Company Update : CEAT by Motilal Oswal Financial Services Ltd
Earnings miss due to lower margins and higher interest burden
* Net sales grew 10.5% YoY to INR35b (in line) in 1QFY26, aided by healthy YoY volume growth, mainly for the OEM and replacement segments. OEM volume growth was driven by strong performance across all segments. International volumes remained flat owing to macro headwinds. Realizations improved on YoY basis.
* Gross margin contracted ~250bp YoY/68bp QoQ to 36.8% due to higher RM cost YoY.
* EBITDA margin was down 100bp YoY (down 30bp QoQ) at 11.0%, below our estimate of 11.5%. While input cost basket was flat QoQ, margin declined 30bp QoQ due to lower ASP and higher marketing spends in 1Q.
* Even interest burden was higher than expected at INR821m (est. INR650m).
* Other income was also lower at INR47m vs. our estimate of INR70m.
* Adjusted for VRS expense of INR32.9m, PAT declined 23% YoY to INR1.15b, below our estimate of INR1.5b.
* Capex for 1Q stood at INR2.3b and was funded by internal accruals
* In 1Q, CEAT repaid debt to the tune of INR1.12b; hence, debt fell to INR18.1b. D/E stood at 0.40x, while debt/EBITDA at 1.21x (stable QoQ)
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