CEAT : Earnings Call Transcript Q3 FY22

CEAT Limited

January 20, 2022

Moderator:

Ladies and gentlemen, good day and welcome to CEAT Limited Q3 FY22 Earnings Conference

Call hosted by Kotak Securities Limited.

As a reminder, all participant lines will be in the listen-only mode and there will be an

opportunity for you to ask questions after the presentation concludes. Should you need assistance

during the conference call, please signal an operator by pressing '*' then '0' on your touchtone

phone.

I would now like to hand the conference over to Mr. Rishi Vora from Kotak Securities Limited.

Thank you. And over to you sir.

Rishi Vora:

Hello, everyone. A very good morning to all. Hope you all and your families are keeping safe

and feeling well. I would like to thank the Management of CEAT for giving us the opportunity

to host this call. Today we have with us Mr. Anant Goenka - Managing Director, Mr. Kumar,

Subbiah - CFO and Investor Relations Team.

With this, I like to hand over the call to Mr. Anant Goenka for his opening remarks, post which

we can open the session for Q&A. Over to you.

Anant Goenka:

Good morning, everyone. A warm welcome to CEAT's Q3 Earnings Calls and thank you all for

joining us today. This is Anant Goenka and we have with us our CFO, Kumar Subbiah on the

call with us.

I hope all of you are safe and well. And, as usual, we will start with brief remarks from me, and

Kumar, and post that we will take up Q&A.

Q3 this year has been unusually challenging for the industry, primarily due to slowing domestic

demand and unabated cost pressures. The results for the quarter reflect the challenges on this

account, with negative growth in both the replacement and OEM segments. During this period

our focus was predominantly on careful calibration of our response to the evolving demand

dynamics, by ensuring adequate liquidity, by tightening cash flows and managing inventory

levels by moderating production.

In terms of the replacement segment, commercial volumes, which include truck, bus and farm

segments remained weak on account of liquidity pressures and high fuel prices. Passenger

segments started to show some weakness towards the latter part of December due to the start of

Wave-III, and some uncertainties as a result of that. Overall replacement volumes declined by

about 4.5% sequentially, and 14% on a year-on-year basis. Sequential decline was more

pronounced in passenger categories, while a year-on-year decline was led by commercial

segments.

In terms of OEM demand, the truck and bus segments saw a good traction. PCUV also saw some

improvement due to some easing in semiconductor shortage. However, farm and two-wheelers'

financial year.

Our project CAPEX outlook for currently stands revised from earlier estimate of Rs. 1000 crores

to around Rs. 800 crores for the current expansion projects as covered by Anant. During the

quarter we also managed to bring down our inventory levels by about Rs. 112 crores. However,

as payables declined more significantly during the quarter, our working capital still went up by

about Rs. 63 crores. We intend to further reduce our inventory largely in raw materials in Q4.

And also, our decision to review our working capital and reduction in the estimate for the current

year, we expect our debt levels to be within our internal leverage ratio thresholds.

Now coming to operational expenses, we continue to monitor our costs tightly. Inflation was

prominent across other costs including our distribution costs on account of increase in fuel costs.

We were able to largely curtail some discretionary spends and maintain our operating costs at

Q2 level in the Q3. Our consolidated EBITDA for the quarter stood at Rs. 143 crores translating

to margin of 5.9% of our turnover.

Depreciation declined versus Q2, as there was one off effect in the previous quarter that is in Q2

on account of treatment of long term leases which we had explained during our last call. During

the quarter, the credit rating agency CARE carried out rating assessment and affirmed "AA"

rating for long term and "A1+" for short term with stable outlook.

Now we can open the floor for Q&A. Thank you.

Moderator:

Thank you very much. Ladies and gentlemen we will now begin the question and answer session.

The first question is from the line of Ashutosh Tiwari from Equirus Securities. Please go ahead.

Ashutosh Tiwari:

So, firstly, you mentioned the replacement volume declined 14% YoY. So, can you give us some

color on the segment wise decline like two-wheelers, tractors, bus and all?

Anant Goenka:

Yes, so, overall majority of this decline came in the truck segment. Last year, same time was a

very high kind of a base with fair amount of pent-up demand that came in if you recollect our

growth rates may have been somewhere around 25% and that caused an impact on the market.

So, I would say truck, bus was primarily down by over 20% to 25% out of this impact. The rest

of it was much more positive, we saw positive growth in PCUV, good growth in PCUV in fact,

good growth in two-wheeler. It was only in the commercial vehicle segment and the tractor

segments that we saw negative growth.

Ashutosh Tiwari:

So, two-wheeler and PCR was like good growth means, is it high single digit or it was lower

than that?