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Domestic Tyre Space: Gross margin decline on expected lines, commentary awaited amid course correction in rubber prices

ICICIdirect Research 18 Oct 2024 DISCLAIMER

Tyre major CEAT reported muted performance in Q2FY25. Standalone net sales for Q2FY25 came in at ₹ 3,298 crore (up 8.4% YoY and 4.1% QoQ).

Gross Margins for the quarter declined by 190 bps to 37.5% owing to high raw material cost (primarily natural rubber).

EBITDA for the quarter stood at ₹ 366 crore with EBITDA margins at 11.1% down ~90 bps QoQ. PAT for the quarter stood at ₹ 136.5 crore.

Industry players had already guided for muted Q2FY25 margin profile amidst unprecedented rise in rubber prices and calibrated price hikes.

With rubber prices down considerably from their recent highs (~₹ 245-247/kg in August 2024) and currently quoting at ₹ 196/kg, management commentary on margins bottoming out in Q3FY25 will be the key monitorable for the domestic tyre space.

Company’s topline growth was encouraging with healthy growth witnessed across OEM, replacement as well as export markets.

Our top bets in this space are JK Tyre (Rating: BUY; Target Price: ₹ 525) and Apollo Tyre (Rating: BUY; Target Price: ₹ 635)

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