Recent financial report of CEAT ltd focusing on financial performance of the company
Table of Contents
Sector Outlook: Positive
Revenue growth maintains momentum; Margins under pressure
CEAT reported a mixed performance for the quarter. Revenue was ₹3,305 crores, up 3.5% from the previous quarter and 8.2% year-on-year, beating expectations of ₹3,284 crores, thanks to strong replacement and international sales. The company saw solid volume growth driven by strong demand from original equipment manufacturers (OEMs) and a recovery in overseas markets. EBITDA was ₹362 crores, down 5.4% QoQ and 20.6% YoY, but still above estimates of ₹349 crores. Margins were lower at 11%, impacted by rising raw material costs, though CEAT managed to partially offset this through pricing strategies and efficiency. Higher employee costs also affected margins. The company’s debt increased by ₹280 crores to cover raw material expenses and pay dividends. Adjusted PAT came in at ₹121 crores, below estimates of ₹142 crores. Looking forward, CEAT is expected to maintain revenue growth, with margins improving as raw material costs decrease.
Key Concall Highlights
- During the quarter, the company recorded its revenue at Rs. 3,300 crore, with healthy volume growth (up 1.2% QoQ / up 6.4% YoY). Replacement and international volumes both grew by strong double digits. However, OEM remained the soft spot during the quarter.
- By the end of Q2FY25, the company had increased the prices of truck bus radials by close to 2% and passenger car radials by about 3.5%. The company plans to increase prices further, as the earlier hike does not compensate for the increase in RM in the first two quarters.
- Overall, the capacity utilisation is around 80%. It is closer to 100% in truck bus radial, and in its Nagpur 2W plant, it is inching up to 90%.
- The company is optimistic about expanding its business share in the EV segment, with some new upcoming approvals. It has a market share of 25% in E-PV. Europe, Middle East and LatAm are the top three clusters, contributing to two-thirds of international business.
- The CapEx guidance is maintained around Rs. 1,000-1,050 crores. During the quarter, the company spent Rs. 175 crores on capex, and on a full-year basis, the total comes out to Rs. 430 crores, which is in line with the guidance. The company has successfully commissioned its TBR plant in Chennai, and other projects are progressing as per schedule.
- The company is expecting solid growth in H2FY25, with double-digit growth in replacement and overseas markets and a comeback in the OEM segment. It expects container availability to improve and its GTM to scale up in the US, led by TBR.
- The company expects inflation to continue on the commodity front but at a lower rate of 1.5-2%, giving some space to improve margin in Q3FY25. In Q4FY25, with fresh crops coming in, the RM basket may flatten.
- The company expects overall working capital to normalise by the next quarter, as it has taken measures to reduce its raw material inventory cover.
- Debt/EBITDA stood at a comfortable level of 1.19x and D/E at 0.45x. Increased operating expenses were higher on account of annual increment, incentives and additional salary expenses on account of higher level of production activity.
- Tight control on other expenses, particularly discretionary and advertisement costs, aided the company to partially mitigate the risk of rising RM.
Valuation and Outlook
Despite a weaker profit performance, CEAT is positioned for future growth as demand improves, though rising commodity prices remain a challenge. Revenue growth is strong, driven by both volume and price increases. The company saw growth in Latin America and Europe, though higher freight costs affected margins. CEAT has gained 1-1.5% market share and expects more gains ahead. The company is optimistic about the second half of FY25, with expectations of double-digit growth in replacement and international business, along with a steady recovery in the OEM segment. Freight rates are expected to ease as the Red Sea situation stabilises, and lower raw material costs in H2FY25 should help improve margins. Additionally, CEAT’s new truck bus radial production line will boost its international market presence, while strong demand from OEMs for vehicles equipped with CEAT tyres will further drive growth.
