CEAT shares fall 9% on profit miss despite strong revenue growth
CEAT's shares tumbled after surging interest costs eroded quarterly profits, overshadowing robust revenue growth and a major capacity expansion plan.
CEAT shares slumped more than 9% on Friday, 17 July, after the Indian tyre manufacturer reported a sharp drop in first-quarter earnings. Standalone net profit for the June quarter fell 27% year-on-year to ₹98 crore, down from ₹135 crore in the same period last year.
The bottom-line contraction came despite strong operational momentum. Standalone revenue rose 18% to ₹4,163 crore, driven by healthy demand across all market segments. Consolidated sales reached ₹4,320 crore, marking a 22.3% year-on-year increase.
The divergence between top-line growth and profitability stems from rising financing costs. Motilal Oswal Financial Services noted that consolidated profit came in at just ₹4 crore, drastically missing its ₹50.2 crore estimate, even though operating margins met projections. The brokerage attributed the miss to sharply higher interest expenses.
During the quarter, CEAT spent ₹293 crore on capital expenditure, pushing total debt up to ₹3,240 crore from ₹3,000 crore in the previous quarter. The company's debt-to-equity ratio consequently increased to 0.65x, while net working capital rose sequentially to ₹138 crore.
To address capacity constraints, CEAT's board approved a ₹1,205-crore investment to expand two-wheeler tyre manufacturing. Existing facilities are running at roughly 95% utilisation. The phased expansion will add 53,000 tyres per day by FY31, bringing total daily capacity to 1.33 lakh units. The company plans to fund this through a mix of internal accruals and additional debt.
Motilal Oswal retained its 'Buy' rating, arguing the capacity investment supports long-term growth. The brokerage highlighted that the international business was the fastest-growing segment and that pricing power improved both sequentially and year-on-year.
Near-term price action, however, suggests continued volatility. Sudeep Shah, Head of Technical and Derivatives Research at SBI Securities, said the stock has turned technically weak after slipping below key 20- and 50-day exponential moving averages. "As long as CEAT trades below this resistance band, the near-term outlook is likely to remain negative, with the stock expected to stay under selling pressure," Shah said, identifying immediate resistance at the ₹3,670-3,700 zone.
