CEAT shares fall 9% as raw material costs crush Q1 profit
CEAT's stock posted its worst daily drop since the 2020 pandemic crash after a 96% plunge in first-quarter profit highlighted the severe margin pressure Indian tyre makers face from West Asia-driven commodity inflation.
Shares of Indian tyre manufacturer CEAT fell 9% to Rs 3,471.10 on the National Stock Exchange on Friday, putting the stock on track for its steepest single-day decline since the March 2020 COVID-19 crash. The selloff followed a first-quarter earnings report that showed net profit collapsed to Rs 4 crore, down 96% from Rs 112 crore in the same period a year earlier.
The collapse in profitability came despite a 22% year-on-year increase in revenue to Rs 4,318 crore, up from Rs 3,534 crore, driven by healthy demand and high-capacity utilisation. Instead, the bottom line was ravaged by surging raw material costs tied to the West Asia crisis. "West Asia crisis led to significant raw material cost inflation, which weighed on our gross and operating margins," said MD and CEO Arnab Banerjee.
Management implemented cumulative price increases of 5% to defend margins, but this was insufficient to fully offset the commodity shock. CFO Kumar Subbiah warned that inflationary pressures will persist into the second quarter. "We expect raw material costs likely to remain at an inflated level in Q2 and hence, we will continue to balance our pricing actions and cost prudence to progressively mitigate the impact on our margins," Subbiah said.
The severity of the earnings miss caught some analysts off guard, particularly due to higher-than-expected interest costs. Motilal Oswal Financial Services noted that while operating margins met forecasts and revenue beat estimates, the net profit print fell well short. The brokerage highlighted that international business was the fastest-growing segment and maintained its 'Buy' rating, noting the stock trades at 25.2 times forward earnings for fiscal 2027 and 16.3 times for fiscal 2028.
Despite the immediate financial strain, CEAT's board approved a Rs 1,205 crore investment to expand two-wheeler tyre manufacturing capacity. The contrasting moves—a major capacity expansion alongside a historic profit plunge—underscore a strategic bet that current commodity headwinds will eventually subside. The stock now trades at a trailing price-to-earnings ratio of 27x, having lost 10% over the past month to a market capitalisation of roughly Rs 14,346 crore.
