CEAT Ltd Quarterly Results Q1 FY 26 stock analysis

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Sector Outlook: Neutral

Topline momentum continues; Margins drag

CEAT Limited reported a strong topline number during the quarter of Rs. 35,294 million (up 10.5% YoY / up 3.2% QoQ), while being largely in line with street estimates of Rs. 35,143 million. The uptick in revenue was on account of healthy volume growth and better pricing. Gross Profit in absolute terms stood at Rs. 12,983 million (up 3.6% YoY / up 1.3% QoQ), while translating to a margin of 36.8% (down 245 bps YoY / down 68 bps QoQ). Weaker margins on the YoY front was attributed to rise in RM basket, while basket remained flattish in sequential terms. EBITDA for the quarter stood at Rs. 3,877 million (up 1.3% YoY / down 0.1% QoQ) while margins for the same stood at 11.0% (down 101 bps YoY / down 36 bps QoQ). The decline in margins was driven by an unfavourable product mix impacting realisation while higher marketing spends also dented the margins. The overall profit for the quarter was reported at Rs. 1,138 million (down 23.5% YoY / up 22.1% QoQ), lagging behind market estimates of Rs. 1,488 million. On the deal front, the management has expressed that the company is expecting to close the Camso deal in the current quarter. On the raw material front, natural rubber prices fell from about USD 1,900 to USD 1,700 in the international market, while domestic prices remains buoyant at about Rs. 200/kg on account of demand-supply gap.

Key Concall Highlights

CEAT reported overall volume growth of 9% and value growth of 11.5% in Q1FY26, with strong domestic demand driving performance, especially in OEMs and the replacement segment, while export volumes remained flat. The OEM segment grew in the early 20s and is expected to sustain strong momentum due to approvals for higher rim size tyres. The replacement market showed robust single-digit growth, driven by strong demand in trucks, buses, and two-wheelers—particularly scooters—though the passenger segment was muted. International sales remained flat amid geopolitical and macroeconomic challenges, particularly in Europe, Latin America, and the Middle East, though agriculture and OTR variants saw a gradual uptick. CEAT maintained a strong position in the ePV segment with a 32% market share, while its e2W OEM share dipped to 12%, which the company expects to recover as EV models increase. Raw material costs are expected to decline 1–2% in Q2FY26 due to corrections in global rubber and crude derivatives. The Camso acquisition, expected to close in Q2FY26, will add ~$150 million in annual revenue, with historical margins in the mid-teens and additional CapEx needs of ₹50–100 crore for FY26. CEAT’s consolidated debt stood at ₹1,814 crore with a healthy debt-to-EBITDA ratio of 1.2x and debt-to-equity of 0.4x. Q1 CapEx was ₹231 crore, in line with its ₹900–1,000 crore annual guidance. An additional ₹450 crore has been approved for capacity expansion at the Chennai plant, to be maintained within the overall CapEx plan. Projected total debt for FY26 is ₹3,500–3,600 crore. CEAT also introduced advanced tyre technologies, including ZR-rated tyres, 21-inch variants, CALM tech, and Run-Flat Tyres (RFT), with plans to launch them in global markets.

Valuation and Outlook

CEAT reported a stable yet slightly mixed Q1FY26 performance. The company demonstrated solid revenue growth, backed by strong momentum in the OEM segment (early 20s growth) and single-digit growth in the replacement segment, particularly led by commercial and two-wheeler categories. However, international business remained flat due to geopolitical headwinds and weaker offtake in Europe. Profitability remained mix, with operational margins under pressure as the higher RM prices could not be passed to the customers, while net profit remained weak on YoY basis while declined sequentially. Despite this, CEAT continued to gain market share across segments and showcased resilience in its strategic segments like premium and EV tires. Operational efficiency, prudent working capital management, and decreasing debt levels continue to offer some silver lining. Looking ahead, CEAT is optimistic about a recovery in international markets, led by seasonal demand in Europe and easing of channel destocking. Margin recovery is expected in Q2FY26 on the back of lower raw material costs and better realizations. The consolidation of Camso in H2FY26, a stronger play in premiumisation, and new product approvals across EVs and SUVs should support revenue momentum and aid medium-term margin expansion. While near-term OEM growth may taper slightly, management’s focus on premium categories, export revival, and sustained market share gains in replacement are likely to drive steady performance over the next few quarters.