CEAT Q2 profit down 85 percent at Rs 6.4 crore, company expects a better second half

Tyre maker CEAT reported an 85 percent decline in its consolidated net profit for the quarter ending September, dragged down by higher expenses and a double-digit spike in raw material cost.

The net profit for Q2FY23 stood at Rs 6.4 crore against Rs 42.28 crore net profit registered by the company in the same period last fiscal.

Led by volume growth and regular price increases, the company's consolidated revenue posted an 18 percent growth in Q2FY23 at Rs 2,894 crore versus Rs 2,452 crore revenues recorded by the company in the period a year ago. The new PV tyre capacity ramp up also supported revenue growth.

According to Anant Goenka, Managing Director, CEAT the domestic market continues to witness an uptick in demand, which has led to strong growth in the OEM segment. During the quarter, the company made price adjustments in the two-wheeler segment, which has positively impacted margins.

“Internationally, we are beginning to see some headwinds in developed markets. Going forward, we expect the second half of this year to be better in terms of revenue and margins because of improving domestic demand and stabilising commodity prices,” Goenka said.

During the quarter under review, the company's EBITDA margin stood at seven percent, an expansion of 96 bps vs Q1FY23.

“There have been some corrections in the commodity prices recently and if the trend continues, we expect it to positively impact the business in the coming quarters. We continue to keep tight control on cash flows and costs during the quarter. Our consolidated net debt has increased by Rs 197 crore during the quarter largely due to capex and movement in working capital,” Kumar Subbiah, Chief Financial Officer of CEAT said.

According to Mitul Shah, Head of Research at Reliance Securities CEAT delivered healthy operational performance in 2QFY23.  

“The price hikes in coming months in a healthy demand environment would support profitability. The operating leverage, price hike and product mix would aid margins. In view of the strong volume growth ahead, pricing power returning to industry, healthy export potential and increasing margin territory (earnings have a higher margin sensitivity), at present we have a BUY call on CEAT,” added Shah.