Guidance and outlook

 Moving forward, the company remains confident in its ability to sustain growth in the coming quarters by focusing on key strategic drivers: I) accelerating the expansion of its management and franchised portfolio, resulting in a proportional increase in fee-based income. (II) Ensuring the timely completion of renovation activities in its owned portfolio to enhance Gross ARR and occupancy rates.  The company aims to significantly increase EBITDA, while operating at an EBITDA margin of 60%, with Keys expected to double its EBITDA.  The company aims for mid-teen growth in RevPAR by optimizing the right combination of ARR and occupancy rate growth.  The company is confident of reaching its target of 20k rooms well ahead of FY27, potentially achieving this milestone within the next 12 to 15 months.  The company expects management fee income to double in the next two years.  Demand growth is expected to continue exceeding supply in the mid-market hotel segment in India.

key highlights

 The management is confident that the company will achieve a debt-free status within the next two years.  The company believes it has a competitive moat due to its network effect, which is difficult for competitors to overcome  The company does not directly compete with the hotel industry for talent, as only about 15% of its workforce is interchangeable with staff from five-star hotels.  The company has a practice of transferring employees to other hotels and replacing them with employees who have a lower salary, which helps manage rising wage costs.  The company is focused on eliminating lower-price businesses and replacing them with higher-price businesses.  The increased investment in renovation expenses will persist into FY26 until the entire portfolio of owned hotels has been fully renovated and refreshed.

Valuation and view

 LEMONTRE is likely to maintain a healthy growth momentum, led by 1) the stabilization of Aurika Mumbai, 2) accelerated growth in the management contract (pipeline of ~5,879 rooms), and 3) the timely completion of the portfolio’s renovation leading to improved OR, ARR, and EBITDA margins.  We expect LEMONTRE to post a CAGR of 16%/19%/34% in revenue/EBITDA/ Adj. PAT over FY24-27 and RoCE to improve to 19.3% by FY27 from ~10% in FY24. We reiterate our BUY rating on the stock with our SoTP-based TP of INR190 for FY27.

Lemon Tree Hotels 110-130
Expected level 170
Support100

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CEAT Company Details Report

CEAT is a prominent tyre manufacturing company and the flagship entity of the RPG group. With over 1,900 stock keeping units it has a strong product portfolio. In FY24, CEAT manufactured 4.8 cr tyres and made a mark by launching India’s first range of EV tyres designed for two, three and four-wheelers. The company has a robust global presence, exporting to over 110 countries and partnering with 27+ key OEMs (original equipment manufacturers) and has 2,000 SKUs (stock keeping units) product range. CEAT has wide distribution network, including 900+ outlets nationwide, 5,500 dealers, and 59,000 sub-dealers, ensuring widespread accessibility and customer reach. In export markets it caters to agri-radial category, passenger car tyres and bus radial tyres with special focus on EU, LATAM and US markets. In the overall two-wheeler tyre segment (replacement market), it has a market share of ~35% and ~17% in the passenger car/utility segment. With more than 30% market share in two-wheeler EV OEMs, CEAT has established itself as a strong brand in the EV space. CEAT operates six manufacturing plants across India and collaborates with 17 outsourcing units for the production of tyres, tubes, and flaps. These facilities are strategically located to cater to different segments of the market: The Halol plant specializes in manufacturing passenger car radial tyres and truck & bus radial tyres. In Nashik, a range of tyres is produced, including truck & bus tyres, light truck tyres, farm tyres, and passenger car radial tyres. The Nagpur plant focuses on the production of scooter tyres, bike tyres, and threewheeler tyres. Bhandup is dedicated to manufacturing truck & bus tyres, farm tyres, and specialty tyres. The Ambernath plant produces specialty tyres, while the Chennai plant specializes in manufacturing passenger car radial tyres and motorcycle radial tyres. The company has established a digital footprint through its association with e-commerce platforms. Currently, ~9% of PV/UV replacement sales is from D2C channels.

#SALES #GROWTH 5 Year CAGR 11.3%

In FY24, the net sales was ₹11,944 cr and increased by 5.6% YoY. Growth during the year has been largely driven by OEMs and specialty & passenger category tyres. It has begun to see some recovery in exports and the replacement market, especially in the commercial category. The company believes that the increasing share of tyres above 16-17 inches in the PV segment, along with its focus on this category, will positively impact growth, going forward. In 9M FY25, the net sales was ₹9,798 cr v/s ₹8,951 cr and grew by 9% YoY. The growth was mostly driven by replacement & exports segment, while the OEM segment had moderate growth. It witnessed volume growth in the two-wheeler and passenger car segment (replacement), alongside three-wheeler segment as well observed steady growth. It continued to gain market share in the passenger car and two wheeler segment and the OEM segment is expected to witness market share gain backed by new launches PV, CV and two wheelers.

#EBITDA #GROWTH 5 Year CAGR 20.8%

EBITDA saw a growth of ~70% YoY and stood at ₹1,652 cr. This increase on a YoY basis has been on account of softening of raw material prices. However, from January 2024 onwards, the natural rubber prices have increased owing to global supply shortage and India’s dependance on imported natural rubber. In 9M FY25, the EBITDA was ₹1,087 cr v/s ₹1,261 cr and de-grew by 13.8% YoY. The company's raw material costs rose YoY due to rise in natural and synthetic rubber prices, however, it couldn't implement equivalent price hikes to offset the increase due to competition. Gross profit declined by 1.3% YoY for the period. Better product mix helped company up to certain extent to offset the same.

#PAT #GROWTH 5 Year CAGR 21.6%

In FY24, the net profit was ₹615 cr majorly led by rise in operating profit. In 9M FY25, the net profit was ₹357 cr v/s ₹521 cr and declined by 32% YoY. This was majorly led by degrowth in operating profit.

#EBITDA #MARGIN

In FY24, the EBITDA margin was 13.8% and expanded by 520 bps owing to softening of raw material prices and better product mix (premiumization). Contribution from premium ranges grew by more than 2x in last 4 years i.e., 9% in FY19 to 28% in FY23 for PC/UV and 13% in FY19 to ~23% in FY23 for 2W. Company imports 2/3rd rubber and 1/3rd is locally sourced. Margins from Q4 FY24 includes an impact of EPR provisions. In 9M FY25, the EBITDA margin was 11.1% v/s 14.1% in 9M FY24. This declined, mostly owing to rise in raw material costs. Also, the company has not been able to offset the same with similar price increases owing to competition.

#PAT #MARGIN

The PAT margin stood at 5.1% in FY24. In the OEM segment, large-diameter tyres now represent over 50% of the offerings, largely due to the rising demand for SUV tyres. In the replacement segment, while the share of these tyres is currently at 7%–8%, there is potential for this to increase to 25%–30% within the next two to three years. This shall further expand its profitability in the near future. In 9M FY25, the PAT margin was 3.6% (v/s % 5.8% in 9M FY24). This was mostly on account of decline in operating margin.

#ROCE

In FY24, the increase in ROCE was substantial owing to increased EBIT and the metric stood at 20.1%. This rise was on account of scale of operations, along with improvement in the market share across product segments. Going forward, ROCE would be at mid-teens due to reduced capex costs. The company emphasized its strategy that future investments will be smaller and spread across multiple phases, rather than committing to a single large expenditure. The capacity utilization at the end of FY24 was ~80%. For 9M FY25, the capacity utilization across its plants were at ~80%-85%.

#SECTOR #POTENTIAL

• The Indian tyre industry is projected to experience growth, with its revenue expected to more than double to $22 billion by FY32 from $9.5 billion in FY23. Growth in the industry will be driven by increasing vehicle demand, strategic government investments in infrastructure, and the expanding presence of vehicles fueling the replacement market. (Source: Crisil) • According to ATMA, India's domestic tyre industry is among the leading player on a global level, with annual production exceeding 20 cr units across various categories including two-wheelers, passenger vehicles, commercial vehicles, and off-road vehicles. • India's tyre industry has the potential to become a global manufacturing leader, especially as alternatives to China are sought due to geopolitical tensions. Total tyre exports during FY24 were ₹23,073 cr v/s ₹23,125 cr in FY23. The tyre Imports in India went up by ~19% in FY24. Tyres worth ~₹2,500 cr were imported during the period benefitting from low rates of duty under Free Trade Agreements (FTAs) signed by the country. • TheUScontinues to be the largest market for Indian tyres of total tyre exports from India in FY24. The top five export markets in FY24 included the US, Germany, Brazil, France, the Netherlands, Italy and the UAE. • The Indian off-the-road tyre market is set to grow at a steady rate, with the market size expected to reach ~2 cr units by 2032, up from ~1.1 cr units in 2023. this would be led by demand from infra spending for highways and bridges, expansion in agri sector, urbanization & modernization which is expected to fuel demand as OTR based vehicles are required for construction of houses & commercial buildings, and diverse applications across industries that includes recreation vehicles (dirt bikes, etc).

#COMPANY #OUTLOOK

• The company has entered a definitive agreement to acquire Camso’s three-wheeler off highway construction equipment bias’s tyres and rubber track business from Michelin group. The deal is valued at ~₹1,900 cr. This acquisition shall provide ownership of two manufacturing units in Sri Lanka to the company showcasing its focus towards premiumization, international business saliency and investment in high margin specialty segment. Camso is a premium brand in the OHT segment, tyres & tracks with strong brand equity in Nort America and Europe. It supplies products to over 40 OEMs (JCB, Kubota, CNH, Prinoth, Manitou, etc) and has an aftermarket network covering over 200 dealers. The acquisition is expected to close in Q1 FY26. • In its Maharashtra plant, the company is planning to increase its capacity by 30% (current capacity therein at ~2.7 cr tyres and capacity utilization stand at 90%) by the end of FY28. The proposed investment would be ~₹400 cr and would be funded via a mix portfolio and distribution network. of internal accruals and debt. The rationale would be to serve the growing demand from two & three-wheeler industry. • Their international expansion strategy focuses on key markets like Europe, the US, and Latin America with emphasis on segments like OHT, TBR and passenger car radials. Additionally, growth in the US market is anticipated as the company expands its product • The company expects robust demand in rural markets, particularly for farm trucks and two-wheelers due to government investments in rural infrastructure and a positive agricultural outlook. The company expects the bus, two-wheeler, and farm segments to experience high single-digit to double-digit growth while passenger car demand projected to remain in the low single digits. • It aims to secure a leading position in the electric vehicle tyre market, and focus on premium product offerings.

CEAT Limited 2590-2890
Expected level 3600
Support 2250

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