ladies and gentlemen, and thank you for joining the call on this very important moment. We are happy to inform you that we have taken possession of the physical assets and also the operations effective 1st of September. We have signed the final asset purchase agreement, supply agreement, and also related agreements towards transfer of intellectual and physical properties with Michelin Group entities. As shared with you earlier, the total deal value of this transaction is about $225 million. The deal value has largely three components. One, physical assets, inventories, that is raw materials and finished goods, and also intangibles like brand, patents, trademarks, et cetera.
Considering the structure of the deal is in the nature of asset purchase route, in order to carry out operations at Sri Lanka, we have formed two companies, namely, CEAT OHT Lanka Private Limited, to carry out manufacturing operations, and CEAT OHT Lanka Ventures Private Limited, to enable ownership of land and building structure. We would like to inform you that we have obtained key regulatory approvals like antitrust approval in relevant countries. We also signed an agreement with Board of Investment of Sri Lanka in the month of August, that would enable us to carry out our export operations smoothly. In our agreement with Board of Investment of Sri Lanka, we've indicated an investment of $ 171 million, that not only includes the purchase of assets towards this particular transaction, but also includes future capital expenditure in that unit, and also our working capital related requirement.
In addition to BOI, that is, Board of Investment related agreement, we also obtained necessary approvals from VAT authorities, customs, income tax authority in the form of TIN, and local other approvals for us to carry out our operations, and all of them are effective 1st of September. The acquisition is in line with our capital allocation principles, which have gives higher priority for our OHT and our international business. As you are aware, that our balance sheet has strengthened over the last few years significantly, and that covers our leverage ratios. Hence, we are comfortable with respect to this acquisition. We have so far paid about $138 million to different Michelin Group entities.
In addition to the above, we would also be making payment for purchase of finished goods inventory at different locations in the next 12- 18 months, and it would also involve about $44 million of payment after three years towards the brand, once the formal Camso brand is formally transferred to us. The consideration for the purchase of assets, inventories, and some tangible assets in Sri Lanka were routed through our 100% entity, which is CEAT OHT Lanka Limited. In this entity, we have infused both equity and debt, okay, as appropriate. We would also form a supervisory board for both the entities and create it for the purpose of overseeing the function of the business. As you are aware that the balance sheet strengthening is also being vetted by credit rating agencies.
As part of this exercise, we went through credit surveillance with two of our existing credit rating agencies, India Ratings and CARE , and we are happy to inform you that they maintained A1+ for short term and AA with Positive Outlook, taking into consideration cash outflows relating to Camso. We would like to thank banks, financial institutions, and various regulatory agencies for providing overwhelming support to carry out these transactions. The Camso financials would be reflected in our consolidated profit and loss account from current quarter onwards, and balance sheet, too, from the end of this month onwards. Profit and loss account impact would be for a month as far as quarter two is concerned. From quarter three onwards, fully it will be reflected. We remain committed to drive CEAT's growth journey and are excited about the opportunity that Camso brings. Thank you.
Now we can open the floor for Q&A.
Thank you. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Siddhartha Bera from Nomura. Please go ahead.
Yes, sir, thanks for the opportunity. Sir, my first question is, now on Camso, regarding the transition which you have indicated, and, given the tariff issues globally, also demand being also a bit soft, so where do you see the run rates now, sort of settling in for Camso in terms of, annualized revenue or margins, say, for the next six months or for the next one year? Whatever, data you can sort of share, so that will give us some clarity of where is the starting point, and then we can build in some improvement like you are indicating. So if you have some thoughts there, it will be really helpful.
First, let me address the tariff situation. The tariff situation in Sri Lanka has settled at about 20%, at 20% impact, and it is as competitive as earlier in the pre-tariff situation vis-a-vis any other country which manufactures this product. So, we don't expect the tariff thing to be impacting demand to any great extent. So that, that's number one. Number two, the plant is utilized up to 50%, so if, as and when we take over the customer relationships, we expect to use, enhance the utilization of the plant and thereby impair the fixed cost impact on the margins. That's number two. Number three, the run rate, if you had asked, it's around $150 million - $130 million per annum, the overall run rate.
But of course, revenue recognition will be slightly lower till we operate in the supply and offtake arrangements, as explained to you. So the turnover accounted by us will be lower than this for next, maybe up to three to four quarters. And, the margins also will be thereby lower for about six quarters, because we have to also set up the upstream equipment.
Probably, by FY 2028, we should target to go towards mid to high teens, or you think that may take bit longer?
By FY 2028, we should have a stable business scenario, so we should see the normal turnover and margins by then.
Understood. And the second question is on the CapEx now. So, given that you need to make some more investments also on the machinery side, how much CapEx do you think you need to do in the Sri Lanka's, in the Camso's plant in Sri Lanka, at least in the next, this year and next year?
So over the next two years, it'll be around $30 million.
Per annum?
Over two years.
Over two years. Okay. Okay, understood. Okay, sir, I'll come back in the queue.
Thank you. A reminder to all participants, you may press star and one to ask a question. The next question comes from the line of Raghunandhan NL from Nuvama Research. Please go ahead.
Thank you, sir, for the opportunity. Sir, firstly, to Subbiah, sir. Sir, if you can give some numbers in terms of how much would be the gross block of the company and currently within the revenue, how would be the share of various geographies? If you can remind that, how much is U.S. currently? And that was the first part. And second question is, in terms of that 20% tariff of U.S. on Sri Lanka, would it be, you know, like partly passed on and partly absorbed? How much are you able to pass on?
Okay. See, approximate gross block is estimated to be around close to about $90 million- $100 million. Okay? That is the expectation. The gross block means the asset, a fixed asset value that will come. I think as we mentioned, this, the total consideration includes, okay, some intangible. It includes finished goods, inventory in different parts of the world, and also some raw material and semi-finished goods. So that is the gross block approximate estimate. The gross block means whatever the value at which it comes into our books, it will become gross block from here onwards. Okay. So, with respect to U.S., I think Amit will be able to.
Amit will share the sales breakup.
The exposure to U.S. is around 50-55% of the revenue. You asked a question about the tariff. Eventually, everything will be passed on to the customer in terms of tariff.
Thanks for that. But trying to understand more, would there be competitors in U.S. who are locally manufacturing, you know, who may not need to take a 20% kind of a price increase? And if we are eventually passing on the entire 20%, how do you see the impact on our competitiveness? So that is what I was trying to understand.
In this segment, there are no manufacturers in the U.S. That's number one. And, the competitiveness, as Arnab mentioned earlier, is as competitive as it was before.
Got it. And fair to understand that, our position will be relatively better compared to exporters from other geographies, because, Sri Lanka relatively is at 20%, which is, you know, which is either in line or favorable compared to other exporting countries.
Yeah, it is definitely better than countries like China. Otherwise, we should leave it as same, or as it was previously.
Got it. And can you also share the revenue mix for Europe, South Africa, and rest of the world? I mean, South America and rest of the world.
As I said, North America would be roughly 55%. Europe would be another 36, 35%-37%. Whereas, South Africa and Australia, Middle East form the remainder of the pie.
Got it, sir. Thank you. And to Subbiah sir, because there is some part of the payment which is getting deferred, like some payment is happening over the next 12-18 months, and some payment of $44 million you said is happening over after three years. So in FY 2026, how much would be the debt increase on CEAT's balance sheet?
See, so far, approximately about $138 million is what we have paid. Okay? And beyond this, we do not expect much payment to happen during the current financial year. So, it translates to about INR 1,200 crores kind of a overall payment. At consolidated level, look, we would also like to maintain about INR 1,000 crores of CapEx for the company, during the year. So, overall, I think, about 70% of that relating to this could be an incremental debt, relating to these operations. And similarly, there could be some portion of the debt that may arise on account of CapEx plan that we have within the entity. So about INR 1,000-1,200 crores kind of a debt impact could be there for the current year.
Does that answer your question, Mihir? Mihir, are you there?
Hello.
Yes. Does that answer your question?
Actually, I am yet to ask the question. It was Raghu's question.
Oh, my apology.
Can I go ahead?
Okay. Yes, yes, please go ahead. Please go ahead.
Yeah. Sir, so I have one clarification question. That previously in the call, you had mentioned that on the tracks, the tariff would be lesser than tires. So is it true that in current situation also, 20% would be for tires and tracks would be at a lesser tariff, or how is it?
The 20% applies to both tires and tracks because it's a reciprocal tariff, so it applies at the same level for both.
Okay, so it will both be on twenty, and basically, out of the total revenues in U.S., how much would be the tracks and tires breakup be?
It's similar. So, as I shared it earlier, similar. You can refer to those numbers. The split of the business is 50/50.
All right. And, currently, do we... Are we seeing some kind of, you know, slowdown into the U.S. imports right now as an industry on the OHT segment?
No, it's too early to comment. And as we've been saying that competitively for Sri Lanka, nothing has changed. So.
All right.
So that's where we are.
All right. Okay, that's all fine. Thank you.
Thank you. A reminder to all participants, please press star and one to ask a question. The next question comes from the line of Basudeb Banerjee from CLSA. Please go ahead.
Yeah. Hi, sir. Just to understand with India tariff at 50% for the similar portfolio which you have been, or the normal OHT portfolio we have, you have been building from Ambernath. So will it be possible to route it via Lanka to U.S. now? Or is that not possible as such, so that from... You can benefit from the lower tariff in Lanka and operate your India operations without much of an impact because of tariff?
So theoretically, it is possible, but it all depends on what kind of equipment is there, what sizes can be transferred, how fast it can transfer. There is also a negotiation that is going on between India and U.S., as we understand. So how long will this 50% stay? That is also a factor. So we are waiting and watching the situation, but also acting to explore what can be transferred to Sri Lanka.
Sure. And second thing, sir, like, where, again, after last few years, where debt reduction was happening well, now again, debt moving up. Will there be any plans of raising secondary equity to write off the debt and have a much leaner balance sheet as such?
See, look, we continue to, even after infusion of money into Sri Lankan part of the entity, at overall level, our balance sheet will continue to remain healthy. So you were aware, you know, as of June, our debt EBITDA was about 1.25, around that. So even with this INR 1,200 crores of outflow for this in the current year, and assuming we spend about INR 1,000 crores towards CapEx, our leverage ratios would remain well within our thresholds. So at this point in time, we are not seeing any need for us to raise any money.
Sure. And as you said, this $44 million after three years, so by then, that the radial portfolio under Camso, you can also make and sell. That will be the key thing after the three-year period?
Yeah, after three-year period, many more categories will be accessible to us. But before three years, it's only compact construction tires and tracks.
You're right.
And brand Camso as such can be used even now or after three years only?
After three years. Right now, we can use it only for compact construction and tracks.
Of the portfolio, what will you be producing now?
Yes.
And the last thing, from a normal CH perspective, last few weeks, we have seen some kind of reduction in natural rubber prices. So how do you see that? Is it moving favorably, by when it can be benefiting you as such, other than crude being favorable?
Ladies and gentlemen, the management has been disconnected. Please stay online while I get them reconnected. Thank you. Ladies and gentlemen, the management has reconnected. Please go ahead, sir.
Yeah. Hello.
We had a problem in-
Hi. Yes, sir. I was just asking, last few weeks saw some domestic natural rubber prices finally have started correcting. So for your core India business, you, do you see some better sourcing rates? Are you seeing that? And second thing is similar to the other OHT listed player in India, where raw material sensitivity in the P&L is relatively lesser. So is it similar for Camso also? These are the two questions, sir. Thanks.
See, the local natural rubber prices are currently hovering around, you know INR 190-INR 192 in that range in Kerala. Okay. So therefore, it was hovering around INR 200-INR 205, maybe a month back. So-
Yeah.
But the international prices are at $1,750. Maybe about $50-$60 increase is there, and currently Indian rupee is also depreciated. So overall, as far as the current quarter is concerned, any movement in natural rubber prices in the last couple of weeks is unlikely to have any impact for the current quarter. Okay, but-
Understood.
We are happy. Yeah, we are happy that local prices have come closer to international. It was at a premium to international prices, largely on account of lower availability of natural rubber inventory in India, arising out of increase in lead times. Now that the import arrivals have normalized, so, the local prices may not be at a premium to international prices, in the short term. That's what we feel.
Sure.
Coming to Sri Lanka, I think Sri Lanka is also a producer of natural rubber. Based on, you know, overall supply-demand situation, the natural rubber for that entity would be bought locally or produced, or imported, depending on the requirement.
No, sir, I was just trying to understand, raw material sensitivity, RM- to- sales ratio in P&L for, the other listed OHT player in India is far lower than the typical automotive tire makers. So is it similar for Camso also, or RM- to- sales is similar to your CEAT standard and operations?
No, I think, at the gross margin level, which is selling price minus raw material, there is a similar difference between a non-OHT category and the normal category, in terms of India, CEAT India versus that entity. That would be likely to be similar to what you are seeing in Indian OHT entities, in terms of gross.
That's helpful. Thanks, sir.
Thank you. A reminder to all participants, you may press star and one to ask a question. The next question comes from the line of Mumuksh Mandlesha from Anand Rathi. Please go ahead.
Yeah. Thank you. Sir, just your take on the recent GST announcement. Government has rationalized the rates for the tires as well. How do you see impacting the demand, the premiumization happening, because the costs have come down? And also, do you see the impact on the margins?
The rate reduction is a definite positive, especially for the commuter segment. In the rural markets, two-wheeler and farm will see better traction, is what we believe. Farm tires rate has come down to 5%, lowest flat. Two-wheelers, 18%. Four-wheelers, truck tires also, 18%. For truck tires, which is price sensitive, we can see better traction. The four-wheeler market was seeing some demand slow down in terms of low- single- digit kind of growth. We have to wait and see what happens there, because there's a structural change in that market, where consumers are moving towards bigger vehicles and bigger rim- sized tires. That may not be that price sensitive, so we'll have to wait and watch that segment. Overall, very positive development, I can say.
Got it, sir. And just on the Camso side, if possible, in near term, like six months, any broader margin we can expect, sir? If you can share some range sir, there.
Yeah. Difficult to share anything at all, because, as you understand, we have taken over the running of the business on just 1st of September, so we have to understand the exact situation. It's also all tire margins are dependent on also the throughput of the plant, which is running at 50%, as I mentioned. So we will just take control, maybe wait for some more consolidation of the results before we have a fix on what kind of margins we'll have, and we can share that after.
Got it, sir. Thank you so much for this.
Thank you. A reminder to all participants, you may press star and one to ask a question. The next question comes from the line of Joseph George. Please go ahead.
Hi, thank you for the opportunity. I have two questions. One is, if I look at the purchase consideration, you mentioned that it's, you know, $225 million, of which $44 million is to be paid after three years. The remaining is $171 million, of which you've paid $138 million. So when is the remaining, $33 million due? Is that not this year?
See, remainder is $181 million , so $225 million minus $44 million. We have paid about $38 million. Balance is largely relating to inventory, so our estimate is in the current financial year, we may not have any payment relating to that. It could be sometime in the next year.
Understood. The second question was on the gross block that you quoted at $90 million-$100 million . I wanted clarification, is this the gross block or is it the value of all the physical assets that you're taking over? Because you mentioned gross block, you mentioned asset value, you mentioned inventory, all of that. So just wanted to be sure what you're referring to.
See, since the question was on gross block, I indicated. See, once you take over, for us, it will become gross block. And so we carried out a proper valuation of these assets through a reputed external agency to. And accordingly, we assigned that value, taking into consideration the remaining life of the assets, actual age of the assets, condition of the assets, and things like that. So approximately $90 million is the amount attributed towards that. So from here onwards, it will be our gross block in our books. Okay, but it is based on our external valuation.
This is basically the net block or, you know, for you now, it's a gross block of it. It doesn't include inventory, right? This $90 million?
No, it doesn't include inventory.
Understood.
Inventory, it doesn't include finished goods inventory, it doesn't include raw material inventory, and it doesn't include some spares, engineering spares and all of that. It doesn't include.
Understood. That's clear. Thank you.
Thank you. A reminder to all participants, you may press star and one to ask a question. The next question comes from the line of Siddhartha Bera from Nomura Holdings. Please go ahead.
Thanks for the follow-up. So on this initial duration, when you will be operating, you mentioned that you will be selling to the Michelin, Michelin team, and so just wanted to understand a bit more here. I mean, we will be free to set our own pricing and also explore other markets during this period, or by when do you plan to take full control of the operations in Camso?
So in the front end, which is the customer relationship, we would like to do it as soon as possible, but it could stretch to maybe four quarters from now. Earlier is better for us. We are putting in place our sales team and structure at this point of time. And as and when geographies come over to us in terms of the adequacy of our sales system, we'll be taking over the full customer relationship. So it could stretch up to four quarters, maybe earlier.
During this period, will we be able to explore or sell in other markets like ASEAN or other regions also, or that will also take some more time?
Yeah. So it will be in a phased manner. Certain geographies would be available earlier. We would take over certain geographies earlier. But as we said earlier, expect a full quarter period for the complete takeover.
Understood. And sir, lastly, I think, since we had started this acquisition of close to $200 million revenue, there has been a lot of change in what we are finally able to see. So do you see during this period, the numbers can have, sort of, more downside risk to what we are expecting? Or do you believe things can only improve from where we are starting now at $130 million?
So, right now we feel that the market is... And again, you know, it's a volatile market, but we feel that the market is at its bottom, so things should only look up from now on.
[Foreign language]
Thank you. A reminder to all participants, you may press star and one to ask a question. Participants, please press star and one to ask a question. A reminder to all participants, you may press star and one to ask a question. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to the management for the closing remarks.
Thanks, all of you for joining us today and for discussing the closure of the transaction, and see you soon on the other side of quarter two results. Thank you.