MUMBAI, Dec 9: CEAT, a member of the RPG Group, announced a definitive agreement with global tyre giant Michelin for the acquisition of its Camso brand’s off-highway tyres and tracks business. This deal, valued at approximately USD 225 million (Rs 1,905 crore), is expected to enable CEAT to concentrate on the lucrative and rapidly growing track segment.
According to CEAT, this acquisition aligns with its goal of becoming a leading player in the high-margin off-highway tyres (OHT) market. It will provide access to a global customer network, including over 40 international OEMs and premium OHT distributors, as well as Michelin’s two manufacturing facilities located in Sri Lanka.
CEAT Managing Director and CEO Arnab Banerjee emphasized that the track segment is experiencing faster growth and has a greater premium opportunity, with customers still exploring optimal applications for tracks in construction and mining. This presents a significant opportunity for market penetration in the track segment compared to tyres.
While the tyre segment is growing at a compounded annual growth rate (CAGR) of 2%, the track segment boasts a more robust CAGR of 6-7%. Banerjee highlighted that the premium range in tyres is about 25%, compared to nearly 45-50% in tracks. Both segments are valued at roughly USD 1 billion each.
CEAT views the acquisition as a strategic business move aimed at enhancing its focus on the track segment. Camso has established itself as a premium brand in construction equipment tyres and tracks, particularly in the EU and North American markets. The overall turnover for the Camso brand is approximately USD 1.2 billion, serving agriculture, construction, material handling, and powersports sectors.
The deal is still pending regulatory approvals and is anticipated to conclude by May of the following year, allowing CEAT to broaden its product lineup in high-margin OHT and tracks segments, which comprise agricultural tyres and tracks, harvester tyres and tracks, powersports tracks, and material handling tyres.
Michelin will withdraw from the compact line bias tyre and construction track activities as part of this agreement. Furthermore, after a three-year licensing period, Camso will be permanently assigned to CEAT across all product categories.
Over the past ten years, CEAT has dedicated itself to building its OHT business, which now features over 900 products, meeting around 84% of agricultural segment demands. Banerjee noted that Camso is positioned as a super premium brand across its segments, with premium products making up 80% of the market in agricultural and harvester tracks.
Upon acquiring the Camso brand, CEAT will be able to compete in these segments, as Michelin will have transitioned these businesses to a different brand within its portfolio after three years. This opens up the possibility for CEAT to implement a dual-brand strategy, catering to different market segments with the CEAT brand focused on value and the Camso brand targeting premium offerings.
The Camso brand presents significant growth opportunities, with sales realizations and gross margins far exceeding what CEAT could achieve under its own brand. Although initial consolidation may moderate margins after the finalization of the deal in May, control over the entire value chain will likely lead to improved margins.
Regarding the manufacturing facilities in Sri Lanka, the primary plant in Medigama has a capacity of 200 tons and operated at about 65-70% capacity utilization in 2023, indicating substantial growth potential. The second facility serves as an in-house parts supplier and does not contribute to additional capacity.
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