CEAT Stock Soars 10% on Strong Q2 FY24 Results

CEAT, one of India's major tire manufacturers, released its Q2FY24 results after the market closed on Monday, its shares soaring over 10.5% to reach an all-time high of ₹2,337 apiece during early trading on Tuesday. CEAT revealed a consolidated net profit of ₹207 crore representing a remarkable 3125% year-on-year growth compared to the ₹6.4 crore net profit in the same quarter of the previous fiscal year. The strong performance was primarily driven by lower raw material costs and healthy volume growth.

Financial Highlights & Stock Performance

In the preceding June quarter (Q1FY24), the company recorded a consolidated net profit of ₹144 crore, the cost of raw materials consumed in Q2 FY24 was lower at ₹1,729.8 crore compared to ₹1,953.3 crore for the same quarter in the previous year. Furthermore, revenue from operations in Q2FY24 reached ₹3,053.3 crore, marking a 5.5% year-on-year increase.

CEAT also reported an EBITDA of ₹461.8 crore in Q2, signifying a 126.6% increase from the ₹203.8 crore reported in Q2 FY23. The EBITDA margin for Q2FY24 stood at 15.1%, indicating an 808 basis points year-on-year increase and a 202 basis points quarter-on-quarter growth.

In the current year, CEAT's shares have demonstrated an upward trajectory, rising from ₹1,644 apiece to their current market position of ₹2,249 apiece, resulting in a return of nearly 49%. Over the last year, and in the last five-year periods, the stock rallied 103%.

Several analysts have highlighted the reasons behind CETA's impressive performance in Q2FY24. Concentrating on optimizing the product mix and employing prudent pricing strategies contributed to margin enhancement during the quarter. The cost of raw materials was lower, and the product mix benefited from a lower contribution from the truck segment compared to June, while the two-wheeler contribution improved. 

Broader Market Trends

Experts suggest that the positive developments for CEAT may have a favorable impact on the tire industry as a whole, particularly in relation to raw material-related expansion. Shares of other tire manufacturers, such as Apollo Tyres and MRF, have also seen significant gains. MRF's shares have risen by 28% in 2023, its best annual performance since 2017. Shares of Apollo Tyres, CEAT, and JK Tyre have gained between 20% and 80% so far this year.

Company Statements & Future Prospects

Kumar Subbiah, CFO of CEAT Limited, added, "For the fifth quarter in succession, we have improved our margins quarter-on-quarter. Our ongoing dedication to enhancing cost efficiencies and optimizing our product mix is delivering positive outcomes. EBITDA Margin has crossed ₹400 crore for the first time in a quarter, leading to a healthy improvement in our net profits."

CEAT remains optimistic about the future, with plans to focus on specialty tires, including those for electric vehicles and specialty farm tires. The company has 44 such specialty tire launches lined up in the US, EU, and India in the coming quarter.

While CEAT's recent success has been driven by several factors, including favorable product mix and lower raw material costs, experts believe that raw material prices may start to firm up in the coming quarters.

About CEAT

Established in 1958, CEAT stands as one of India's prominent tire brands and serves as the flagship company within the RPG Group. CEAT produces more than 41 million high-performance tires, catering to various segments, including 2-3 wheelers, passenger and utility vehicles, commercial vehicles, and off-highway vehicles.

Final Words

CEAT's exceptional performance in Q2FY24 has not only led to record-breaking results but also driven its stock to an all-time high. The company's focus on product mix, pricing strategies, and cost efficiencies has contributed to its success, and it remains well-positioned for the future. The broader tire industry is also experiencing positive momentum, with potential implications for key players like Apollo Tyres and MRF.