Ceat Targets Over 40% Gross Margin In FY26 On Reduced Material Cost

Tyre manufacturer Ceat Ltd. expects to maintain gross margin above 40% in the current financial year, driven by reduced raw material costs.

The company's progress in integrating its recent acquisition in the off-highway tyre segment will also aid margin and Ebitda in the fiscal, according to Chief Operating Officer Arnab Banerjee.

"As the raw material price cools off, hopefully by the end of Q1, in Q2, we expect the margins to grow," he said during a conversation with NDTV Profit on Wednesday. "So, if that happens, we are pretty good at about 40%-plus gross margins."

"We are now operating at about 37.5% if you see the Q4 results. So, once we cross 40% plus, our Ebitda will be in a good shape and everything else will fall in place," Banerjee said.

Ceat reported a 16% fall in standalone net profit during the quarter ended March 31, 2025, missing analysts' estimates.

Crude-based materials like synthetic rubber, synthetic fibre and carbon black are expected to soften from Q1, while natural rubber prices are steady, with domestic prices at Rs 195 to Rs 200 and international prices falling to $1,700 per tonne. "We expect a significant drop in Q2," Banerjee said, indicating potential margin expansion as raw material costs ease.

Urban markets are witnessing soft demand, with passenger-car-tyre replacement growth in the mid-single digits. In contrast, rural demand is robust, outpacing urban growth by 4–5%, particularly for two-wheeler tyres. This highlights a stark urban-rural divide, according to Banerjee.

"Since most of the passenger-car-tyre, four-wheeler demand will come from urban areas, we don't expect a very buoyant market in replacement either in the coming year. Whereas the two-wheeler market will grow faster in the aftermarket because of the rural demand," he said.

The scooter market is booming and it is not just in urban areas, but also areas contiguous to urban areas, a lot of small towns, the COO said, adding that it was surprising. "So we are pretty bullish on scooters and motorcycles. We gained significant market share in both because of our strong rural network in FY25," he said.

While farm original-equipment-manufacturer volumes are cyclical, Banerjee expects robust growth in farm tyre aftermarket sales in FY26. It will be supported by both farm and non-farm economic activity.

In Europe, Ceat faces headwinds in the off-highway tyre OEM segment, but its small base in the aftermarket for OHT, passenger and truck bus radial tyres has supported stable growth. "Even in a sluggish market, our growth comes from increased market access," Banerjee said. He expects the trend to continue in FY26.

In the truck and bus radial segment, Ceat expects OEM demand to rebound in FY26, with its single-digit market share poised for growth. He expressed confidence in the replacement market, where high single-digit growth is anticipated, driven by Ceat's expanding share of business.

The integration of Camso, a recently acquired OHT business, is progressing, with all antitrust approvals secured. Banerjee expects standalone performance reporting in Q1, with full integration by Q2. Representing about 10% of Ceat's top line, Camso's margin profile is superior but will face initial integration challenges due to its carved-out nature and allocated costs, he added.

Ceat aims to keep its debt-to-Ebitda ratio "well below" its internal safe mark of 3:1, even after the Camso acquisition and planned capital expenditure of Rs 900–Rs 1,000 crore for FY26. This includes brownfield expansions in Chennai (truck bus radial and passenger radial), Amarnath (OHT) and potentially Nagpur, though the extent of Nagpur's inclusion depends on demand and capacity utilisation.

About 70–75% of the capex is growth-oriented, with the total kept at a "bite-sized" Rs 946 crore in FY25 and similar levels planned for FY26. On return ratios, Banerjee outlined a target of "mid-double-digit" return on capital.