Company Update : CEAT Ltd By Motilal Oswal Financial Services Ltd
Operationally in line; higher interest and tax lead to PAT miss
* Net sales grew 8% YoY to INR33b (in line), mainly due to healthy YoY volume growth in replacement and exports.
* Revenue during the quarter grew ~11% YoY at ~INR33b (in line), led by healthy YoY volume growth in replacement and international business segments. This was further benefitted by improving realizations on both YoY/QoQ basis.
* Gross margin contracted ~450bp YoY/60bp QoQ at 36.8% at 63.2% (est. 63.1%) due to increasing RM costs. As a result, EBITDA declined 18% YoY to INR3.4b (in line).
* EBITDA margins contracted 380bp YoY/60bp QoQ at 10.3% (est. 10.5%).
* The company reported lower-than-expected Adj. PAT at INR863m (-53% YoY, est. INR1.2b), led by higher-than-expected interest costs and tax.
* Working capital was reduced on a QoQ basis, which led to a debt reduction of ~INR500m sequentially to INR18.35b. D/E stood at 0.43x, while debt/EBITDA stood at 1.22x (stable QoQ).
* Capex for the quarter was INR2.8b, funded through internal accruals. The company has announced investments of INR4b toward capacity addition in Nagpur, which will increase the capacity by 30% by the end of FY28.
* Mr. Arnab Banerjee, MD & CEO, CEAT Limited, said, “We witnessed a strong year-on-year double-digit growth, driven by the replacement segment. While the rising raw material costs have impacted our margins, we progressively passed on part of the increase through price increase in select categories during the quarter. The demand continues to remain stable, and our order book pipeline is robust across all segments. Raw material prices look flattish in Q4 and we expect growth momentum to continue.”
* Mr. Kumar Subbiah, CFO of CEAT Limited, said, “The gross margins were impacted during the quarter due to the increase in raw material cost. A part of it we managed through price increase and cost controls. Meanwhile, our capex during the quarter was Rs 283 crores, which was fully funded through internal controls and hence, our debt level has remained at a similar level.”
Valuation & view:
The stock trades at 17x/13x FY26E/FY27E EPS.
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