Trump tariff threat: CEAT figures out ways to salvage its $225mn Camso acquisition

Mint

5 days ago

NEW DELHI
:
Tyre maker CEAT Ltd will shift production for the US market to its Indian facilities from Sri Lanka to salvage its biggest acquisition, Canadian tyre brand Camso, in case US President Donald Trump decides to go ahead with his plan to impose higher reciprocal tariffs.
'We are in talks with the Sri Lankan government. There is hope that the situation will be resolved. However, we have our mitigation strategies in place in case trade deals do not materialise," Arnab Banerjee, managing director and chief executive, CEAT, told Mint.
India's fourth-largest tyre player acquired Camso, which gets nearly one-third of its business from the US, in December 2024 for $225 million (about ₹1,900 crore) in an all-cash deal from France-based Michelin group. In 2023, Camso posted a revenue of $213 million.
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The acquisition gave the RPG Group flagship control over its two manufacturing facilities in Sri Lanka and over 40 global OEMs, including those in the US.
However, Trump's 2 April announcement to impose 44% reciprocal tariffs on Sri Lanka soured the deal for the Mumbai-based company.
Though the US administration has paused the implementation of higher tariffs till 9 July, the impending threat has pushed the company back to the drawing board.
'At present, we do not have much exposure to the US. However, the country is an identified growth market for us," Banerjee added.
The threat
Analysts have warned that the Camso acquisition will become a problem for the company if the Trump administration pursues the plan, and it will be key to watch CEAT's mitigation strategies.
The proposed tariffs will increase import costs for US tyre customers, which can shift demand to manufacturers with plants in the North American region or those in countries that strike trade deals with the US.
'If the tariff situation prevails, there can be significant risk to 15% of the overall volumes (US bias tires) for the company (Camso)," wrote Rishi Vora of Kotak Institutional Equities, in a 1 May note. 'In that case, the rationale for the transaction becomes difficult to justify."
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In 2024-2025, the tyre maker's net profit declined by 26% to ₹471 crore, while its revenue grew by 10% to ₹13,217 crore.
Its share price has risen by 17.88% since the beginning of 2025, as against a 2% rise in the Nifty Auto.
The contingency plan
The North American market is a key destination for the Indian tyre industry, accounting for about one-fifth of its nearly $3 billion exports in 2023-24. Europe and Latin America are also key destinations.
In 2024-25, CEAT got about 19% of its ₹13,217 crore revenue from exports, with its major markets in Latin America and Europe. However, the management set its sights on the world's largest tyre market in 2024.
'CEAT has entered twelve new geographies in the fiscal year with plans to enter the world's largest tyre market, the US, in 2025. This expansion underscores our capability to produce the best-in-class products to meet global requirements," the company's vice chairman, Anant Goenka, said in his letter to shareholders in 2024.
Now, to salvage that ambition, one of its mitigation strategies involves the company shifting the production of tyres for the US market from Camso's plants in Sri Lanka to its Indian facilities, while the Sri Lankan plants will produce tyres for the European market.
As of now, India, where CEAT has six manufacturing plants with a capacity of producing more than 140,000 tyres every day, stands to attract reciprocal tariffs of 26% on the goods it exports to the US.
Tyre exports
Overall, the international markets constitute a large share of India's top tyre makers.
While Apollo Tyres Ltd earned around 13% of its revenue from exports in 2023-24, international sales accounted for nearly three-fourths of Balkrishna Industries Ltd's top line. India's largest tyre player, MRF Ltd, earned about 8% of its revenue from exports.
For the broader auto ancillary sector, including auto parts makers, exports to the US contributed one-third of the total $21 billion exports in 2023-24.
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Sona Comstar, which gets more than 40% of its revenue from the North American market, highlighted in its earnings call on 30 April that 3% of its revenue can be impacted due to Trump tariffs.