Release Date: July 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ceat Ltd (BOM:500878, Financial) reported a strong revenue growth of 8.5% year-on-year for Q1 FY25.
- The company achieved its highest-ever production in its Chennai, Bhandup, and Halol plants, leading to better capacity utilization.
- Ceat Ltd (BOM:500878) continues to invest heavily in R&D, maintaining above-industry levels.
- The company has seen a significant increase in organic traffic on its website, with a 45% growth and a 42% uptick in brand conversion volume.
- Ceat Ltd (BOM:500878) has consolidated its position in the electric vehicle OEM market, achieving close to a 30% share in both two-wheeler and three-wheeler EV OEMs.
Negative Points
- The company faced a margin squeeze in Q1 due to a significant rise in raw material prices, particularly natural rubber.
- Gross margin shrunk by about 184 basis points year-on-year and 306 basis points quarter-on-quarter.
- Domestic natural rubber prices surged by about 25% to 30% over the past few months, reaching the highest levels in the last 13 years.
- Ceat Ltd (BOM:500878) experienced headwinds in international business due to significant rate hikes and non-availability of containers.
- The company had to implement necessary controls on discretionary expenses due to the increase in raw material costs.
Q & A Highlights
Q: Can you share the volume growth numbers for the quarter, including replacement and OEM segments?
A: The overall volume growth was close to 9% year-on-year, driven by double-digit growth in replacement and exports, while OEM growth was in low single digits. - Arnab Banerjee, CEO
Q: What is the outlook for the replacement segment, and what is driving the double-digit growth?
A: We expect rural demand to be strong, supported by good monsoons. Growth in farm tires and two-wheelers is robust, and we anticipate continued strength due to our distribution network and brand investments. Passenger and commercial vehicle segments are also expected to grow healthily. - Arnab Banerjee, CEO
Q: Why was the growth in the OEM segment weak despite healthy production in the two-wheeler industry?
A: The overall OEM growth was constrained due to capacity limitations in truck bus radial sales. However, we expect growth to pick up in the coming quarters as new models roll out and we increase our market share in motorcycles and scooters. - Arnab Banerjee, CEO
Q: How do you see the pricing scenario in the truck and bus radial space and the two-wheeler segment?
A: We have taken a 2.4% price increase in the truck and bus radial space and plan to evaluate further increases. In the two-wheeler segment, we have taken a 1% price hike and plan to take more by the end of July. - Arnab Banerjee, CEO
Q: What is the growth outlook for the export side, particularly in the US and Europe?
A: We expect double-digit growth in international business, driven by strong order bases and channel build-outs in the US and Europe. The US market is showing excellent product feedback, and we are expanding our range in passenger car radials. - Arnab Banerjee, CEO
Q: What is the impact of the EPR (Extended Producer Responsibility) provision on your financials?
A: We treat EPR as part of our normal raw material costs. The provision for EPR is included in our P&L, and we have made necessary adjustments based on actual costs incurred. - Arnab Banerjee, CEO
Q: Can you provide details on the raw material cost increases and their impact on margins?
A: Raw material costs increased by approximately 5% quarter-on-quarter, driven by higher natural rubber prices and increased ocean freight rates. We expect further increases in raw material costs in the coming quarters. - Kumar Subbiah, CFO
Q: What are your plans for price hikes to mitigate raw material cost increases?
A: We have already taken some price hikes and plan to take additional increases of around 3% to 4% to cover the cost gaps. These hikes will be implemented progressively over the next few quarters. - Arnab Banerjee, CEO
Q: How are you managing the competitive pricing scenario in the two-wheeler segment?
A: Despite no price increases from competitors, we have taken a 1% price hike in the two-wheeler segment and plan to take further hikes. We are confident in our market position and product performance. - Arnab Banerjee, CEO
Q: What is the impact of the EPR provision on your financials for this quarter?
A: We have accounted for the EPR provision as part of other expenses. The impact is included in our P&L, and we have made necessary adjustments based on actual costs incurred. - Kumar Subbiah, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
