High commodity prices pinch Ceat’s Q1 margins, company expects pressure to continue in Q2

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Tyre maker Ceat Ltd reported a consolidated profit of Rs 23 crore for the April-June quarter but its margins came under pressure due to rising input prices which it could not fully pass on to consumers.

The company had turned a loss of Rs 35 crore for the same period last year when lockdowns impacted businesses across the board.

Consolidated revenue for the quarter came in at Rs 1,906 crore, a growth of 70% year-on-year, but on a low base. Earnings before interest, tax, depreciation and amortisation (EBITDA) improved by 62% on-year to Rs 165 crore. EBITDA margin, however, narrowed by 45 basis points to 8.7%.

Anant Goenka, the managing director of Ceat, said that the company expects the margins to remain under pressure for the July-September quarter as well before recovering in the subsequent quarters. However, he expects sales to improve significantly over the latter half of the financial year.

“The last quarter has been challenging for us. Revenue grew by 70% year-on-year due to low base but compared to the previous quarter it was quite challenging,” he told ET over the phone.

The company would implement a price increase across products in July – the third such hike for 2021. It may again consider a hike in August-September as well, Goenka said.

“Raw material prices have gone up by 10-12% compared to the previous quarter. We need a 3-5% price increase in Q2 (July-September) to come back to normal margin levels,” he said, adding that he doesn’t expect commodity prices to go up further.

Crude oil and natural rubber are the two key raw materials for the tyre industry.

However, Goenka was bullish on a demand recovery in the latter half of the financial year coupled with normalised margins, helping the company end this financial year with a double-digit growth over FY21.

The company has sufficient manufacturing capacity to cater to an increase in demand. It’s passenger car tyre plants were 50-60% utilised and more capacity was being built. Similarly, truck radial tyre plants capacity utilisation levels were at 60-70% and the company has more expansion planned. The two-wheeler tyre plant was fully utilised presently, but an additional 15% capacity could be created through small investments, Goenka said.

The stock of Ceat Ltd declined 1.88% on the BSE on Wednesday to close at Rs 1399.2.

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