• Demand: Demand has picked up since the markets have opened up post the second lockdown. Replacement demand in the PCR/2W segments is witnessing traction although demand in the Farm/CV segments remains subdued. CV OEM demand is picking up, while demand in the PV segment has slowed down due to chip shortages.
  • Outlook for 2HFY22: The replacement segment is expected to grow in the low single-digit on the high base of 2HFY21.
  • TBR growth: CV replacement demand is under stress. TBB demand is muted owing to the higher base of last year while TBR grew 25% YoY on a low base. Meanwhile, CV OEM demand is improving.
  • Volume growth: Overall volumes grew 23% QoQ/9% YoY. Volumes for OEM/replacement/exports grew 35%/23%/10% QoQ (17%/-3%/50% YoY).
  • Exports: Container availability and cost still remain a key concern.
  • Market share: CEAT’s market share in TBR /PV stands at 8-9%/15% (v/s 5% /11% a few years ago).
  • RM cost inflation: The company’s RM basket cost increased by 6.5% QoQ due to inflation in crude and logistical costs and is expected to increase further by ~4% QoQ in 3QFY22.
  • Price hike of 4-5% taken in 2QFY22 will be insufficient to offset the cost inflation and hence, CEAT took an additional 2.5% /2%/3% price hike in 2W/PCR/Farm in Oct-21. The company will be required to take another hike of 2-3% in Nov-Dec’21 to pass on the cost inflation.
  • Other expenses: CEAT’s ad-spends rose 70% QoQ due to normalization since 1QFY22 although it did not incur any IPL-related ad-spends. Also, due to accounting change for rights to use assets, ~INR100m/Qtr was accounted in depreciation from other expenses. In 2QFY22, the same amount was ~INR200m as accounting for 1HFY22.
  • Debt and working capital: Gross debt grew INR2.2b to INR20b in 2QFY22 due to an increase in capex (INR4.7b), dividend paid to shareholders and increase in inventory. Due to an improvement in its credit rating, CEAT has brought down its cost of borrowing in the last 12 months.
  • Depreciation: A large part of the QoQ increase in depreciation was due to accounting change of right to use assets. On a normalized level of INR1.1b of 2QFY22 depreciation, it expects a further addition of INR150-200m/quarter.
  • Capex for FY22 is expected to be around INR11.5b (INR4.7b already invested in 1HFY22), out of which INR10b will be for project capex. The capex for FY23 could be at INR7.5b-8b.

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