Shares of tyre manufacturer Ceat Ltd fell around 4% on the National Stock Exchange in opening deals on Thursday to hit a new 52-week low of ₹1,048.95 apiece, reacting to its disappointing quarterly earnings performance.
Ceat's consolidated net sales rose 9% year-on-year (y-o-y) to ₹2,413 crore, but the company reported a net loss for the quarter at ₹20 crore, hit by higher interest and depreciation costs. In the year-ago period, the company had reported a net profit of ₹132 crore.
According to the management, the company is witnessing muted demand in the replacement segment due to tepid consumer sentiment, higher fuel prices, and a softer uptick in India’s rural market. "The ongoing semiconductor shortages continue to impact OEM Passenger segment sales," the management said in a press release.
Ebitda margin at 5.9% saw a steep contraction of 327 basis points (bps) sequentially. Ebitda is short for earnings before interest, tax, depreciation and amortization. On a y-o-y basis, the decline in margins was much sharper at 935bps. One basis point is one hundredeth of a percentage point. Gross margins at 34% in Q3FY22, contracted 1,156bps compared to the same quarter year ago. On a sequential basis, gross margins fell 292bps. This dismal performance was on the back of elevated raw material costs and subdued demand.
The management further that margin continues to remain under pressure due to rising commodity prices, which began tapering towards the end of 3QFY22. "We are taking necessary corrective actions to cut costs and are looking at appropriate price increases going forward," it said.
In a note on 20 January, analysts at Motilal Oswal Financial Services Ltd pointed out that Ceat has reported its first quarterly loss in a decade and its Q3 earnings were below estimates.
Another sore point for Ceat investors was its rising debt. For 9MFY22, net debt stood at ₹2,260 crore versus ₹1,156 crore in 9MFY21. The management said the subdued market scenario and rising input costs continue to put pressure on margin, leading to an increase in debt in 3QFY22. "We have brought down our finished goods inventory and have already taken the necessary steps to pare down our raw material inventory in 4QFY22, which will help balance our cash flows and keep a check on overall debt," added the press release.
Meanwhile, there was a rub-off effect of Ceat's weak Q3 earnings on other tyre makers. Competitors Apollo Tyres Ltd, MRF Ltd and JK Tyre & Industries Ltd saw their stock prices decline 2-3.5% in Thursday's opening deals.
