Summary of the Conference Call on Global Tyres Industry Industry Overview - The report focuses on the global tyre industry, particularly the performance and pricing strategies of major tyre manufacturers, including Michelin, Bridgestone, Pirelli, and Continental [2][7]. Key Insights Pricing Power and Market Dynamics - Major tyre manufacturers (Tier 1s) have significant pricing power, with prices increasing by approximately 25% since 2020 [2]. - Despite concerns about potential price gouging, analysis of tyre testing data indicates that current price premiums are comparable to those from five years ago, suggesting that pricing has not reached unsustainable levels [2][4]. - The correlation between tyre prices and quality scores from ADAC tests shows that Tier 1 brands can command prices above what their quality would imply, with Michelin and Pirelli pricing over 10% higher than their quality suggests [3][25]. Brand-Specific Pricing Power - Michelin and Pirelli have maintained the ability to price their products at double-digit percentage points above their quality over the past three years, demonstrating strong brand power [5]. - Continental has seen a decline in pricing power for its Tier 2 brands, while Bridgestone's Tier 2 Firestone brand has shown improvement, indicating a shift in strategy towards gaining market share [5][26]. Future Pricing Expectations - For 2026, positive like-for-like (LFL) pricing is expected across the industry, driven by the passing of tariff costs, although this will be partially offset by a projected 3% decline in raw material costs [6][83]. - The average weighted raw material basket for tyre manufacturers is anticipated to decrease due to falling rubber and oil prices [6][89]. Competitive Landscape - The report highlights a bullish outlook on competition within the tyre industry, with Tier 1 manufacturers offsetting volume losses with increased average selling prices (ASP) through premiumisation [7]. - There is little indication that low-cost competitors are catching up, reinforcing the strong market position of Tier 1 brands [7]. Company-Specific Ratings - **Michelin**: Rated Outperform, with expectations for margin expansion driven by premiumisation and restructuring. The company is positioned for significant cash returns due to low balance sheet leverage [9][10]. - **Pirelli**: Also rated Outperform, benefiting from structural tailwinds and potential resolution of governance disputes, which could lead to a significant rerating of its stock [10]. - **Bridgestone**: Maintained an Outperform rating, with expectations for returning 5% of its market cap next year through buybacks [11]. - **Continental**: Rated Market-Perform, with concerns about potential downside risks from the sale of its ContiTech division [12]. Additional Insights - The report emphasizes that the pricing strategies of Tier 1 manufacturers have not resulted in price gouging, as evidenced by consistent price premiums relative to quality since pre-inflation levels in 2020 [4][26]. - The analysis of tyre testing data from ADAC supports the conclusion that Tier 1 brands are effectively leveraging their brand and distribution power to maintain pricing integrity [25][61]. Conclusion - The global tyre industry is characterized by strong pricing power among major manufacturers, with a positive outlook for future pricing and market dynamics. The analysis suggests that Tier 1 brands like Michelin, Pirelli, and Bridgestone are well-positioned to capitalize on premiumisation trends, while Continental faces challenges that may impact its performance.

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the **global tyre industry**, particularly major players including **Michelin**, **Bridgestone**, **Continental**, and **Pirelli** [2][19][26]. Core Insights and Arguments - **Positive Outlook for 2026**: The tyre sector is expected to benefit from a favorable setup, with conservative growth expectations and a shift from tariff shocks to a new reality that favors Tier 1 manufacturers [4][21]. - **Valuation Upgrades**: - **Michelin** is maintained as the top pick with a target price of **€38**, representing a **34% upside**. The company is expected to achieve margin expansion driven by premiumisation and restructuring [10][19]. - **Pirelli** is upgraded to **Outperform** with a target price of **€7**, indicating a **20% upside**. The resolution of governance issues is anticipated to unlock significant value [11][51]. - **Bridgestone** is also rated **Outperform** with a target price of **¥4,300**, reflecting a **22% upside** due to expected revenue growth from new technology [12][45]. - **Continental** is upgraded to **Market-Perform** with a target price of **€66**, indicating a **3% downside**. The valuation appears fair, but risks remain regarding the ContiTech sale [13][61]. Financial Performance and Expectations - **2025 Performance**: - Continental and Bridgestone delivered over **30% Total Shareholder Return (TSR)**, while Michelin underperformed with a **-37%** return due to weak commercial markets [3][20]. - **2026 Projections**: - The sector is expected to see EBIT margins increase year-over-year for the first time since 2021, with cash returns anticipated to rise across all players [4][21][27]. - Michelin's adjusted EBIT margin is projected to be **12.0%** in 2026, ahead of consensus estimates [31][36]. Risks and Opportunities - **Risks**: - Potential slower recovery in weak segments, governance disputes, and the risk of disappointing sales prices for assets like ContiTech [35][60]. - **Opportunities**: - The premiumisation trend in the tyre market is expected to continue, providing growth potential for companies like Michelin and Pirelli [6][50]. Additional Insights - **Market Dynamics**: The tyre industry is characterized by high EBIT margins (15-20%) and a significant portion of revenue coming from the aftermarket, which limits cyclicality [6][23]. - **Valuation Methodology**: The report suggests that the market will sustain higher multiples for the sector, with **8-9x EBIT** being justified based on historical performance [5][22]. Conclusion - The tyre industry is positioned for growth in 2026, with key players like Michelin, Bridgestone, and Pirelli expected to benefit from structural tailwinds and improved financial performance. The resolution of governance issues and continued premiumisation will be critical for unlocking value in the sector [19][50].

Market Overview - The Nifty index has shown a consolidation phase within a broad range of 1,000 points, indicating a corrective phase, while the Bank Nifty has started to show relative outperformance [4][9] - Immediate support for the Nifty is around the 24,900 zone, with resistance levels identified between 25,400 and 25,500 [4][8] Sector Performance - The Consumer Discretionary vs FMCG ratio chart has broken out after nearly two years of consolidation, suggesting potential outperformance of discretionary stocks over defensives [8][9] - The Nifty PSU Bank index has outperformed and is expected to continue this trend, with specific stocks like SBI and Punjab National Bank showing strong momentum [5][9] Stock Recommendations - Stocks such as Axis Bank, Kotak Bank, and Bank of Baroda are anticipated to outperform within the banking sector [9] - Ceat and Apollo Tyres are projected to have a potential upside of 10-12% following a base breakout in the Tyres Index [8][9] - L&T is on the verge of a breakout from significant consolidation, while CDSL appears bullish from a positional perspective [5][9] Technical Indicators - Nifty has posted two consecutive green candles, indicating renewed buying interest, with a hidden positive divergence in the daily RSI providing support for the ongoing rally [6][9] - A breakout above 25,550 could lead to a target around 25,850, while sustaining above 25,000 may continue to offer buying opportunities [7][9]

Summary of Key Points from the Conference Call Industry Overview - The conference call focuses on the **global tyre industry**, particularly the competitive landscape and investment opportunities within the sector [1][2][3][4]. Core Insights - **Positive Outlook for Tier 1 Tyremakers**: The analysis is bullish on Tier 1 tyre manufacturers, highlighting their high margins and discounted valuations, predicting prosperity over the next decade [2][3]. - **Michelin as Top Pick**: Michelin is identified as the top investment pick with an expected upside of **28%** [2][4]. - **High EBIT Margins**: The tyre industry generates high EBIT margins (~**15%**) that are expected to expand over time, with a majority of revenue coming from the aftermarket rather than OEMs [3][4]. - **Premiumisation**: The trend of premiumisation is crucial for growth, with significant returns on innovation and R&D investments noted. The increasing penetration of EVs, SUVs, and luxury cars is expected to drive positive mix shifts [3][4]. Competitive Landscape - **Market Stability**: Despite the rise of low-cost Chinese competitors, Tier 1 companies maintain approximately **50%** of the market share in value terms, indicating stability in their market position [14]. - **Product Innovation**: Tier 1 companies have successfully limited price competition through product innovation, focusing on quality segments where consumers are willing to pay a premium [5][14]. - **Regional Dynamics**: Michelin is noted to have a larger presence in North America compared to Europe, while Bridgestone has a stronger focus on the APAC region [33]. Financial Metrics - **Revenue and Growth**: The global tyre industry is valued at approximately **$200 billion**, with year-to-year revenue fluctuations largely driven by raw material prices [11]. - **Cash Generation**: Tyre companies convert **40-60%** of annual EBITDA into free cash flow, positioning the sector favorably compared to other industrial sectors [80]. - **Valuation Multiples**: Michelin and Bridgestone are valued at higher multiples due to their strong margins and growth potential, while Pirelli and Continental are rated as Market-Perform due to governance and valuation concerns [8][10]. Investment Implications - **Stock Ratings**: Michelin and Bridgestone are rated as Outperform, while Continental and Pirelli are rated as Market-Perform [8][10]. - **Capital Allocation**: Michelin has balanced its cash use between M&A, deleveraging, and increasing capital returns through dividends and buybacks, indicating a strong capital allocation strategy [88]. Risks and Challenges - **Competitive Threats**: Potential risks include increased competition from low-cost Chinese manufacturers and the impact of economic downturns on premium tyre markets [114][116]. - **Market Dynamics**: The cyclical nature of the Truck & Bus market poses challenges, with lower margins compared to other segments [75][79]. Conclusion - The global tyre industry presents significant investment opportunities, particularly in Tier 1 manufacturers like Michelin and Bridgestone, driven by premiumisation and innovation. However, investors should remain cautious of competitive threats and market volatility.