Homeauto News

    CEAT: Raw material costs to rise further in Q3; price hike will help maintain margin

    auto | IST

    CEAT: Raw material costs to rise further in Q3; price hike will help maintain margin

    Mini

    CEAT puts in a weak operational performance in Q2 as margin pressure continues and profit comes in below estimates. In an interview with CNBC-TV18, Kumar Subbiah, CFO of CEAT, spoke about cost pressures surrounding the company and its outlook.

    Tyre maker CEAT, on Monday, reported a 77 percent decline in its Q2 consolidated net profit at Rs 42.28 crore, impacted by higher input costs.
    The company, which posted a consolidated net profit of Rs 182.18 crore in the same quarter last fiscal, also said its board at a meeting held on Monday approved raising of up to Rs 500 crore through issuance of debt securities on a private placement basis. In an interview with CNBC-TV18, Kumar Subbiah, CFO of CEAT, spoke about cost pressures surrounding the company and its outlook.
    On raw material cost pressure, he said, “We still expect the raw material costs to go up in Q3, we expect an increase of around 4 percent that can still happen in quarter Q3. Crude has also had a run up, it is hovering around $85-86 per barrel. One of the reasons for increase in raw material cost is also on account of the freight component in the total material costs, which has also increased particularly on inputs. So the cost pressure is still there even going into Q3.”
    He added, “Approximately we took a price increase of around 5 percent in Q2, however we still have a lag. The raw material costs have been going up steadily since Q3 of last financial year. We have not seen this kind of inflation in the raw material prices or commodity prices in recent times. Therefore, there is a lag in Q2 even though we matched the price increase to the extent of increase in raw material costs, that is the reason why margin is more or less in line with Q1.”
    Subbiah said they are seeing an increase in all crude oil derivatives like synthetic rubber caprolactam, which is an input in nylon fabric, then carbon black, where carbon black feed stock (CBFS) is an important input and also an increase in natural rubber prices.
    On cost reduction, Subbiah said, “It is always possible to abosrb some cost increase by controlling our operational expenses, higher scale of operations which has happened in Q2. We grew strongly in Q2 so it did absorb some impact of raw material costs because the cost as a percentage had managed to spread over larger volumes. We have taken multiple measures to reduce the cost below gross margin.”
    On EV rollout, he said, “If you really look at our market share in general, electrification is happening more in the two-wheeler and three-wheeler space as of now and our market share, our business share in those electrical vehicles segment is certainly higher than our normal share of non-electric vehicles. Therefore from our standpoint, we would like to take electric vehicles as one of the growth opportunities and we would continue to invest on the tyres that would be required for electric vehicles and we will work towards improving our share.”
    For full management commentary, watch the video.
    next story

      Market Movers

      View All
      CompanyPriceChng%Chng