CEAT Limited (NSE: CEATLTD) Q3 2025 Earnings Call dated Jan. 16, 2025
Corporate Participants:
Arnab Banerjee — Managing Director and Chief Executive Officer
Kumar Subbiah — Chief Financial Officer
Analysts:
Mumuksh Mandlesha — Analyst
Jinesh Gandhi — Analyst
Siddhartha Bera — Analyst
Raghunandhan NL — Analyst
Joseph George — Analyst
Kaushik Poddar — Analyst
Jinesh Gandhi — Analyst
Nandan Pradhan — Analyst
Vijay Pandey — Analyst
Garvita Jain — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the CEAT Q3 FY ’25 Earnings Conference Call hosted by Anand Rathi Shares and Stock Brokers Limited. [Operator Instructions]
I now hand the conference over to Mr. Mumuksh Mandlesha from Anand Rathi Shares and Stock Brokers Limited. Thank you, and over to you, sir.
Mumuksh Mandlesha — Analyst
Yeah. Thanks, Steve. Good afternoon, everyone. On behalf of Anand Rathi Shares and Stock brokers, I welcome you all to the Q3 FY ’25 results conference call of CEAT Limited. From the management side, we have Mr. Arnab Banerjee, Managing Director and CEO; and Mr. Kumar Subbiah, Chief Financial Officer.
I would now hand over the call to Mr. Arnab Banerjee for his opening remarks. Over to you, sir.
Arnab Banerjee — Managing Director and Chief Executive Officer
Hi. Good afternoon, and happy new year to everybody, and welcome to the quarter three earnings call. I’ll be taking you through the business updates for the quarter and then hand it over to Kumar for his remarks on financial performance. And after that, we’ll have the Q&A.
So our Q3 continued with aggressive growth on revenue front with 11.6% growth in value Y-o-Y and 7.9% growth in volume. The standalone profit was INR96 crores for Q3 FY ’25. Growth momentum was good overall with 7.9% volume growth over last year, as I said. Our segments of international business and replacement have grown in double-digit value, while the OEM segment is also coming up. It grew about mid-single digit. We have almost matched the all-time high turnover in quarter two, both in value and volume terms. Our turnover was INR3,292 crores on standalone basis.
The international segment managed to grow in double-digits Y-o-Y basis, as I mentioned, in the passenger category as well as in two-, three-wheelers category. We witnessed good growth from almost all geography, but more so from Europe, where even truck bus radial turnover is also starting moving to a higher level.
Replacement market saw double-digit growth in commercial vehicle with stronger growth in the radial segment and slightly less flattish growth in the bias segment. We have grown well in two-wheeler also in replacement, with higher growth coming in from the rural market, where we have a distribution advantage. The growth rate in rural market was almost 40% to 50% higher than the growth rate in the urban market. We show — we are seeing a good traction within two-wheeler in scooter markets across all markets — in scooter tires across all markets in the country. This has led to good utilization of capacities in almost all our plants, which is around 75% to 80%, sometimes higher than 80%. Halol is very high at about 95%.
OEM volumes are coming through and started to grow with increase in market share in two-wheelers. And with more vehicles getting launched with CEAT fitment, we are seeing traction in four-wheelers as well. For the upcoming quarter, we expect OEM growth to accelerate in both two-wheeler as well as four-wheeler segments and also consolidating the TBR segment, though the overall OEM volume in MHCV segment is negative.
In OHT, international business has recorded very good growth in the aftermarket, especially in the European Union, and we expect this strong trend to continue. And when the OEM sales bounces back, the OHT — the overall OHT volume in international market will also accelerate. We continue to deliver double-digit post-tax ROCE. In the last call, we had talked about our acquisition of Camso. There is no change in the status because the deal is expected to be closed by the month of May in quarter one. There is no impact of this, either on quarter three or in quarter four results in FY ’25.
Demand outlook, considering that the monsoon was okay, Kharif harvest should ease food inflation and overall consumer sentiment in the current months — in the coming months. Government spends in rural infra is strengthening the purchase power of rural India. And the overall market in rural, which supports our farm tires and two-wheelers are expected to be robust in the coming months.
As far as growth is concerned of the market, demand outlook, we expect truck bus segment to grow in high-single digits as well as two-wheeler and farm. Two-wheeler possibly may grow in double digit as well. Farm will be — farm and passenger will be in low-single digits. That’s what we expect the markets to grow by in the next few quarters — next quarter definitely, next few quarters. Seasonally, we are seeing a slight dip in North and Eastern India, where demand comes down overall in the winter months.
In the OEM segment, as you are aware, MHCV is seeing — still continuing to degrow in low-single digits. Two-wheeler segments in OEM is growing and has slowed down — the growth has slowed down, but still overall, it is growing close to double digit. And passenger car tires, again, the growth has slowed down in low-single digit. However, in this segment, as I mentioned, we are focused on increasing our share of business because of accelerated fitment of CEAT in the passenger cars, especially and two-wheeler vehicles, which have been rolled out.
So overall, some more facts on the international market. Our GTM in U.S. is progressing well. The initial set of regional distributors have been set up. Product feedback is good. And we have a visibility of commitments made by our channel partners in FY ’26. And we expect that this business will now enter a growth phase at least in TBR segment in U.S. Our OHT business in U.S. is also stable and growing in the aftermarket.
As far as margins are concerned, we saw raw material price escalation of about 1.2% in quarter three over Q2 and business mix and price increase were insufficient to cover up this gap resulting in a slight margin dip of 0.6% in gross margin, which has translated into 0.6% dip in EBITDA as well. We have taken price increases in commercial and farm to the extent of 1%, 1.5% in quarter three, about 4% in passenger in replacement, these are all replacement. However, we did not take price hike in the two-wheeler segment, barring at the end of quarter three and those price hikes are going on in the month of January by month of — by end of January will be going up in two-, three-wheelers as well. We got a good 3% to 4% price hike in indexed categories of OEMs, and we got discussion-based price hike in the commercial segment of OEM as well. This was obviously insufficient, as I said, to combat that 1.2% price hike in raw materials. And therefore, we — apart from two-, three-wheeler, which I mentioned just now, we will look at further price changes in quarter four in replacement and international businesses.
Now coming to the strategic part. We are looking at electrification, international business, premiumization and digital, and we talk about these four pillars in every analyst meet. Our intention to get a pole position in electric vehicles is going well. In two-, three-wheeler and in four-wheeler electric vehicle launches in OEM, we have roughly about 25% share of business, which hovers around this figure consistently, and we intend to maintain this and gradually inch up the share in the OEM business. In the replacement market, the trend going forward would be to have the tires which are suitable for ICE and electric vehicles, and they have to be electric fit. So there will be no distinction by and large, barring a small range in terms of tires for electric vehicles in the replacement market and that is the trend internationally as well.
International — overall international business has been a core focus area. Our acquisition of Camso is a significant milestone, which will take us past our milestone of 25% saliency in international business. Our non-Camso saliency continues at about 19%. And in quarter one next year, when we start accumulating this business post that, we intend to reach a figure of 26%. And this volume continues to be margin-accretive. Other than Camso, we have had 46-plus off-highway SKU launches in Q3, so that organic growth continues. Multiple OEM approvals have come in from ITL, Magna, JD Brazil and AGCO-Massey Ferguson. We have progressed well on channel expansion further for OHT in EU and U.S. market, and we have entered new countries that include Vietnam and Peru.
There have been some headwinds in international markets, geopolitical conflicts around the Middle East and also currency depreciation in Brazil, which are providing some headwinds. Otherwise, as I mentioned, the GTM in U.S. and the market access in Europe is improving significantly leading to a very, very good quarter three performance, first of all, in passenger and TBR and the outlook is also better in future. Sri Lanka’s macroeconomic situation is in a positive trajectory. The new government has come in with a huge mandate. It has taken control, tourism, foreign remittances were recorded the highest ever in the last five years. And our Sri Lankan business also is going to be robust in the coming future. It is slated to meet its top-line and bottom-line targets for the current financial year.
Premiumization is the third pillar on which we are focusing on. And again, I would repeat that Camso acquisition is actually a premium brand acquisition in the OHT segment with realization far ahead of the value and quality segments. And once it comes with us, we would like to retain the premium strategy, the premium positioning and the premium pricing and offer the value at the premium end to our customers mostly in Europe and U.S. In keeping with the tradition of premiumization, we have launched a new innovative tire in the scooter segment — in the two-wheeler segment called SecuraLife [Phonetic], which has got a very, very high product life without compromising the grip of the tire.
We are also got fitted on the Mahindra Thar Roxx, which is a five-door Mahindra vehicle and many more SUVs are also coming up with 17-inch-plus fitment. Our 17-inch plus rim tire which we track in terms of our overall business is slated to hit 25% of OE fitment within the next few quarters and that is one metric which we track because the repercussion on replacement demand will be positive going forward if we get such fitments in the larger SUV vehicles. We also got recognition and awards from OEMs such as Daimler for the service level and quality.
On digital, we are proud to announce that our Chennai plant has been designated as a World Economic Forum Lighthouse. This is the second plant of CEAT, which got this recognition. And this is for effectively leveraging advanced fourth industrial technologies to achieve and maintain operational excellence. All this is to reduce scrap to improve energy efficiency, to improve manpower productivity and to remove defects and improve quality. So this will also see a reflection going forward in terms of efficiencies in margin. The organic traffic on our website grew by 25% and leads from premium SUV users increased by 42%. Conversion from website leads from premium SUV customers increased to 17%. Brand positive sentiments moved up 47%, and there was a 166% increase in average interactions per post Y-o-Y.
Our capex was about INR250 crores for quarter three, and we maintained the overall guidance of around INR1,050 crores for the full year. We’ll stay within that. And we had an enabling approval from the Board on Nagpur expansion of two-wheeler capacity to 100,000 tires per day, which may be executed within our overall capex governance, which is bite size capex of around INR1,000 crores year on year. Our Halol plant received International Sustainability and Carbon Certification, ISCC Plus approval and ISO 20400 certification, highlighting our commitment to sustainable procurement and ethical sourcing.
So on sustainability, we continue our focus on renewable power generation and sourcing of raw material, natural rubber particularly through alternate source which are more energy efficient and it has gone up by 26%. Rolling resistance in our tires have gone down by 5%, which are all moving towards fighting global warming and making a sustainable future happen. So that’s about kind of sums up our strategy of pursuing double-digit aggressive growth outlook for quarter four is an acceleration of growth from 11%, 11.6% further. Raw material expected to go up from flattish to maybe 1%, 0% to 1%, depends on the way in which crude and currency depreciation moves. So we are looking at expansion of our Chennai capacity and increasing market share in the passenger segment, especially in the SUV segment going forward.
With this, I would like to pause here and hand over the call to Kumar for his remarks.
Kumar Subbiah — Chief Financial Officer
Thank you, Arnab. Good afternoon, ladies and gentlemen, and thank you for joining our Q3 FY ’25 call — earnings call. I’ll share some further financial data points with you all, post which we can enter the Q&A session.
Overall revenues, consolidated revenue for the quarter stood at almost INR3,300 crores, a year-on-year growth of about 11.4% and very similar to the revenue that we achieved in quarter two. The revenue growth was driven by all segments, double-digit growth in all segments, replacement, exports and OEM and with a good mix of volume and price growth. So our consolidated operating margin, which is EBITDA for the quarter, stood at INR346.3 crores, translating to a 10.5% margin. This is about 387 basis points contraction year on year and 64 basis points contraction quarter on quarter. The margin drop is primarily on account of increase in raw material prices — the net increase in raw material prices, which we could not pass it on to customers in this cumulative period.
Coming to gross margins. Our gross margin for the quarter stood at 36.9%. On a year-on-year basis, our gross margin contracted by about 450 basis points. Through some effective cost management, we reduced the impact of the same on operating margin to the extent of about 63 basis points. Raw material price basket has marginally increased in quarter three compared to previous quarter, in line with our expectations that we have shared in the last call. And while most of the raw material prices moved in line with our expectation, international rubber prices remaining at a level of $1,900 to $2,000 was a surprise with respect to our own assessment. So overall, our EBITDA margin contracted by about 64 basis points quarter on quarter, largely on account of increase in raw material prices.
Crude has remained largely range bound during most part of the quarter in the range of $70 to $75, except very recently, it’s inched towards $80. Otherwise, it remains constant. Rupee has been seeing some slide in the last 1, 1.5 months, driven by factors like foreign portfolio investors pulling out of Indian market leading to outflow of currency. Chinese currency depreciating and also a general appreciation of U.S. dollar against the global currencies.
Coming back to rubber. Domestic rubber prices have started to cool off during the course of the quarter from a peak of INR250 per kg, which is a 15-year high in quarter two. Largely, the rubber prices in the local market is now currently around INR190 per kg. As I mentioned earlier, international rubber prices are in the range of $1,900 to $2,000 level, which, as per our understanding, at least $150 to $200 higher than the normal range at which it should be operating relative to the prices of other commodities.
In case of crude, as it remained in $70 to $75, though there were some corrections in the prices of crude derivatives like butadiene, caprolactam, the correction has not — has been lower than the drop that we saw in crude oil prices. Considering all these factors, we’ll continue to keep a close watch on round-year situation. We did bring down our overall covers of natural rubber during the course of the quarter with a hope to buy raw materials at the right levels as and when the price is normalized. We expect overall raw material prices for the quarter three to be largely in line with quarter two with a minor variation of plus or minus 1%, as Arnab had already shared with you.
Coming to capital expenditure. We incurred a capex of INR283 crores during the quarter. Cumulatively, in the first nine months of the year, we incurred about INR713 crores. All this is cash outflow towards capital expenditure. And we stand by our full year estimate of capex to the tune of approximately around INR1,050 crores and balance amount we expect to spend in quarter four. The entire capex of INR283 crores that we incurred in quarter three was funded through internal accruals.
Working capital, I think we shared in the last quarter about some increase in working capital in the previous quarter, largely on account of increase in raw material inventory, particularly in natural rubber due to increase in lead times. We are happy to share with you that working capital was brought down by about INR84 crores during the quarter, and we still think that there’s an opportunity for us to normalize working capital more in quarter four. We generated healthy operating cash flow during the quarter. And despite spending INR283 crores in capital expenditure and some drop in working capital, our debt for the quarter came down by about INR50 crores from INR1,885 crores to INR1,835 crores as of end of the quarter. And here, I would like to mention that the drop in debt level happened towards the end of the quarter and as things normalized and average debt during the first — during the quarter was slightly higher than the previous quarter, though we managed to bring it down towards the end of the quarter.
With all this, our debt/EBITDA on a consolidated basis stands at a healthy level of 1.22 and debt/equity at a healthy level of 0.43. Employee costs remained largely at the same level as in quarter two. Other expenses were managed during the quarter, considering a little bit of pressure on account of raw material costs, we get the tight control on cost. And therefore, the margin impact was restricted only to the extent of difference between the price increase in raw material costs.
Coming to depreciation for the quarter. There is some increase in depreciation, largely arising out of commissioning of new facilities, expansion of our truck and bus radial tire plant, a new plant in Chennai, and we expect depreciation to be at current level going into the next quarter. Interest cost increased primarily. Due to the reasons that I mentioned, average debt level during the quarter was a little higher and also banks increased the MCLR in the range of 10 basis points to 20 basis points. And therefore, it had some impact. And last is that as we capitalize assets, okay, borrowing to the extent of capital associated with the capital assets would also go into profit and loss account.
Overall, the consolidated profit after tax for the quarter stood at INR97 crores compared to INR181 crores in the same period of last year and INR121.45 crores in quarter two. The quarter two INR121.45 crores also had non-operating income of about INR16 crores received from our joint venture entity in Sri Lanka. And we are happy also to inform you that during the quarter, CARE, the credit rating agency carried out annual surveillance and affirmed rating of AA for long-term and A1-plus for the short term with a positive outlook which is a move from neutral outlook that they had taken in the previous year to a positive outlook. And as you would recall, we had shared with you in the previous quarters, India Rating also carried out a similar annual surveillance, okay, in the previous quarter and India Rating had also changed the outlook from neutral to positive during the quarter. So both the credit rating agencies now have maintained or affirmed the same credit rating of AA for long-term with a positive outlook.
With that, now we can open the floor for Q&A.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Jinesh Gandhi from Ambit Capital. Please go ahead.
Jinesh Gandhi
Yeah. Hi, sir. A couple of clarifications, first. One is you mentioned Nagpur two-wheeler capacity expansion is 20,000 per day. Is that correct?
Arnab Banerjee
Yeah.
Jinesh Gandhi
Okay. Got it. And secondly, exports which…
Kumar Subbiah
I just want to clarify, Arnab had mentioned, it’s an enabling approval that we have taken.
Jinesh Gandhi
Sure. Sure. Sure.
Kumar Subbiah
Yeah.
Jinesh Gandhi
That’s fine. And secondly, we mentioned that exports were 19%, but we expect that to go to 26% in FY ’26 because of U.S. ramp-up? Is that understanding also correct?
Arnab Banerjee
No. When we start integrating the turnover from Camso…
Jinesh Gandhi
Because of Camso, okay.
Arnab Banerjee
[Indecipherable] 100% international, it will go to 26%.
Jinesh Gandhi
Got it. Got it. Secondly, with respect to the underlying demand, so we are continuing to see a fairly good traction on the replacement side. Any red flags which you are seeing on the replacement demand side given that some of the OEM side growth is moderating. Any red flags on the replacement, which you’re looking at from FY ’26 perspective?
Arnab Banerjee
The passenger side demand is modest, I must say, in replacement, which is I mentioned mid-single digits. And OEM growth also had been modest this year. But then last year, OEM growth has been good. So the base is high. The vehicle park is high. So we’ll have to wait and see how the demand goes in a replacement for passenger. For two-wheeler, demand is very robust, especially in scooter, also in motorcycle, and it’s particularly robust in less than 50,000 tons. For MHCV, it is as usual in high-single digits — I mean, mid-single to high-single digits, which is pretty good actually, and we expect that to continue.
Jinesh Gandhi
Okay. Okay. Got it. And last question is with respect to our exports, so what percentage of our exports would be coming from U.S. now?
Arnab Banerjee
Percentage is difficult to mention. It’s — Europe will be highest for us. Europe and Latin America would be higher than U.S. at this point of time, even Middle East is high. U.S. will become a big market for us in the next two years’ time with OHT leading the way and now truck bus radials and, finally, passenger car radials. It’s not very high at present.
Jinesh Gandhi
Okay. Okay. And do you see any benefit of these tariffs, which are being threatened to put on Chinese imports, given that China probably will have a much higher share of tire imported in the U.S. So are we — do you expect to benefit if some of these tariffs actually come through?
Arnab Banerjee
We’ll have to wait and see because the Chinese manufacturers have also moved to newer and newer locations. You must have read about a new plant coming up in Cambodia recently in Mexico, right? So that continue — the competition will remain in some form or the other from different geographies from Chinese manufacturers. So we don’t expect too much of a change for the U.S. market in the near future.
Jinesh Gandhi
Got it. Got it. Great. I have a few more questions, but I’ll fall back in the queue. Thank you.
Operator
Thank you. The next question is from the line of Siddhartha Bera from Nomura. Please go ahead.
Siddhartha Bera
Yeah. Hi, sir. Thanks for the opportunity. Sir, if I’m correct, you mentioned that overall volume growth has been 7.9% in the quarter. So if I use that, it seems that the ASP increase sequentially has been largely flattish and this is despite a lot of price increases we have done across segments in the quarter three. So can you just help us understand is it because of mix or anything else why the ASPs are flattish?
Kumar Subbiah
You are referring to quarter three versus quarter two, is it?
Siddhartha Bera
Yes. Yes, sir.
Kumar Subbiah
No. Quarter three to quarter four, overall realization moved up by about 1.5%, 1.6%, realization per kg at aggregate level, okay? So — and so — the quarter on quarter has that additional 1%, 1.5% growth in the price.
Siddhartha Bera
Okay. Okay. Understood.
Kumar Subbiah
Okay. Okay. See, the revenue number, operating income includes a non-sale amount a little bit. So any movement there may not allow you to understand exactly, but please, in your understanding, assume that there was a 1.5% growth in price overall at aggregate level. Obviously, the percentage varied depending on the category and segment. But at aggregate level, 1.5% growth was there in price.
Siddhartha Bera
Got it, sir. And towards the quarter end, what was the amount of price hike we have taken in two-wheelers and how much increase do you expect at an overall level to further take place in the current quarter?
Arnab Banerjee
It’s a very small nominal increase because you would understand that there has been no increase, I think, for at least three to four quarters now in two-, three-wheelers The market has been robust. So we had focused on growth. So it’s a very nominal increase of around a 1% and it will be in small steps, but there will be multiple steps through quarter four and maybe in quarter one on two-, three-wheelers as well as opportunities in other categories.
Siddhartha Bera
Understood. So sir, basically two questions here. Why despite a very strong demand in two-wheelers we have not been sort of been able to take up the prices. Is it because of competition or anything else which is sort of leading this price increase? And second is, how much price increase do you think you will need more to probably go back to our targeted margin levels given that commodities are sort of flattening out and we probably won’t see a very meaningful drop in the coming quarters?
Arnab Banerjee
Yeah, it is because of competitive situation and the growth has been most robust here. So that’s the redeeming point. And the — with commodity prices flattening out, it is actually easier to plan for a price hike than when it is going up. That’s point number two. Point number three is that two-, three-wheeler have a higher proportion of synthetic rubber. So to that way — to that extent, the super hike of natural rubber was less impactful on two-, three-wheeler, but we have a gap to fulfill there. So that’s why we are now intending to take it up in small steps. So there may be five, six steps also to make up the pricing gap.
Siddhartha Bera
Got it. Got it. And sir, lastly, with this export push from the current segment, do you see generally, if I look at the segments, exports should be more profitable and now with the current depreciating as well, do you think there can be a lot of support that can come from the export markets as well?
Arnab Banerjee
Yeah, so export, those three focus areas of EU, U.S. and Latin, there is headwind in Latin, but U.S. is now going to grow because we have geared up at least in two segments, which is OHT and TBR with passenger going to come in FY ’26. Europe has started doing very well and at a very good margin in all these three focus areas of OHT in aftermarket and truck-bus radial has started moving up and passenger we have done very well in Europe as well in quarter three. So out of these three, two are definitely firing and the other areas are also doing fine. So our order book is good. So we definitely would like to grow at double-digit. We have grown in double-digit in Q3. We’ll continue to grow in double-digit in Q4 and thereafter, in exports, which is margin accretive as you said.
Siddhartha Bera
Understood, sir. Thanks a lot. I’ll hop back in the queue.
Operator
Thank you. The next question is from the line of Raghunandhan from Nuvama Research. Please go ahead.
Raghunandhan NL
Thank you, sir, for the opportunity. Sir, can you share the utilization level currently in TBR, PCR and two-wheeler?
Arnab Banerjee
TBR, Halol plant is fully utilized and Chennai is ramping up. So it’s slightly difficult to measure the utilization. But we are selling whatever we are producing by and large. So utilization in TBR is very high. In two-wheeler, which is our Nagpur plant, again utilization would be 90% kind of levels at this point of time, which is why we took an enabling approval from the board for expanding Nagpur. And passenger, again Chennai is scaling up. So we have very high utilization at Halol, almost 90%, 95%. And Chennai, again difficult to measure because it is in the ramp up phase, but pretty high utilization. But we have a runway in front of us at Chennai.
Raghunandhan NL
Understood, sir. So at Chennai, you would still have space for further brownfield expansion and fair to assume, just wanted to reiterate your stance, that next two, three years, all the expansion will remain brownfield.
Arnab Banerjee
Next two, three years, Chennai, there is lot of space, you are correct. And we’ll continue to incrementally expand Chennai. And we will — we have now taken an enabling resolution on Nagpur. So we will go incremental in Nagpur also, we’ll keep on expanding it. And TBR, of course, is in expansion phase. So yes, most of it will be brownfield. OHT at Ambernath is also brownfield. So in fact, all of it will be brownfield.
Raghunandhan NL
Understood, sir. And what would be the broad capex for FY ’26? Would it be in the same range INR1,000 crore to INR1,100 crore?
Kumar Subbiah
No, see, we are in the midst of our annual planning exercise now, okay? So as far as current year is concerned, I think we have clear visibility to the INR1,050 crores kind of capex. Maybe we’ll share an update once we complete our annual planning, which has a long-term demand plan, long-term supply plan, and next year’s plan, etc. So we’ll share that maybe in the next quarterly call.
Raghunandhan NL
Understood, sir. And also, in terms of U.S. market potential and assuming that over the next two years, you are saying that it will become a reasonably high sized portion of our exports. If you can talk a bit more on when the new products are getting introduced in the PCR space, what kind of markets you are targeting? And possibly in the next two, three years, would you expect U.S. to be 20%, 30% of your exports?
Arnab Banerjee
Yeah, so the U.S., If you are looking at the product market fit, U.S. is a completely different market from Europe, which is again completely different from India. So we are — our toolkit is the same. Study the local market, gather insight not only about the product, but about consumer usage, which we did for OTR, for TBR, and for PCR. And if you are saying 20%, 25%, it’s possible. It’s not impossible to reach that kind of a figure in the international business basket. Europe as a geography, considering all kind of products, is nearing 10% of our entire turnover. It is still single-digit. So that’s the biggest area which is growing. And U.S. is very small now. But that’s the aspiration, you’re right. And so the product platforms in passenger, you mentioned passenger particularly, are I think 10%, 20% similar to Europe, but the product platform and the performance characteristics are different. So we have developed the full range accordingly and we will ensue on our GTM in passenger in next financial year FY ’26.
Raghunandhan NL
Thank you very much, sir. Just a last question. On YTB basis, how has been our market share in two-wheeler, PCR, TBR versus last year?
Arnab Banerjee
TBR, there has been a steady gain, but it’s a very consolidated market with the top three players occupying a large chunk of the market. So we are playing in the balance, but we are gaining share. We are close to maybe double-digit, but still in single-digit. There has been a gain. Passenger is mostly steady with plus, minus 0.2% up and down over the quarters. So that’s how the market share has been.
Raghunandhan NL
Got it, sir. Thank you very much. I’ll fall back in the queue.
Operator
Thank you. The next question is from the line of Joseph George from IIFL. Please go ahead.
Joseph George
Hi, thank you for the opportunity. I have two questions. One is in relation to price hike. So what I wanted to understand was of all the price hikes that you’ve taken in the third quarter, how much is reflected in the third quarter results and how much will be the flow through into 4Q? So for example, if you hike price at the end of the quarter, the entire flow through will happen in 4Q. Can you just quantify that? Thanks.
Arnab Banerjee
Well, I think I don’t recall the exact month, but roughly 50% would have reflected in quarter three and would flow through into quarter four and there’ll be further price hikes in quarter four.
Joseph George
Okay. So would like 100 bps or something flow into 4Q based on the price hikes that you’ve already taken?
Arnab Banerjee
Little less than that.
Joseph George
Okay. Okay, great. The second question I had was in relation to the interest expense. So for the quarter, I noticed that it spiked to about INR75 crores. I know you mentioned that the average debt was higher, but closing debt was lower. But if I do a simple math, which is the INR75 crores for the quarter, if I annualize that, it works out to about INR300 crores. Your closing debt was less than INR2,000 crores. If I do a simple math there, INR300 crores divided by INR2,000 crores works to an interest cost of about 15%. Even if I assume that the average debt in the quarter was 10% higher, say, INR2,200 crores, even then it works out to 13.5%. Now, these numbers are mind-boggling. So want to understand what exactly is your cost of debt at this point and what is the direction on that number?
Kumar Subbiah
Okay. The finance cost that you see, interest is one of the components in that, okay? There are also banking-related costs which is in that number, but not very significant. See, in addition to the debt, we also have some security deposits that we have received from dealer channel, okay? And there is a corresponding liability also, which is — corresponding receivables also there in the current assets. So the deposits that we get from dealers also carry some interest, okay? So that interest needs to be — that is also part of this finance cost.
Joseph George
Okay. So for the debt that is there on the books, I mean, I’m not referring to the deposits from the distributors, dealers, etc. But for the debt on the books, what is the average cost of debt?
Kumar Subbiah
Yeah. So it’s closer to about 8%, mix of both long-term and short-term.
Joseph George
Okay, great. Thank you. That’s all I had.
Operator
Thank you. The next question is from the line of Kaushik Poddar from KB Capital Markets. Please go ahead.
Kaushik Poddar
This Camso acquisition, will it be funded by debt or fresh equity?
Kumar Subbiah
Camso — look Camso, it’ll be a mix of both. Needless to say, this is fungible whether debt or internal accruals. And so far in the last three years, most part of the capex we funded through our own internal accruals. So we have enough amount of even capex during the quarter also, as I mentioned, INR283 crores of capex was entirely funded through internal accruals only. So theoretically, we always assume whenever we carry out an exercise, one-third would be equity and two-thirds would be debt for the purpose of evaluation of proposals. And reality, last five, six years, if you really look at it where we have spent close to about INR5,000 crores, less than one-third of that got funded through debt and more than 80% got funded through internal accruals. So it’ll be a mix of both, okay? Cash generated from the operations depending on wherever it is required, the operating cash flow would be deployed, okay? And with this, assuming it is INR225 [Phonetic] million overall, okay, and some amount we will pay a little later, okay? And over a one-year period or 18 months period, only two-thirds of that amount incrementally will remain as a debt and one-third of — by end of the cycle, it would be done through internal accruals.
Kaushik Poddar
Okay. Okay. And as things stand today and as you foresee a little bit into the future, when — realistically, when can we get back to that 14% EBITDA margin?
Kumar Subbiah
No, see, in a four-, five-year cycle, okay, we always have one, one-and-a-half years where the commodity prices move up very fast, okay? In our industry, look, when the commodity prices significantly increase within a short period of time is when margins go to the lower-end of the range, which let us assume in a 10% to 5% — 15% range, let us assume, it is towards the lower-end of the range, which has happened, like rubber from INR150 per kg to two-and-a-half quarters back, it touched INR250 in Indian market, okay? And similarly, crude also has this tendency of suddenly moving up from $70 to $100, $110 and it stays there for a period of time. Very rarely, we had occasions where commodities went down by 30%, 40% at a short notice, but rent commodities do go up by that level. So at that point in time, generally it takes about six to nine months for us to pass some incidence of any increase in commodity costs, okay, in the form of a price increase after a little bit of a correction. So not very far from now we were at 14% plus level. Quarter four of last year, quarter three of last year, quarter — part of quarter two of last year, we were closer to that particular range, okay?
And as was mentioned in Arnab’s initial introductory speech, okay, we expect quarter four raw material prices to be at quarter three levels, stable levels. In those circumstances when raw material prices at least stagnate, I know it is still very high. If you ask us, we feel natural rubber international prices are at least $200 higher than the level at which it should be operating based on the relative prices of other commodities. And similarly, the crude derivative prices should have corrected little more. This is what a common sense logic says, but in reality, it has not happened, okay? So when the raw material prices remain at quarter four, at quarter three level, any price increase that we take would be margin positive, okay? And let us assume raw material remains even at the current elevated level for two quarters or three quarters — two quarters to three quarters, we should get back to slightly a higher-end of the range of margin, okay? And that is what we expect it to be. So if raw material remains, maybe quarter one, quarter two level, we would be higher than the mid range, which let us — if we assume 10% to 15% level, that’s where we see. Difficult to predict, but that’s the way it can move.
Kaushik Poddar
So by third quarter or fourth quarter of next year, can we go — can we see our margin going to, say, around 14%? Is it the way we are looking at it? Provided the raw material remains at this kind of level, yeah.
Kumar Subbiah
Yeah, two quarters back, we were 14%, okay? And we look forward — internally, we would always try to get it earlier, okay, we will work towards that, okay? While we don’t want to guide you like that, but internally, that’s the way — direction in which we would like to move.
Kaushik Poddar
So the takeaway I have is that from the peak of the raw material price in six to nine months, the hike in raw material price gets passed on. Is that the right way to look at it?
Kumar Subbiah
It takes that much time to pass on, in most part, in incidence of raw material costs. That’s the way it happens.
Kaushik Poddar
Okay.
Kumar Subbiah
Once it remains stable, okay, it takes almost six months for it to be fully passed on.
Kaushik Poddar
Great. Great. Thanks. Thanks. Thanks for this clarification. Thank you.
Operator
Thank you. Next question is from the line of Jinesh Gandhi from Ambit Capital. Please go ahead.
Jinesh Gandhi
Yeah. A couple of questions. One is on the capacity expansion side, so we have this enabling approval for two-wheelers and we are expanding capacity on the OST side. Apart from these two, any other expansions which we are either doing right now or looking to add capacities going forward?
Arnab Banerjee
Yeah, so I’ll explain the capex framework, which is being consistent for some time now and will be so in future. You’re right about Ambernath OHT and you’re right about the enabling approval. We are also carrying on incremental addition of capacity to Chennai in passenger car tires as well as in truck-bus radial tires. So it’s not — it’s all flexible, gradual, sometimes we’ll do a civil somewhere, upstream equipment somewhere, downstream equipment somewhere. But our capex guidance overall is bite-size, which we have been maintaining. This year, it was INR1,050 crores. We have not yet formed an opinion of what it will be next year, but it will be a similar range. It will be bite-size. We will never have a capex plan of INR3,000 crore in one year, etc., going forward. So it will all fit into that scheme of things. Right now, everything is brownfield, so very easy to manage.
Jinesh Gandhi
Okay. And for Chennai, PCR and TBR, what kind of capacity addition should we budget for?
Arnab Banerjee
Chennai is a continuous process. There is no end game. For example, right now, we have been talking about 20,000, that may go up to maybe another 7,000, 8,000, that may further go up by another 7,000, 8,000. So it’ll go — and within that 7,000, 8,000 in a year, we may do only 2,000. So it can go up to 35,000 to 40,000 tires in Chennai in the brownfield peak capacity. Right now, we are at about the halfway mark you can say so. Truck-bus radial, similarly, we are at the less than halfway mark. It can go up to maybe 3,000 overall and we have an approval for that from the board, but we’ll do it in a very measured way in a very, very tight and measured way. Right now, we are about 30% of — less than 30% of that figure. So we’ll keep adding every year.
Jinesh Gandhi
Okay. So TBR at Chennai would be — what would be the peak capacity we can do from the current infrastructure?
Arnab Banerjee
3,000.
Jinesh Gandhi
3,000 per day.
Arnab Banerjee
That’s right.
Jinesh Gandhi
Got it. Got it. Okay. And Kumar, from a tax rate perspective, how should we think about the tax rate we — I mean, at consol, obviously, Sri Lanka will have its influence, but for first nine months, we have seen it to be close to about 28% at consol level.
Kumar Subbiah
No, okay. See, the best way to understand TBR is on standalone, okay? So consol may sometimes be a little bit confusing, okay? And now there is hardly any difference in — both in revenue as well as in profits between CEAT standalone and CEAT consolidated. Sometimes this — our JV in Bangladesh loss, in case we are incurring or that may have a marginal impact on income tax ETR. So ETR, we are close to about 26% in that range on a standalone basis. And as there are no more tax benefits available, so therefore, ETR would be closer to that range only.
Jinesh Gandhi
Got it. Got it. Great. Thanks, and all the best.
Operator
Thank you. [Operator Instructions] The next question is from the line of Nandan Pradhan from Emkay Global Financial Services. Please go ahead.
Nandan Pradhan
Hi, am I audible?
Arnab Banerjee
Yeah.
Nandan Pradhan
Yeah. Hi. Sir, I just wanted to know your thoughts about the volume and the value growth for next year across segments? And also, if you could shed some light on what is driving your outperformance in the OEM category versus the competition, like how are the market share gains planning out — panning out?
Arnab Banerjee
So you wanted to know the market growth for next year?
Nandan Pradhan
So your thoughts on how do you see CEAT’s volume and value growth across segments next year?
Arnab Banerjee
Next year, next calendar year or financial year, right?
Nandan Pradhan
Yes, FY ’26.
Arnab Banerjee
Yeah, FY ’26, it — first of all, it will follow — it will depend on the market growth, which I shared earlier. And we would continue to push strongly on the passenger side, which is passenger car tires and two-wheeler in replacement and TBR will maintain the momentum. International business with the operationalization of the Camso, I think there’ll be synergies kicking in for the OHT segment gradually, maybe in the second half of the year. So that will be a strong focus in the sense OHT is now about 15% of our turnover and that will almost double or more than double with the acquisition. So a lot of synergies will kick in.
And OEM, you asked how will we increase. So in OEMs, there have been a — it takes lot of effort in homologation and getting approvals. Those approvals are gradually coming in now. So in passenger car tires across OEMs, several vehicles are getting launched, some got launched in Q3, Q4, Q1, Q2 like that, and that is completely visible. There could be one or two months delay here and there, or it may be preponed. So our capacities are aligned, plant approvals are aligned. So we have a fairly good view of how much volume and hence share of business will increase in OEM in both four-wheeler and two-wheeler.
Nandan Pradhan
Thank you, sir.
Operator
The next question is from the line of Vijay Pandey from Nuvama. Please go ahead.
Vijay Pandey
Hi. Hi, thank you for taking my question. Sir, I have two questions. [Indecipherable] I wanted to check what is the — like your — like profitable exposure in terms of natural rubber and synthetic rubber, like how much of the total cost will be of from raw material, natural rubber, and synthetic?
Kumar Subbiah
Okay, see, while natural rubber is easier to explain, because there are not many grades of natural rubber available, only two different sources of natural rubber, one being India and another being imports. Largely, Indian rubber is called a sheet rubber, and imports, at least what we do import is largely block rubber. Currently, local natural rubber prices are in the range of INR190 per kg. And international natural rubber prices are in the range of $1,900 to $2,000. That translates to INR205 per kg to INR210. So that is what happens. Synthetic rubber has different grades of synthetic rubber. One is called as polybutadiene rubber, which is TBR, then another one is SBR. And within them, also there are multiple grades, okay? And the prices vary depending on the grade of synthetic rubber. And generally, synthetic rubber prices currently are in the range of INR150 to INR225 per kg, varying between grades. That is the way it is.
Vijay Pandey
Okay. And sir, in terms of exposure, like — is it like 30% natural number and 30% — like is it evenly distributed or?
Kumar Subbiah
In value terms, it’s possible. In volume terms, natural rubber could be about 25%, okay, and synthetic rubber could be also closer to that number. In value terms, they would be close to about 30% each.
Vijay Pandey
Okay. Okay. And sir, can you please expand on the capacity expansion plan of the — like you are adding the new capacity in the two-wheelers and three-wheeler segments. You can little bit explain about it what is the kind of revenue and expectation from that capacity expansion, that will be very good.
Kumar Subbiah
See, I think we took an enabling approval for Nagpur. I think Arnab just explained about overall capital framework for us, okay? We tried to create some upstream capacities available and keep on adding downstream as we see demand is a capex — capital expenditure framework that we have and our capex — capital allocation decide — determines how much to allocate for each of the key categories. In case of two-wheeler, we just — we took an enabling approval so that we could plan some upstream over a period of time.
Vijay Pandey
Okay.
Kumar Subbiah
And currently, as he — Arnab also earlier mentioned about capacity utilization of two-wheeler plant at Nagpur. We also outsource some two-wheelers, okay? We are in the range of 85% to 90% kind of capacity utilization level. We can still get little more from the existing plants, okay? So — and the two-wheeler has grown this year well in the first nine months of the year in the replacement segment, okay? And it is almost about 30% of our revenue. That’s the way we see overall.
Operator
Thank you. Ladies and gentlemen, this will be our last question. It’s from the line of Garvita from Seven Islands PMS. Please go ahead.
Garvita Jain
Hello, sir. My question is around the raw material thing. So we have insoluble sulfur as one of the raw material for manufacturing tire, right? I wanted to understand what is the percentage share of insoluble sulfur in manufacturing one tire or in total?
Kumar Subbiah
Can we — don’t have that information immediately available. If you could reach out to our Investor Relations, Arjun, we will share the details through him. Is that okay?
Garvita Jain
Works for me. That’s all. Thank you so much.
Kumar Subbiah
Thank you very much.
Operator
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for their closing comments.
Arnab Banerjee
Yeah, thank you very much for attending the call. And again, wish you a very Happy New Year and looking forward to seeing you again in April. Thank you.
Operator
[Operator Closing Remarks]