Ceat surges 16% from day's low post Q2 results; MRF skids 8% on muted show

Going forward, the management of Ceat expects the second half of this year to be better in terms of revenue and margins because of improving domestic demand and stabilising commodity prices.

Shares of MRF slipped 8 per cent to Rs 86,881 on the BSE in Wednesday’s intra-day trade after the tyre major reported muted numbers for the July-September quarter (Q2FY23) with EBITDA margin down 30 bps sequentially at 8.2 per cent.

On a standalone basis, the company reported net sales of Rs 5,719 crore, up 2.1 per cent quarter-on-quarter (QoQ). Profit after tax (PAT) jumped 10.4 per cent QoQ at Rs 124 crore. The company’s Q2FY23 performance was adversely impacted due to raw material cost pressures despite good beat on revenues. The industry is taking gradual price increases to dilute the impact of severe cost inflation.

The pricing environment for the industry seems to be stable with all the players raising prices to pass-on substantial cost inflation. While cost inflation has peaked out 2QFY23, we expect margin to start recovering from H2FY23 (assuming stable commodity prices), the brokerage firm said in result update with ‘neutral’ rating on the stock.

Meanwhile, shares of Ceat soared 7 per cent to Rs 1,734.65, bouncing back 16 per cent from its intra-day low of Rs 1,497.15 on the BSE. The stock traded closer to its 52-week high of Rs 1,787.75, touched on September 16, 2022.

In Q2FY23, on standalone basis, Ceat’s net sales came in at Rs 2,886 crore, up 3 per cent QoQ with EBITDA margins up 127 bps QoQ at 7.1 per cent. PAT stood at Rs 29.90 crore in Q2FY23 against Rs 2.5 crore in Q1FY23 and Rs 36 crore in Q2FY22.

Going forward, the management expects the second half of this year to be better in terms of revenue and margins because of improving domestic demand and stabilising commodity prices. “There have been some corrections in the commodity pricesrecently, and if the trend continues, we expect it to positively impact the business in the coming quarters,” the management said.

“Ceat posted a healthy quarterly performance in terms of margin wherein gross margin expanded by 77 bps QoQ, which remained higher than some of its listed peers (i.e. JK tyres). The management commentary highlights further gains in the kitty with decline in key commodity prices,” ICICI Securities said in a note.

The pricing environment for the industry seems to be stable with all the players raising prices to pass-on substantial cost inflation. While cost inflation has peaked out Q2FY23, Motilal Oswal Financial Services expects margin to start recovering from H2FY23 (assuming stable commodity prices).