Ceat skids 7%, hits 52-week low on Q3 loss; tyre stocks on slippery ground

Shares of Ceat withnessed heavy selling pressure on Thursday morning, after the tyre maket reported a weak set of numbers for October-December quarter (Q3FY22).

The stock hit a 52-week low of Rs 1,051.30, down 7 per cent on reporting a consolidated net loss of Rs 20 crore for Q3FY22. The company had posted a net profit of Rs 132.3 crore in a year ago quarter. The stock of auto tyres & rubber products company fell below its previous 52-week low of Rs 1,067.25, hit on December 24, 2021.

As a cascading effect, other tyre-related stocks also came under pressure. Shares of Apollo Tyres, MRF, JK Tyre and Balkrishna Industries were down in the range of 1 per cent to 6 per cent on the BSE in intra-day trade.

As of 09:50 am, Ceat had recovered partially and was down 3.8 per cent at Rs 1,090, with trades of around 14,250 shares on the BSE. Wheras, the BSE benchmark index, the Sensex, was down 0.3 per cent at 59,903.

Meanwhile, Ceat's net revenue grew 8.6 per cent year-on-year (YoY) at Rs 2,413 crore. Earnings before interest, taxes, depreciation, and amortization (ebitda) margin contracted by 935 bps at 5.9 per cent during the quarter.

The management said the company is witnessing muted demand in the replacement segment due to tepid consumer sentiment, higher fuel prices and a softer uptick in India's rural markets.  The ongoing semiconductor shortages continue to impact OEM (original equipment manufacturer) passenger segment sales.

The firm's margins continue to be under pressure due to rising commodity prices that have begun to taper down towards the end of the third quarter, "We are taking necessary corrective actions to cut costs and are looking at appropriate price increases going forward," CEAT Managing Director Anant Goenka said.

Gross margin decline for the quarter on a sequential basis came in much higher than anticipated with our expectations pegged at <100 bps QoQ decline for domestic operations, ICICI Securities said in a note. The brokerage firm expects Ceat’s results to have negative rub-off effect on its coverage tyre players namely Apollo Tyres and JK Tyres.