Acquisition and capex keep Ceat on a roll despite short-term margin erosion
Subscribe to enjoy similar stories. Ceat Ltd faced a challenging December quarter as surging raw material costs weighed on earnings. While revenue climbed 11.6% year-on-year, operating profit (Ebitda) dropped 18%, highlighting the strain on margins.
Revenue growth was fuelled by an 8% increase in volumes and improved realizations, particularly in the replacement market, which accounted for 54% of total sales for the nine-month ended December (9MFY25). Although demand has been subdued from original equipment manufacturers, Ceat expects a boost from new model approvals. Read this | Power thieves are dragging down one of India’s oldest power utilities Rising raw material costs have been a key headwind for Ceat.
Prices of natural rubber have surged from around ₹150 to ₹250 per kg in 2024, stabilizing at approximately ₹190 per kg. Synthetic rubber costs followed a similar trajectory. Combined, these increases shaved 450 basis points off gross margins in the December quarter and 413 basis points over 9MFY25.
However, the Ceat management suggested during the earnings call that raw material prices have now stabilized. They also noted that recent product price hikes should improve margins in Q4. However, due to the market's competitive nature, price adjustments are gradual, typically requiring two to three quarters to restore profitability.
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