Ceat’s revenue for the quarter improved ~16% YoY to Rs 8.3 bn, backed by strong demand in the truck and bus replacement tyre segment and price
increases taken at different intervals throughout last year and the first half of this year. However, the unfavourable movement in rubber prices continued
to put pressure on the operating performance. The net profit for the quarter improved 10% sequentially to Rs 153 mn. However, on YoY basis, it was lower
by around 75%. The first half revenue grew ~16% YoY to ~Rs 16 bn. However, the near tripling of rubber prices over the past one year caused operating
margin to plunge to 4.3% in 1HFY11 compared with 14.8% in 1HFY10.
The demand particularly in the passenger car and the high margin truck and bus segment continues to remain buoyant. However, with rubber demand expected to exceed supply during FY11, the rubber prices may continue to behave irrationally and this might weigh down operating margins. The product price increase of roughly ~12-13% across categories since last year may not be sufficient to offset this pressure fully.
At the current market price of Rs 163, the stock is trading at 8.2x FY11E earnings of Rs 20 and 5.4x FY12E earnings of Rs 30.
