Ceat’s first quarterly loss in a decade takes its shares to new low

Ceat’s consolidated net sales up 9% year-over-year (YoY) 2,413 crore, but the company reported a net loss for the quarter 20 crore, impacted by higher interest and depreciation cost. In the year ago period, the company had reported a net profit of 132 crores.

According to the management, the company is witnessing subdued demand in the replacement segment due to weak consumer sentiment, higher fuel prices and moderation in India’s rural market. “The ongoing semiconductor shortage is impacting sales of the OEM passenger segment,” the management said in a press release.

At 5.9%, the Ebitda margin saw a massive contraction of 327 basis points (bps) sequentially. Ebitda is short for earnings before interest, taxes, depreciation and amortization. On a year-on-year basis, the margin decline was very sharp at 935bps. One basis point is one hundredth of a percentile. Gross margin at 34% in Q3FY22 contracted 1,156bps compared to the same quarter a year ago. On a sequential basis, gross margin fell 292bps. This disappointing performance was due to high raw material cost and weak demand.

Management further stated that margins remain under pressure due to rising commodity prices, which had started to ease towards the end of 3QFY22. “We are taking necessary corrective measures to reduce costs and look at reasonable price increases going forward,” the statement said.

In a note dated January 20, analysts at Motilal Oswal Financial Services Ltd reported that CEAT reported its first quarterly loss in a decade and that its third quarter earnings were below estimates.

Another sore point for Ceat investors was its rising debt. For 9MFY22, the net debt was 2,260 crore vs. 1,156 crore in 9MFY21. Management said a weak market outlook and rising cost of living continued to put pressure on margins, leading to increased debt in Q3 FY22. “We have brought down our finished goods inventories and have already taken necessary steps to reduce our raw material inventories in 4QFY22, which will help balance our cash flows and improve overall debt,” the press release said. will help control it.”

Meanwhile, Ceat’s weak third-quarter earnings impacted other tire makers. Competitors Apollo Tires Ltd, MRF Ltd and JK Tire & Industries Ltd saw their share prices fall 2-3.5% in early deals on Thursday.