Axis Securities has reiterated a BUY recommendation on CEAT Ltd, projecting a target price of Rs 4,140, implying a 10% upside over the current market price of Rs 3,761. The call is anchored in a visible recovery in replacement demand post GST-led destocking, robust OEM traction—particularly in two-wheelers—and rising export momentum outside the tariff-hit US market. Strategic premiumisation, disciplined capacity expansion, and the integration of Camso’s off-highway tyre business are expected to drive sustained margin improvement, positioning CEAT for strong earnings growth through FY28.

Axis Securities’ Investment Call Sets the Tone

Axis Securities, through its Axis PUNCH medium-term investment framework, has placed CEAT Ltd among its high-conviction ideas for the next three to six months. The recommendation reflects confidence in the company’s operating recovery cycle, supported by improving volume visibility across replacement and OEM channels, and a structural shift toward higher-margin product categories. According to Axis, CEAT is transitioning from a phase of operational consolidation to one of margin-led growth, even as global trade dynamics remain uneven

Replacement Demand Normalisation Drives Near-Term Stability

Replacement demand remains the backbone of CEAT’s earnings visibility. The replacement tyre market, which had faced temporary disruption due to GST-related destocking, is now expected to normalise by Q3 FY26. Axis Securities estimates a 7–8% CAGR for the replacement segment between FY25 and FY28, with two-wheelers emerging as the standout performer.

Passenger vehicle replacement volumes have grown at mid-single digits, while rural demand continues to provide resilience. This broad-based recovery underpins CEAT’s domestic revenue stability and reduces dependence on volatile OEM cycles.

OEM Momentum Strengthens Across Key Vehicle Segments

OEM volumes have accelerated sharply, rising in the mid-20% range. The growth has been led by passenger vehicle OEMs, supported by new order wins and platform expansions. Farm equipment OEMs have also recorded mid-teen growth, reinforcing CEAT’s diversified exposure across mobility categories.

Two-wheeler OEM demand remains robust, reflecting sustained rural consumption and improved affordability. Axis Securities views OEM momentum as a critical earnings lever over the medium term, particularly as CEAT scales its premium and radial tyre portfolio.

Export Growth Offsets Tariff Pressure in the US

Exports grew in the high-teens despite significant US tariff headwinds. CEAT’s international performance has been led by strong traction in two-wheelers, three-wheelers, passenger vehicles, and farm tyres—particularly across Europe, Latin America, and Africa.

The US market, however, has posed challenges. Off-highway tyre (OHT) exports to the US declined to near zero by the end of Q2 FY26 due to a 50% tariff, while passenger vehicle exports continue under a 25% tariff regime. Passenger vehicle and MHCV exports together account for approximately 65% of total exports, with management currently absorbing about half of the tariff impact, planning a phased pass-through over the next two to three years.

Segment Outlook Reflects Balanced Growth Expectations

Axis Securities outlines a pragmatic demand outlook across vehicle segments. MHCV replacement demand is expected to track India’s GDP growth at 5–6%, while two-wheeler volumes are forecast to expand by 7–8%, supported by rural recovery.

Passenger vehicle demand remains muted at 0–3%, though potential GST rationalisation could offer incremental upside. OEM demand, particularly in two-wheelers, remains a bright spot, reinforcing CEAT’s operating leverage as utilisation improves.

Camso Acquisition Opens Higher-Margin Avenues

The integration of Camso marks a strategic inflection point. Acquired from Michelin, Camso provides CEAT entry into specialised, higher-margin off-highway tyre and track segments. The business was consolidated for one month in September, with customer transition from Michelin expected to unfold over the next three to four quarters.

Sourcing from Michelin will continue for five to six quarters until CEAT’s upstream capabilities are fully operational. Current utilisation stands near 50%, with management indicating that Camso will be margin-accretive in the medium term, once scale efficiencies are realised.

Capex Cycle Continues With Leverage Under Control

CEAT has committed Rs 1,000 Cr in capex for FY26. Of this, Rs 415 Cr has already been deployed in the first half, spanning the Ambernath plant, Chennai passenger vehicle expansion, MHCV capacity, and R&D initiatives. An additional Rs 236 Cr has been paid toward Camso-related intangibles.

Consolidated net debt rose to Rs 2,940 Cr, an increase of Rs 1,130 Cr quarter-on-quarter, largely reflecting capex and acquisition funding. Axis Securities notes that management remains comfortable with leverage levels, given the visibility of earnings growth.

Financial Trajectory Signals Strong Earnings Compounding

Axis Securities projects robust earnings growth through FY28. Revenue, EBITDA, and PAT are expected to grow at 13%, 20%, and 27% CAGR, respectively, over FY25–FY28. Margin expansion is expected to be driven by premiumisation, a richer product mix, and increasing penetration of larger rim-size and radial tyres.

Valuation, Risks, and the Road Ahead

Axis Securities values CEAT’s improving earnings quality over short-term volatility. Key risks include raw material price fluctuations, macro-driven demand softness, and execution challenges in integrating Camso. However, the brokerage believes these risks are manageable within CEAT’s operational framework.

With premiumisation accelerating, replacement demand stabilising, and global diversification improving, Axis Securities maintains its BUY call with a target price of Rs 4,140, positioning CEAT as a compelling medium-term opportunity in India’s auto ancillary space.