High commodity prices drag Ceat’s Q2 profit down by 77% even as revenues improve

Mumbai: Tyres major reported a sharp dip in profit during the June-September quarter despite healthy growth in revenue as rubber and crude oil prices ate into the company’s margins.

The company reported a consolidated profit of Rs 42 crore during the period under consideration, 77 per cent lower than last year.

Revenue grew by 24 per cent to Rs 2,452 crore. About half of the revenue growth was on account of inflation while the rest came from growth in sales, said Anant Goenka, the managing director of Ceat Ltd.

The cost of materials during the quarter soared 54 per cent year-on-year for the tyres maker but it could hike the prices by only 10-12 per cent. Materials account for about 60 per cent of the expenses.

Subsequently, earnings before interest, tax, depreciation and amortisation (EBITDA) declined by 25 per cent to Rs 220 crore while EBITDA margin narrowed by 5.8 percentage points to 9 per cent. The company’s margins historically average around 11 per cent.

Amidst expectations of weak earnings, the stock of Ceat Ltd declined 2.72 per cent on the BSE on Monday to close at Rs 1293.4. The earnings were announced post-market hours.

With no sight of commodity prices softening soon, the company is expecting more price increases in the coming two quarters.

“The inflation is so high that there is no chance of absorbing it in our costs. We will have to pass it on (to the consumer),” Goenka told ET over the phone post-earnings announcement. “It might impact growth, but we have no choice.”

Sales have improved across the three business categories – supply to automakers, the tyre replacement market and exports, Goenka said. The company is expecting margins to recover to the 10-12 per cent range by the last quarter of this financial year as it gradually passes on the increased costs to consumers.

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