Operator: Thank you. Ladies and gentlemen, good day and welcome to Q2 FY27 earnings conference call of CEAT Limited, hosted by ICICI Securities Limited. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded.I now hand the conference over to Mr. Ronak Mehta from ICICI Securities Limited. Thank you, and over to you.
Ronak Mehta: Thank you, Yashaswini. Good evening, everyone. On behalf of ICICI Securities, we would like to welcome you all to CEAT's Q2 FY27 earnings conference call. Today we have with us from the management team Mr. Arnab Banerjee, Managing Director and CEO, and Mr. Kumar Subbiah, Chief Financial Officer. We will start the call with a brief opening remarks from the management team, about the quarter gone by, and then we will proceed to the Q&A session. Thank you, and over to you, Mr. Kumar Subbiah.
Arnab Banerjee: Good afternoon, everybody, and welcome to CEAT's Q2 FY27 earnings call. I will be taking you through the business updates for the quarter, and then Kumar shall have his remarks on the financial performance. Post that we will have the Q&A. I also have Amit Tolani, who heads the OHT division in CEAT along with me.
Arnab Banerjee: If you have any questions on Camso, he can handle them as well. Moving on, during Q2, structural consumption tailwinds triggered by last year's GST reforms continued to anchor domestic volumes. On the input side, however, we still continue to face sharp cost inflation. During Q2, further raw material cost increase was around 8% to 9% over Q1. This is in addition to about 15% increase in Q1 over March exit prices. Q3 RMC will also be about 3% higher than Q2.
Arnab Banerjee: Thus, by December, total increase will be 27% over March exit price. Our gross margins have been stagnant at around 33.6% and behind our comfort zone of 7% to 7% more gross margin that we would like to operate with. This, coupled with further raw material price hike expected in Q3, calls for more price hikes in all segments in Q3. We maintained a tight grip on all cost elements, which resulted in an EBITDA of 10.1% in Q2.
Arnab Banerjee: On the demand side, while the near-term structural anchors remain supportive, demand may moderate during Q3 on the back of a higher base of previous year, El Niño effect, and recent repo rate increase. In the near term, we expect replacement demand to be led by two-wheeler segment, where demand is still strong, and more so in rural markets. MHCV growth is expected to be mid-single digits.
Arnab Banerjee: In passenger, there is some concern about growth, maybe low single digits. In OEM, demand is still holding strong across categories, which could moderate YoY because of high base effect. Farm production seems to be tapering off due to lower demand post-monsoon deficit. In international business, recovery has been strong on the back of demand revival in Africa and LATAM. Segments that are witnessing good demand are two-wheeler and commercial vehicle.
Arnab Banerjee: However, freight rates and elongated and unpredictable transit times are a challenge to handle. Sales to Middle East, although improving, still remains impacted. Q2 witnessed robust performance with a strong revenue growth of about 23% YoY on standalone basis, and an underlying volume growth of close to 10%. Standalone EBITDA in Q2 stood at INR 461 crores. Growth momentum continued during Q2 over last year, 23% value growth.
Arnab Banerjee: Replacement segment grew in mid-teens, while both OEM and IB segments grew in high twenties. Overall growth in CV, four-wheeler, two-wheeler, farm were all in excess of 20% or strong double digits. Replacement growth was led by two-wheeler and commercial categories, while growth in four-wheeler was muted. Saliency of premium two-wheeler and four-wheeler grew in replacement.
Arnab Banerjee: OEM grew handsomely in all categories led by strong demand, and we enhanced our fitment in premium vehicles and EVs in OEM. Growth in IB was strong across categories in the high twenties and even thirties for some segments. For Camso, business transition is nearly complete. About 85% of the customers have come to CEAT's fold now, with sales being directly made to them. We expect to complete the balance transition by Q3.
Arnab Banerjee: Alongside the customer transition, we have now set up local entities in US, Canada, UK, France, Germany, and Poland, which helps us serve customers in this market locally rather than as an exporter from Sri Lanka. In Q2 2028, we will have control over the entire Camso value chain, right from raw material procurement to end customer servicing. The project to install upstream equipments in the Sri Lankan plant is running on time
Arnab Banerjee: . That makes FY28 the first year of Camso running entirely on CEAT platform, and we expect the margin benefits of the integration to start showing up. We have gross margin visibility to extent of 50% to 55% in Camso. Capacity utilization in the Sri Lankan plant is less than 50%, leaving headroom for growth. H2 volumes in this financial year are expected to grow by 20% plus on H1 actual volume base.
Arnab Banerjee: This business is close to being EBITDA positive in H2, and we expect this business to be EPS accretive at consolidated level by FY29. We are taking steps to eliminate the mark-to-market losses or gain on the USD loan component from CEAT India to CEAT OHT Lanka, and we shall keep you informed about the execution of the same by end of next quarter. Continuing our comments on key trends of electrification, international business, premiumization, and digital and AI.
Arnab Banerjee: In electrification, on the electrification platform, during Q2, we maintained leadership with 25% share in OEM PCUV electric segment and strengthened the two-wheeler EV share to beyond 30%. International business saliency in Q2 was approximately 20% on standalone basis, and consolidated business basis it was 24%, which includes Camso turnover, which is fully international.
Arnab Banerjee: We have a plan to take it to 33% at the total CEAT level in five years. In Q2, OHT business delivered its strongest ever quarter, registering strong growth YoY up by about 30% plus. This was despite headwinds from elevated ocean freight rates and continued increases in raw material costs, which put pressure on margins. During Q2, we added 21 new off-highway SKUs as well. In the on-road tires business, growth was robust with improving realization.
Arnab Banerjee: Segments registered mid-20 growth during Q2 on YoY basis. Europe, LATAM, Southeast Asia business growth has been good. However, record freight rate increases and difficulties in container availability continue to be the challenges. Premiumization, Q2 saw multiple launches in two-wheeler and passenger car market with premium offerings in higher rim sizes, in off-roading applications, and in certain niche sizes.
Arnab Banerjee: CEAT's overall sales volume of premium passenger tires, which we define as 17-inch plus rim size tires, registered high growth on YoY basis, mid-30s. Our two-wheeler premium portfolio comprising of motorcycle steel radials, fabric radial, and tires for 250cc plus bikes also grew handsomely, registering high mid-teens growth.
Arnab Banerjee: Digital and AI, at CEAT, we are scaling up AI adoption through a portfolio of top management-led initiatives across key business functions. During the quarter, functions advanced the use of AI and analytics for predictive insights, proactive anomaly identification, process automation, and faster decision-making across sales, finance, manufacturing, supply chain, and other areas. In parallel, our enterprise data lake project is progressing well. Our SAP RISE project also continued to advance as per plan. During Q2, premium tire sales through leads grew by 1.2x, while overall four-wheeler tire sales through leads grew by 36% over the same period last year.
Arnab Banerjee: Positive sentiment for the brand moved up by 37% YoY. Tariffs by US, applicable duty on auto components remain at 25% plus the original 4% tariff. So on-road tires, including Truck Bus Radial and passenger car tires, continue to fall under this category. Off-highway tires are subject to lower 10% global tariff, so OHT tire exports from Sri Lanka also attract the same 10% duty.
Arnab Banerjee: For tracks, the applicable tariff is 10%, however, the metal component of tracks, which is primarily steel, continues to attract a higher tariff of 25%. Sustainability remains a key driver of innovation, efficiency, and long-term value creation at CEAT. We have improved logistics efficiency, reduced inbound transport intensity, and we have successfully deployed LNG-powered trucks for natural rubber transportation. We have also begun working with suppliers to increase adoption of alternative fuel vehicles across our supply chain.
Arnab Banerjee: Our commitment to sustainable products was recognized with a gold award from the Indian Society for Quality for CEAT CIRCL 90, India's most sustainable passenger car tire. With this, I would like to hand over the call to Kumar for his remarks.
Kumar Subbiah: Thank you, Arnab. Good afternoon, ladies and gentlemen, and thank you for joining our Q2 FY27 earnings call. I will share some more financial data points with you all, post which we can enter the Q&A session. First, our overall financial performance. Our consolidated net revenue for the quarter stood at INR 4,762 crores, which is with a year-on-year growth of about 26.2%.
Kumar Subbiah: The revenue that we delivered in Q2 is the highest ever. This was aided by a combination of both strong volume and price growth on a year-on-year basis. Approximately, 40% of the growth came through volumes. The balance came through positive price and mix. As regards pricing, similar to Q1, pricing impact was positive across all segments. During Q2, OEM and replacement segments led the upward pricing readjustments. The replacement has been receptive of our pricing actions, where demand is still holding strong.
Kumar Subbiah: We have affected approximately about 12% to 13% kind of a price increase from the beginning of the current financial year till end of September in replacement, and about 14% to 15% in OEM segment from the beginning of the financial year until date. We still have some gap to bridge vis-à-vis increase in raw material cost that will be addressed in the due course.
Kumar Subbiah: Coming to operating margins, our consolidated EBITDA for Q2 stood at INR 452 crores, translating to 9.5% of the revenue. It is an expansion of 94 basis points sequentially, and a drop of about 403 basis points versus Q2 of last year. While our standalone margin was about INR 461 crores for the quarter, translating to a margin of 10.14% of revenue during the quarter, an improvement of about 101 basis points QoQ, and a drop of about 356 basis points.
Kumar Subbiah: The drop in margin, gross margin versus the previous year of the same period, is mainly on account of increase in raw material costs in the last six months. Our consolidated gross margin for Q2 stood at 34.6% and expanded by about 66 basis points sequentially, helped by other operating income and increase in realization.
Kumar Subbiah: The drop in margin, as I mentioned, is largely on account of raw material cost versus the last year. Coming to raw materials, during Q2, crude oil prices continued to remain at elevated levels, while it averaged at lower level in the beginning of the quarter, that is in July, to around $84, $85. But ever since ceasefire deadline expired in mid-August and re-escalation started towards the end of August, the crude has been hovering around $100 per barrel.
Kumar Subbiah: As we speak, the crude continues to hover around $105. As we speak, due to increase in crude premium, the crude derivative prices which go into tires moved even higher than the movement in crude prices in Q2. Natural rubber prices followed a similar trajectory during the quarter, with international benchmark, that is Singapore Commodity Exchange, starting Q2 at around $2,200 per ton, but since then moved to around $2,600 level.
Kumar Subbiah: In line with the movement and following price parity, domestic rubber prices also remained elevated and is priced currently at around INR 285 per kg, which is a 20-year plus high and continues to remain strong even in the current market conditions. Recent sharp movement in international natural rubber prices has, in a way, also closed the gap with the local prices. Earlier, the international prices were at a discount to local prices.
Kumar Subbiah: Today, it is more or less in parity with the local prices. Coming to rupee, while recent intervention package announced by Reserve Bank of India has pulled back some of the negative sentiment, and hence it remained within a range, leading to a limited impact on our costs during the quarter.
Kumar Subbiah: Overall, as guided in our Q1 call of our raw material cost for Q2, the raw material prices surged by about 8% to 9% quarter-on-quarter compared to Q1. Moving into Q3, the pressure is expected to persist as commodity prices continue to remain high, and it is expected that raw material cost would move in the range of about 3% to 3.5% in Q3 over Q2.
Kumar Subbiah: We hope and we look forward to finally, West Asia war comes to an end, which should bring the commodity prices back to the normal levels. Coming to CapEx, we spent about INR 493 crores during the quarter on a standalone operations.
Kumar Subbiah: That includes approximately about INR 120 crores plus in Nagpur plant as part of our capacity increase from 80,000 tires to 100,000 tires a day, and approximately about INR 280 crores in Chennai was towards expansion of our Truck and Bus Radial and Passenger Car Radial tires capacities. Our capacity utilization continues to be high, particularly in two-wheeler and truck and bus categories, and the CapEx that we front-loaded in the H1 of the above would help in meeting our demand in the coming quarters.
Kumar Subbiah: For our overall CapEx, both growth CapEx plus our normal maintenance CapEx, including R&D, we aim to manage it in the range of around INR 1,400 crores as we guided in the earlier quarters. Coming to working capital on a standalone basis, our net working capital increased by about INR 74 crores, largely on account of higher inventory arising out of higher scale of operations and higher value of the materials.
Kumar Subbiah: While working capital moved up by INR 280 crores on a consolidated basis, which includes the inventory in transit for our overseas operations and receivables relating to Camso as we have started invoicing directly to our customers. On a consolidated basis, our debt stood at INR 3,846 crores, an increase of about INR 604 crores over Q1.
Kumar Subbiah: To fund our Q2 CapEx program, we spent most of the money. We also paid about INR 140 crores of dividend during the quarter. We wish to inform you that we have got necessary approvals from the authorities to convert about $24 million of US dollar debt provided by CEAT India to Lanka OHT Limited, and the same is reflected as of end September results.
Kumar Subbiah: Our Debt/EBITDA on a consolidated basis stands at a healthy level of about 1.93x, arrived at based on trailing 12 months, which is a marginal increase over Q1 of about 1.58. Our debt equities ratio continues to remain healthy at about 0.77, a marginal increase over Q1 level of about 0.65.
Kumar Subbiah: Coming to other expenses, our employee cost was marginally higher in Q2, about INR 14 crores on a standalone basis and about INR 26 crores on a consolidated basis, which includes revision in our salary due to annual cycle revision that starts in the Q2. However, employee cost as a percentage of revenue has declined in Q2 versus Q1, a trend that we have been witnessing for the last four quarters. Our consolidated other expenses was about 18.2%, a 39 basis points improvement in Q1.
Kumar Subbiah: This at a time we are seeing unprecedented increase in freight and other indirect costs. Despite broad inflationary pressures extending beyond just direct input costs, we continue to strictly manage them efficiently. Our depreciation at a consolidated level remained in line with Q1, and our finance cost was INR 87 crores versus INR 146 crores in the previous quarter.
Kumar Subbiah: The drop is mainly on account of the fact that in Q1, we had certain amounts of foreign currency-related costs that was part of it, which we did not have in Q2. Overall, our consolidated profit after tax for the quarter stood at about INR 112 crores compared to about INR 186 crores during the same quarter of last year, and INR 4 crores in the previous quarter. Thank you once again, you all. With that, we can now open the floor for Q&A.
Operator: Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We will take our first question from the line of Raghu NL from Nuvama Research. Please go ahead.
Raghu NL: Thank you, sir, for the opportunity. Good to see the margin improvement on QoQ, given challenging times. My first question was on the replacement demand outlook for H2. If you can talk about how you see TBR, PCR, and two-wheeler demand for H2 in replacement, and also whether the dealer inventory levels would be around normal levels or on the higher side.
Arnab Banerjee: Yeah. Replacement demand for H2, I think commercial vehicle tires could be growing at about mid-single digit. Passenger, as I said, is growing at low single digit, and two-wheeler is growing in double digits, especially in rural and overall also in double digit. Farm could be low growth over last year in H2. This is the outlook for replacement.
Arnab Banerjee: Dealer inventory, because there is a continuous price hike, so even at the customer level, the offtake is uniformly good. People have stocked up and sold, and the consumption has been good over last four quarters, if you see post GST. If the dealer inventory would have built up, it would have shown up by now. So we do not think the dealer inventory is particularly high despite the price hikes.
Raghu NL: Noted, sir. Thank you for that. My second question was on the price hike. Given that approximately replacement, you might need 17% to 18% price hike to fully pass on the impact, how do you see replacement price hike plan for Q3 and Q4? Also in the export market, how much has been the price hike so far? Any plans of taking a hike there going forward?
Arnab Banerjee: We have a gap, as you can see in the margin situation of gross margin is 33.5% to 33.6% in H1. Our normal comfort zone is around 41% to 42%. So there is a 7% to 8% gap in gross margin as we have just finished H1. That gap needs to be covered. Plus, there is a price increase in raw material expected in Q3 over Q2 to the extent of 3%.
Arnab Banerjee: That needs to be covered as well. So there will be continuous price hikes in Q3 in replacement, and we will go country by country, category by category in international markets to seek opportunity of price hikes. It will be frequent, but in low doses. Q2 end also saw a very low dose price hike, and through October, we are announcing further price hikes. This is going to continue for some more time. Definitely in Q3. Q4 is too far away at this point of time to comment, but we need, and we shall do price hikes through Q3.
Raghu NL: Noted, sir. My third question was on Camso. On Camso, your previous commentary was that the transition on the value chain should happen by end of FY27, and customer transition also should complete. Just wanted to understand whether is it on track, is there some delay in that transition, and how do you see the revenue and the margin trajectory ahead? Because our understanding was at $10 million per month revenue trajectory, and then a further increase post the transition. Also, if you can talk about EBITDA, how do you see the trajectory?
Arnab Banerjee: First, the project and the customer transition. Customer transition, as I mentioned, is about 85% complete, and by and large, it will be completed in Q3. So it is more or less on track. The other transition is on the upstream side of the plant in Sri Lanka, where we have to set up upstream equipment. We did say that it will be by end of this financial year. It may spill over to Q1 of next year. So in a substantive manner, there is no significant delay, and by Q1, we should be able to ramp up our complete value chain in the plant. So that answers the transition question.
Arnab Banerjee: As we are having the customers in our hand, we are looking at a volume ramp-up of about 20% odd definitely in H2 of this financial year, vis-a-vis H1 actual volume delivered in this financial year. So we are seeing 20% possibility of volume growth, and there will be further growth in FY28 and FY29. Of course, the plant has capacity to meet that demand. EBITDA-wise, we should approach EBITDA neutrality and positivity in H2 of this financial year, which will improve further in FY28.
Raghu NL: Noted, sir. Thank you for the thoughts. I will fall back to the queue.
Operator: Thank you. We will take our next question from the line of Siddharth Behera from Nomura. Please go ahead.
Siddharth Behera: Yeah. Thanks for the opportunity, sir. Sir, first question is on the volumes. You mentioned close to 10% volume growth at an overall level in Q2. What will be the replacement and exports volume growth in the quarter?
Arnab Banerjee: In Q2, YoY, yeah, you are right about close to 10% volume growth overall we had. Replacement will be lower, at a lower single digit in terms of volume growth. Export and OEM will be lower double digits in terms of volume growth. So it will average out at about close to 10%.
Siddharth Behera: Got it. I think last quarter, we did see slightly better replacement growth in the last quarter. Have you seen some moderation in the replacement growth also given the price hikes which we have been doing? Is that also something which is sort of impacting demand? My second question on the export side, sir, also, you mentioned that we haven't passed on the entire cost. When export demand is good, what will be the catalyst, or why the price pass on is a bit slower there?
Arnab Banerjee: First on replacements. We had a production bottleneck in a couple of categories in this quarter. It was a slight internal issue which led to some of the volume being lower, nothing to do with demand. Overall, there is a little bit seasonality in Q2. Q2 on Q2 growth is decent, but Q2 on Q1, if you see, the demand does come down after the summer months.
Arnab Banerjee: There was nothing extraordinary about that. There's no slowdown in the market barring the seasonal adjustment in replacement and a minor glitch in our own production capacity in the month of July, August. That explains replacement. In international business, yes, the price transmission has been slow, and we still have to transmit more prices in international market. There, what happens is that we go selectively country by country.
Arnab Banerjee: The competitive situation in each country is different. Globally, from the top-ranked European players to Chinese brands, everybody is there. We are a value brand. We are placed at about 15% to 25% below the top European brands. In that competitive scenario, it is sometimes difficult to go for price hike at the same time in all countries. That's why on an average, the transmission is lower than in domestic market. Having said that, the gross margin as well as at an EBITDA level, international business is still margin accretive over domestic market.
Siddharth Behera: Got it, sir. My last question on the working capital side. We did see a lot of drag in the H1 of this year. Incrementally as we go ahead for the full year, do you think this will sort of see some more pressure from H1 given the commodity scenario? Or do you expect some normalization in areas where probably we have been more conservative? Some thoughts if you can help.
Kumar Subbiah: No, the standalone results, basically, when the commodity prices impact the raw material costs, raw material as well as finished goods value goes up quarter-on-quarter. That had some impact. Normally, it gets compensated in the form of equivalent amount of value payables, if there is a match in terms of number of days of credit versus number of days of inventory that you hold.
Kumar Subbiah: In the quarter ended 30 September, we did have impact on account of value being higher and raw material inventory was little higher than June and March. We had to keep little extra inventory, particularly the imported ones, due to increase in transit time and to ensure that all our factories run efficiently without loss of production due to raw materials.
Kumar Subbiah: That had little bit of a role with respect to about INR 70 crore of increase in working capital in Q2 versus Q1. Overall, I think our working capital, we are around positive side of about INR 270 crore as of end September on a standalone basis.
Kumar Subbiah: Largely, we were operating closer to zero or negative till recently, and the increase in working capital is on account of one of the reasons being cost of materials have gone and average holding of inventory, both raw material and finished goods being little higher than the average period of the payable. That had some role to play. Second, in terms of composition of our revenue is also changing.
Kumar Subbiah: When you have an increasing share of international business, the receivable days in our books also move up because money gets collected after the inventory reaches, and there is a little bit of a transit time. There is no inefficiency or anything like that there, but it is more about the change in model.
Kumar Subbiah: To cut a long story short, our endeavor is to get the working capital back to closer to the zero level or zero to INR 100 crore level, in the next one to two quarters' time, in a normal and stable environment. But if there is going to be any change, if there is going to be any fluctuation in the transit time, particularly on the cross-border side, we may end up holding little higher level of inventory to provide supply security to our factories.
Kumar Subbiah: When it comes to consolidated, I think structurally there will be some element of working capital, as we start taking over customer servicing from Camso Michelin to ourselves, because that stock get produced in Sri Lanka, but it gets sold in other parts of the world. So there is a transit time, there is also a receivable period. These two, there will be some amount of working capital which will then work consolidated. We are trying to assess that impact of it. Maybe in the subsequent quarters, we will be able to provide little more color on it.
Siddharth Behera: Understood, sir. Thanks a lot. I will come back in the queue.
Operator: Thank you. Next question is from the line of Rishi Vora from Kotak Securities. Please go ahead.
Rishi Vora: Yeah. Thank you for the opportunity. My first question is just on the competitive dynamics. I know we have talked about 12% to 13% price hikes. How has the peer set pricing been? Has the industry taken similar quantum of price increases?
Arnab Banerjee: In replacement, yes. The price increase have been similar, but there could be a time lag by one week, two weeks here and there. The quantum may be a quarter percent, half percent higher or lower, but directionally similar.
Rishi Vora: Okay. At least in your opinion, the ability to take further price increase is not going to be difficult as industry thus far has been disciplined on that front.
Arnab Banerjee: I cannot predict, but we need price increase, and we will go for price increase, is what I can say.
Rishi Vora: Understood. Just on the quarter, how much of the price increase have actually flown through, and what will come through in Q3? How should we think about that?
Kumar Subbiah: See, in the total revenue growth, minus volume growth can be taken as a price growth. That price growth will have some element of mix impact, but that is one good way of understanding the price growth.
Rishi Vora: So it is roughly or almost 8% price QoQ ASP increase would have happened.
Kumar Subbiah: Yeah, that is true.
Rishi Vora: Incrementally,
Kumar Subbiah: Yeah, go ahead.
Rishi Vora: Sequentially, the ASP increase then beyond mix will depend on the price hike which we will be taking from October onwards, right? There is nothing lagging in terms of price pass through. That will happen from Q2, is how we should read it?
Kumar Subbiah: There is some lag. OEM, there is a lag of 3 months.
Rishi Vora: Okay.
Kumar Subbiah: In replacement also, there is a little bit of a lag. I think Arnab, in his opening remarks or one of the questions he mentioned about 6% to 7% of the gap versus our normal levels of margin of about 40%, 41%. That is the gap to be bridged.
Rishi Vora: No, that I understand. But from a Q3 level, is not something where we will be able to, let us say, see any benefit coming through from under recoveries in Q2, is what I was trying to understand.
Kumar Subbiah: There is some lag in Q2. I think it is better to assume there will be a 3 months kind of a lag is there overall basis. Whatever happened in Q1, we were able to recover it in Q2 with some kind of a lag. So similar lag you can expect at what happened in Q2 in terms of recovery at INR per kg level, and anything beyond that translates to gross margin percentage improvement.
Rishi Vora: Okay. So in your assessment, should Q3 gross margin be stable, like versus Q2, if there is a 3% commodity inflation which you have guided for?
Kumar Subbiah: I think it depends. I think we will wait till the price increase happens because the price increase assumptions that we have made, we would like it to happen.
Rishi Vora: Okay.
Kumar Subbiah: Therefore, it should be closer to the current levels. Okay. But I think more clarity will come once we execute our pricing plans appropriately.
Rishi Vora: Understood. Just last question on the CV replacement demand. Despite whatever 12%, 13% price increase we have taken, we are not seeing any challenges on the demand side because you are still guiding for a mid-single digit growth on an elevated base. So the industry, all the fleet operators, we are not seeing any demand slowdown over there, obviously beyond the base effect.
Arnab Banerjee: Yeah. Base effect will come in. That is a significant thing because last year, Q3, Q4 just took off, as you know. So current going rate is about mid-single digits, as I said. We expect that to continue. Even if there is moderation, it will not go to zero or negative. There is buoyancy in the market, in construction, in mining, and in general goods movement, in replacement I am saying.
Rishi Vora: Understood. On a blended basis, you do expect replacement to grow by mid-single digit, right, in terms of volumes, like on a blended basis.
Arnab Banerjee: Yes, more or less. Yes.
Rishi Vora: Understood.
Arnab Banerjee: You are right.
Arnab Banerjee: Thank you so much. I will get back to that.
Operator: Thank you. Next question is from the line of Nitin Bora from Angel. Please go ahead.
Nitin Bora: Yeah. Thank you for taking my question. My question was around the CapEx guideline. In H1, you have seen largely we have spent around INR 800 odd crores, and this largely was into the standalone business. What I am trying to understand here is that going ahead in H2, what would be the proportion of CapEx which would also go into Camso? Because we have been talking about the upstream and downstream equipment addition there. Can you quantify the number in terms of CapEx which will be required for Camso here?
Kumar Subbiah: Okay. Let me check. Camso, I think in the transition part, Arnab mentioned about upstream being readiness by Q1. So our expected CapEx cash flow during the year is in the range of about INR 100 to INR 150 crores from upstream point of view. That is going to be the addition over and above standalone CapEx.
Nitin Bora: Okay. So I think standalone is INR 1,400 plus the INR 150 or including INR 150?
Kumar Subbiah: No, INR 1,400 plus INR 150 levels is what that could be the range.
Nitin Bora: Okay. All right. Just one clarification here. Additionally, we also have some part of acquisition payment which is left to be done for Camso. When do we incur that? Maybe in next year, H2?
Kumar Subbiah: No, that will happen in August 2028. So three-year period is when by 31 August 2028, that three-year period would have got over. So around that time is when we have to make that $44 million payment.
Nitin Bora: All right, sir. Lastly, sir, on to the debt front. We have seen debt going up around INR 600 crore in the H1. What would be the comfortable range where we would not be much concerned in terms of debt? Like any sort of targets where we will be comfortable in debt, like say INR 4,000, INR 4,400 crore kind of levels which we see going ahead?
Kumar Subbiah: See, we never had any absolute debt as a target. We always operated on debt/EBITDA or debt/equity. Leverage ratios used to be the guiding principle with respect to the debt. A little bit of frontloading of CapEx happened in the H1 of the year, and more so in Q2, to ensure readiness of our two-wheeler expansion in Chennai and Truck Bus Radial expansion, two-wheeler expansion in Nagpur and Truck Bus Radial expansion in Chennai.
Kumar Subbiah: In the quarter that went by, we also paid about INR 140 crore of dividend. So that also in a way contributed overall in terms of utilizing the operating cash flow that was generated in Q2. So in a tight scenario like this, 2.1 kind of debt could be taken as a guiding principle. In the past, we used to say we would not like to cross 3.That threshold, we brought it down. So around 2.1 level during the current year is the level at which we would like to operate.
Nitin Bora: All right, sir. That's all from my side. Thank you.
Operator: Thank you. We'll take our next question from the line of Ankur Poddar from Swan Investments. Please go ahead.
Ankur Poddar: Hi, sir. My question is regarding our Camso. Could you just throw some light on the revenue recognition of Camso for the quarter? As last quarter you had mentioned that we have reached a revenue run rate of $10 million per month. So how is the revenue ramping up currently, and how much of it are we recognizing? Is there a gap between the run rate which you have mentioned versus what we are recognizing in our books?
Arnab Banerjee: Yeah, Amit, you can.
Amit Tolani: Yeah. The revenue to the end customer stands at around $10 million per month. As informed by Arnab, we have taken over 85% of those customers in our fold by the end of September. We expect to have the remaining customers with us in Q3 at the end of November. The revenue to the end customer is clicking at $10 million, and sequentially, as we acquire these customers, that kind of revenue will be seen on our statements as well.
Ankur Poddar: Understood. Overall, how do we see this ramping up over the next couple of quarters? Overall $10 million, do we see this ramping up to around, because our overall capacity is closer to $150 to $200 million per annum. By when do we see you hitting that?
Amit Tolani: Sequentially, you will keep seeing the increase in volumes. As we mentioned in the call earlier, between H1 and H2, you will see a 20% to 25% increase in volumes.
Ankur Poddar: Okay. All right. Got it. That is all from my side. Thank you.
Operator: Thank you. Next question is from the line of Vijay Pandey from Axis Capital. Please go ahead.
Vijay Pandey: Hi, sir. Thank you for taking my question. In the price increases, just wanted to understand when we have taken the price increases, and at what period of time? You can please quantify and with the month, that will be helpful.
Kumar Subbiah: Okay. Cumulatively, look, the price increases happened throughout Q2, as it happened in Q1. Approximately, the impact of price increase in Q2 was around 8%. That was the quantum of price growth that happened in Q2. But price increases happened at different points in time. Cumulatively, from 1 April to till date, at an organization consolidated level, about 13% has been our price increase between 1 April and 30 September.
Vijay Pandey: Okay. So how much would be probably in August or September?
Kumar Subbiah: Okay. See, July month, we had about, in the OEM segment, the price increase was approximately 12% to 13%. In the replacement, it started off from beginning of July. I think about out of the 8%, 5.5% kind of increase happened in July, and balance happened in August and September.
Vijay Pandey: Okay. Sir, the $44 million payment for Camso, that will be done in September 2027 or September 2028?
Kumar Subbiah: Yeah, see end of August 2028. Cutoff date, see, we took over the business on 1 September, so maybe end of August is when we have to effect that payment into those 2028.
Vijay Pandey: Okay. Sir, one more thing, when we subtract the Camso minus its standalone, the other income is negative, and interest is also minus 90 for this quarter. Can you help us understand the dynamics in play, what is impacting that, and how should we look into it?
Kumar Subbiah: See, consolidated other income, we received about 20 odd crores of dividend from our joint venture entity in Sri Lanka, that is CEAT Kelani. So, because CEAT standalone receives that dividend, it is part of that. And in the consolidation, it gets eliminated. The second question is on the finance cost, I think you are referring to. In Q1, had a one-off kind of a foreign fluctuation-related cost that wasn't there in Q2, and that was the reason why there's a drop there.
Vijay Pandey: How should we see the finance cost going forward?
Kumar Subbiah: No. See, finance cost, as the debt level, it will move in line with the debt levels. So therefore, if you were to take Q2 as a reference number, 5% to 8% kind of a movement in debt level is possible between Q2 and in the subsequent quarters, and finance costs will also move in line with that.
Vijay Pandey: Okay. And sir, currently, is it fair to assume that our monthly realized run rate for Camso will be around $10 million?
Kumar Subbiah: So at a customer billing level, yes. It will progressively grow because as we said, we have taken control of the customers to the extent of 85% already, which will go to 100% in Q3. So you can say that customer billing price, $10 million, is the base rate. The growth will come on top of that.
Vijay Pandey: Okay. Okay, sir. Thank you.
Operator: Thank you. Ladies and gentlemen, to ask a question, please press star and one on your phone now. We will take our next question from the line of Yash Agrawal from Nirmal Bang. Please go ahead.
Yash Agrawal: Hi, sir. Thank you for the opportunity. I just wanted to know what is our revenue share in EV, in OEM, in both two-wheeler and PV. What is our market share in 17-inch tires?
Kumar Subbiah: The share of business in four-wheeler is about 25%, and in two-wheeler, it is in excess of 30% in OEM, in EV.
Kumar Subbiah: In premium tires, the revenue share will be close to 25%, 24%, 25%.
Yash Agrawal: Okay. Sir, what is our mix in terms of domestic and natural tire rubber procurement, and has it changed post the reduction in discount between the international and domestic prices?
Arnab Banerjee: Approximately two-thirds of our rubber is imported and one-third is locally purchased.
Yash Agrawal: Okay.
Arnab Banerjee: This number has not changed recently on account of parity in the international prices versus local.
Yash Agrawal: Also, sir, we have taken price hikes to offset the raw material inflation. But as compared to peers, are we taking aggressive price hikes, or we are in line with what other peers are taking in the industry?
Arnab Banerjee: In replacement, it is more or less. There could be a lag of a couple of weeks here and there, but it is more, as I said, directionally in line with how competition is behaving.
Yash Agrawal: Okay. Sir, one last question on Camso. Post the complete integration from 2028, can we expect margins around 12% to 13% what we guided before?
Arnab Banerjee: So, as I mentioned in H2, we expect to be moving into EBITDA neutrality to EBITDA positive, H2 of this financial year. So at EBITDA level, margin should be improving from that in FY28.
Yash Agrawal: Okay, sir. That is it from my side. Thank you.
Operator: Thank you. Ladies and gentlemen, we will take that as the last question for today. I now hand the conference over to management for closing comments. Over to you.
Arnab Banerjee: Okay. So, thank you very much. At the end of H1 of FY27 and in advance, I wish all of you and your family a happy festive season going into Q3 and see you in January 2027 next. Thank you.
Operator: Thank you. Thank you all the members of the management. On behalf of ICICI Securities Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.
