Release Date: October 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ceat Ltd (BOM:500878, Financial) achieved its highest-ever turnover of approximately INR 3,300 crores in Q2 FY25, with a significant volume achievement.
- The company inaugurated a new truck-bus radial production line in Chennai, marking a milestone in its global expansion strategy.
- International business grew by strong double digits year-on-year, with notable growth in Latin America and Europe.
- Replacement volumes grew in strong double digits, driven by healthy growth in commercial vehicle tires, passenger tires, and two-wheeler tires.
- The company is focusing on premium categories, enhancing its brand image and capturing new audiences, which is reflected in strong growth in the replacement segment.
Negative Points
- Ceat Ltd (BOM:500878) faced challenges with elevated freight rates, which impacted margins despite strong international business growth.
- Raw material prices increased significantly, with a steep 6% rise in Q2 over Q1, making it difficult to pass on the entire cost increase to customers.
- OEM segment experienced a single-digit decline, primarily due to a temporary loss of business share and slow pace of new vehicle entries.
- The company's EBITDA margin contracted by 400 basis points year-on-year, primarily due to increased raw material costs.
- Working capital increased by INR 290 crores quarter-on-quarter, largely due to higher inventory levels, impacting cash flow and increasing debt.
Q & A Highlights
Q: What is the cumulative quantum of price hikes taken so far, and how is the retention of these hikes?
A: The raw material price hike has been about 4% to 5% in Q1 over Q4 and about 6% in Q2 over Q1. The cumulative price hike has been inadequate. In Q2, the overall price hike was higher in the commercial category, around 1% to 2%, and about 1.5% in passenger tires. We are looking at a steep increase in Q3, with further hikes planned for October and possibly November and December.
Q: How is the demand side performing, specifically in terms of OEM and replacement growth?
A: Year-on-year, truck-bus radial is growing in very healthy double digits. Overall growth in truck-bus is strong single digits due to degrowth in truck-bus bias. Passenger car tires are growing in strong double digits, and two-wheelers are close to double digits. OEMs have seen a YoY decline of about 3% to 4%, while replacement and exports are experiencing double-digit growth.
Q: What are the drivers behind the market share gain in the replacement market, particularly for TBR and PCR?
A: We are gaining share in TBR due to superior products and OEM fitments, which have been well-received by customers. In PCR, new product lines like cross-drive are gaining traction, supported by effective marketing campaigns. The focus is on a few markets where these products are accepted well.
Q: How is the export mix performing, and what is the outlook for export growth?
A: The export mix has been around 19%, with strong double-digit growth in exports. We aim to increase this to 20%-21% soon. Growth was held back due to geopolitical reasons, but we expect to enhance export growth disproportionately over domestic growth in the future.
Q: What is the impact of the EUDR regulation on exports to Europe, and how is CEAT preparing for it?
A: We are prepared for EUDR compliance, both in domestic and import markets. There will be inflation as farmers complying with EUDR will demand higher prices. We plan to pass on these costs, as it is a global phenomenon affecting all players. There is a possibility that EUDR implementation might be deferred by a year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
