CEAT Ltd. – Q3FY24 Result Update

Sector Outlook – Positive
Ceat Ltd., had a robust performance in the third quarter of FY24. Their revenue went up by 9% compared to last year but dropped 3% compared to the previous quarter. This was mainly because of a 25% increase in international sales. 

However, in India, they saw a small drop in both the number of tires sold and their prices. The company did well in the replacement tire market, which helped make up for fewer sales to car manufacturers (OEMs). The management is hopeful that the next quarter will be better.

Even though Ceat met market expectations, their profit margin on sales fell slightly due to higher costs for materials like rubber and changes in export pricing. They managed to control this impact somewhat by spending less on advertising and cutting other costs. As a result, their earnings before interest, tax, depreciation, and amortisation (EBITDA) grew significantly compared to last year, but were slightly down from the previous quarter. 

Their overall profit also saw a big year-on-year increase, but a slight decrease from the last quarter. The company also made a profit from its joint venture, which was a big improvement from the loss in the same period last year.

Looking forward, Ceat expects stable material costs due to recent steadiness in crude oil prices and plans to focus on more profitable areas like exports and off-highway tires (OHTs). 

They are also continuing with their expansion plans, especially in truck and bus radial (TBR) tires, sticking to their planned spending of Rs 600-650 crores for the year to support growth and improve efficiency.

Concall Highlights

• Ceat Ltd. had strong growth in Q3, with a 12.5% increase in total sales volume. This was led by a big 25% jump in export sales and an 11% rise in replacement tire sales, even though sales to car manufacturers (OEMs) went down by 9%.
• The company did really well in selling tires for international markets and expects this trend to continue. However, they predict that domestic sales to car manufacturers might be weaker.
• Ceat is doing well in the replacement tire market and in various vehicle segments, including commercial vehicles, two-wheelers, and passenger cars.
• The company is seeing good results in its off-highway tire segment and is launching new premium products, including targeting clients like Tesla in exports.
• Exports are growing well, especially in the USA, Asia, and Africa, but Europe is a bit slow due to economic challenges.
• Raw material costs are expected to be stable, and the company has adjusted prices in the export market to stay competitive.
• Ceat is gaining market share in certain segments like two-wheeler scooters and passenger vehicles, and focusing on electric vehicles with major clients.
• The company has reduced its debt and is managing its finances well, with debt-to-equity and debt-to-EBITDA ratios improving.
• They have spent Rs 215 crores on capital expenditures in Q3 and plan to spend Rs 800-820 crores for the full year. Expansion projects are on track in various locations.
• Ceat is focusing on generating strong cash flows to fund its expansion and reduce debt, strengthening its financial position in the market.

Valuation and Outlook

Ceat Ltd. is looking at a bright future with steady growth in both its main customer groups: car manufacturers and tire replacement markets. 

The company is planning to keep making good profits by sticking to its pricing strategies and focusing on selling high-profit tires, especially for SUVs, which are popular and more profitable due to their larger size. 

With a record number of passenger vehicles sold in India in 2023, CEAT is set to see increased demand for replacement tires in the next few years.

The company is also excited about starting to sell tires in the US market in early FY25, expecting this move to significantly boost their sales. Additionally, CEAT is working hard to increase its tire sales abroad, especially in off-road and passenger car tire categories, which shows its ambition to grow globally. 

It’s also focusing on gaining more market share in two-wheeler scooters and trucks, and plans to spend Rs 800-820 crores this year on maintaining and growing its business.

While rising costs of natural rubber might affect their profits, CEAT is taking steps like expanding in profitable tire categories and working to increase sales in two-wheelers, which are positive moves for the company’s future.