Higher sales, lower material costs help CEAT to post healthy results

MUMBAI: Higher sales, lower material costs and increased capacity ramp at its new plant helped CEAT to post a healthy result for the quarter ending march 2012. However, on a consolidated basis due to higher interest costs, its profits for FY12 reduced by 33% to Rs 18 crore.

The prices of rubber had seen a spurt in 2011. However, prices softened in 2012 as surplus production is expected this year in major rubber producing countries. The price of RSS4 rubber, is currently trading at Rs 194 per kg down 19% from the peak price in April 2011. As a result, CEAT’s earnings had been subdued in the first three quarters of FY12. In the march 2012 quarter as rubber prices reduced, CEAT was able to post a better performance.

In the coming quarters, the company’s earnings are expected to improve from the current levels. According to Society of Indian Automobile Manufacturers, auto sales are expected to grow by 10% in FY13. With increase in capacity, CEAT is likely to gain from this demand. In FY13, the company is intending to ramp up capacity at its Halol (Gujarat) plant to 135 tons per day from the current production of 90 tons per day. In addition, rubber prices are expected to remain around the current prices.

In the last three months, its stock has gained by 21% on the back of softening of rubber prices. It is currently trading at a P/E of 20. the present stock price factors the future improvement in earnings.