CEAT shares dropped over 7% after the company reported a 96% plunge in June quarter profit to Rs 4 crore. While revenue grew 22%, rising raw material costs hit profit margins, overshadowing a new Rs 1,205 crore expansion plan for its Nagpur plant.
CEAT Ltd shares fell sharply by over 7% in Friday morning trade following the company's latest quarterly earnings announcement. The tyre manufacturer reported a consolidated net profit of Rs 4 crore for the April-June quarter, marking a steep 96.4% decline compared to the same period last year. This sharp drop in profit came despite a 22.4% rise in total revenue from operations, which stood at Rs 4,318 crore for the quarter.
Impact of Raw Material Costs on Margins
The core issue weighing on the company's financial performance was a significant increase in raw material costs. Tyre manufacturers rely heavily on natural rubber and crude oil derivatives, and price fluctuations in these commodities directly influence profitability. Because the company was unable to fully pass these cost increases on to customers, its operating profit margin contracted to 8.5%, down from 11% in the year-ago period. Consequently, the company's EBITDA, which measures operational profitability, fell by 5.7% to Rs 365 crore.
Nagpur Facility Expansion
To support future growth, the board of directors has approved a capital spending plan of Rs 1,205 crore. This money is intended for the expansion of the manufacturing facility in Nagpur. The company aims to add roughly 53,000 tyres per day to its current production capacity. This decision follows data showing that the Nagpur plant's existing capacity for two-wheeler tyres is operating near its full potential. By expanding, the company hopes to meet rising demand, though investors will likely monitor whether these costs impact debt levels or cash flow in the coming quarters.
Investor Monitorables
The performance of tyre companies is often sensitive to cyclical changes in the automobile sector and global commodity prices. While the revenue growth shows consistent demand for the company's products, the recent margin pressure highlights the risk associated with rising input costs. Moving forward, shareholders may track the timeline for the Nagpur plant expansion and whether the company can improve its margins as it manages raw material price volatility. Management commentary in upcoming calls regarding pricing power and demand trends in the two-wheeler and passenger vehicle segments will be important for understanding the recovery path.