Subdued demand for original equipment was offset by price hikes and stable replacement sales, which aided revenue growth during the quarter
Tyre maker Ceat Ltd reported muted earnings in the June quarter impacted by a couple of factors. The company's consolidated net profit stood at Rs23 crore in Q1FY22 compared to a loss of Rs35 crore in the same quarter last year, hit by covid-led lockdown. Analysts say, higher depreciation costs and interest expenses hurt the company's profit growth.
Reacting to the earnings, shares of the company slipped 2% on the NSE in early morning trade on Thursday.
Consolidated revenue improved to ₹1,906 crore in Q1FY22 from ₹1,120 crore a year ago. Analysts say, subdued demand for original equipment was offset by price hikes and stable replacement sales, which aided revenue growth during the quarter.
Gross margins contracted by 130 basis points (bps) on a year-on-year basis and more than 300bps sequentially. One basis point is one hundredeth of a percentage point. Given the continued increase in cost of natural rubber and carbon black, margins were expected to shrink. However, analysts say, Ceat's margin compression has been higher than expected, indicating the need for further price hikes. Operating margins also disappointed with a decline of 40bps y-o-y and 270bps quarter-on-quarter to 8.7%.
Further, the company's gross debt increased by Rs37 crore on a sequential basis to Rs1,785 crore, this was on the back of increased working capital requirements. With that, Ceat's key debt metrics, the debt-to-equity ratio, deteriorated to 0.53 times in Q1FY22 from 0.42 times in 4QFY21.
Going ahead, timely capacity addition and new product launch should help gain market share, analysts said.