Tyre stocks in demand on Ceat's strong Q2 results; MRF, JK Tyre at new high

Ceat said the healthy quarter-on-quarter volume growth was driven by strong OEM demand for festive inventory.

Shares of tyre companies were in demand and rallied up to 11 per cent on the BSE in Tuesday’s intra-day trade after Ceat reported strong earnings for the second quarter of financial year 2023-24 (Q2FY24).

Ceat’s September quarter or Q2FY24 consolidated net profit soared 32-fold to Rs 207.72 crore when compared with Rs 6.40 crore in Q2FY23. The sharp growth was partly aided by a dip in raw material prices. Total income was up 5.5 per cent year-on-year (Y-o-Y) at Rs 3,053.32 crore. Earnings before interest, taxes, depreciation, and amortization (EBITDA) margins improved 227 bps sequentially and 808 bps YoY at 15.1 per cent.

The healthy quarter-on-quarter (QoQ) volume growth was driven by strong OEM demand for festive inventory. The replacement and export volumes were stable despite adverse seasonality. On YoY basis, OEM continued its healthy run, while exports remain on recovery path and steady growth in replacement, Ceat said in investor presentation.

Reduction in raw material basket cost and favourable product mix resulted in gross margin expansion by 227 bps QoQ, the company said.

Meanwhile, Ceat’s standalone net sales for the quarter came in at Rs 3,043 crore, up 4.2 per cent QoQ with EBITDA grew 18.4 per cent QoQ at Rs 457 crore, with EBITDA margins coming at 15 per cent up 180 bps QoQ (highest in last 11 quarters). Profit after tax for the quarter jumped 25 per cent QoQ at Rs 199 crore.

The management said the demand continues to be stable, and the company is witnessing mid-single-digit growth in its topline across all three segments – replacement, OEMs, and international business.

For the fifth quarter in succession, the company has improved its margins quarter-on-quarter. Our consistent efforts in improving cost efficiencies and mix are yielding benefits. EBITDA margin has crossed Rs 400 crore for the first time in a quarter leading to healthy improvement in our net profits, the management said.

“Ceat’s performance was commendable in terms of gross margin expansion which was up 226 bps QoQ; however, was partially offset by higher employee cost. This result indicates healthy operational performance in Q2FY24 for peers like Apollo tyre & JK Tyres in our coverage universe,” ICICI Securities said in a note.

Besides Ceat, shares of JK Tyre rallied 11 per cent to Rs 344, followed by Goodyear India (5 per cent at Rs 1,400), MRF (4 per cent at Rs 113,379), Apollo Tyres (4 per cent at Rs 394), TVS Srichakra (up 3 per cent at Rs 4,039) and Balkrishna Industries (1 per cent at Rs 2,634). Of these, JK Tyre, TVS Srichkara and MRF have hit their respective 52-week highs. In comparison, the S&P BSE Sensex was up 0.50 per cent at 66,483 at 09:50 AM.