Ceat share price hit a new high of Rs 3,262 today, up 3 per cent on the BSE in Friday’s intraday trade on a positive outlook. The stock of the automobile tyre maker was trading higher for a sixth straight day, surging 16 per cent during the period. By comparison, the BSE Sensex was down 0.19 per cent at 85,661 at 03:03 PM.
Post achieving a healthy revenue share in two-wheelers and three-wheelers (2W/3W), PCR (Passenger Car Radial), and OTR (Off the Road) segments, Ceat is looking to increase its presence in the TBR (Truck, Bus and Radial) segment through capex at Chennai TBR facility, which is likely to commence operations from March 2025. The capacity at Chennai TBR plant will increase by 50 per cent in phase I and by 100 per cent in phase II by September 2028.
In the April to June quarter (Q1FY25), Ceat’s revenue increased to Rs 3,190 crore (Q1FY24: Rs 2,940 crore). India Ratings and Research (Ind-Ra) expects Ceat’s revenue to be Rs 13,000 crore-15,000 crore in FY25, backed by continued replacement demand, price hikes leading to improved realisations and the company’s focus on exports. Ind-Ra also expects the revenue growth to remain healthy over the medium term, supported by a ramp-up in production at the new facilities.
However, Ceat’s margins were impacted on a quarter-on-quarter (QoQ) basis (Q1FY25: 12.0 per cent, Q4FY24: 13.1 per cent, Q3FY24: 14.1 per cent, Q2FY24: 14.9 per cent, Q1FY24: 13.2 per cent), largely on account of the increase in raw material prices. As a result, the company increased prices in the replacement segment by 1 per cent-2.5 per cent Y-o-Y in Q1FY25 and will take calibrated price increases further to combat raw material price hikes, the rating agency said.
Ind-Ra expects Ceat’s earnings before interest, tax, depreciation and amortisation (Ebitda) margins to reduce to 10.5 per cent-11.5 per cent in the near term, owing to an increase in raw material basket prices and advertisement spend for brand building. “Ind-Ra understands that the Ebitda margins remain susceptible to volatility in raw material prices, although takes comfort from the company’s ability to pass on the same to its customers and the increasing presence in – 2W/3W, PCR and OTR segments with ability to pass on raw material price increases,” it said.
Meanwhile, according to reports, tyre makers are headed for a rough patch as the price of natural rubber has increased more than 33 per cent year-on-year (Y-o-Y) in just the first five months of this fiscal year amid strong demand and crunched supply, which could strain their profitability. Domestic prices of natural rubber closed August at Rs 238 per kg on an average, way above the trend in the past decade, ICICI Securities said in a note.
Earlier this month, brokerage firm Emkay Global Financial Services initiated coverage on Ceat with a ‘Buy’ rating and a target price of Rs 3,650 (17x Sep-26E PER). Despite street concerns about margin volatility due to spike in raw material (RM) prices, analysts at the brokerage point out to gradual de-linking of tyre industry profitability from the underlying RM (gross margin 4-5 per cent higher now than the corresponding RM level 2Y ago).
“Backed by best-in-class R&D, industry-leading marketing spends, and OEM relationship focus, Ceat has outperformed across parameters in the last 5Y, with leadership in consumer categories (now #1 in 2Ws; strong #3 in PCR), and is showing greater resilience to RM volatility vs peers,” Emkay Global said.
The brokerage firm further said they build in RM-led pressure in the near term; price hikes, accelerating growth, and sustained high utilisation are seen driving margins back to FY24 levels thereafter (30 per cent EPS CAGR over FY25E-27E), with RoCE at ~19 per cent.
First Published: Sep 27 2024 | 3:34 PM IST
