CEAT share price slumps over 9% on Q1 results. Should you buy, sell or hold?

CEAT share price tumbled more than 9% on Friday, 17 July, after the tyre maker reported a 27% year-on-year decline in standalone net profit for the June quarter (Q1 FY27), despite posting healthy revenue growth.

The company reported a standalone net profit of ₹98 crore for the quarter, compared with ₹135 crore in the corresponding period last year, according to its exchange filing.

Revenue from operations rose 18% year-on-year to around ₹4,163 crore, up from ₹3,521 crore in the year-ago quarter, supported by strong demand across segments.

Alongside its quarterly results, CEAT announced that its Board of Directors has approved a ₹1,205-crore capital expenditure plan to expand manufacturing capacity in the two-wheeler tyre segment.

Under the expansion plan, the company aims to increase production capacity by 53,000 tyres per day in phases by FY31, raising total daily capacity from the current 80,000 tyres to 1.33 lakh tyres.

The company said the proposed investment will be financed through a combination of internal accruals and debt. It also noted that its existing facilities are operating at around 95% capacity utilisation, underscoring the need for expansion to cater to future demand growth.

Motilal Oswal Financial Services has retained its 'Buy' rating on CEAT, although the brokerage said the tyre maker's Q1 FY27 earnings were significantly below its expectations due to sharply higher interest costs.

The brokerage noted that consolidated profit came in at just ₹4 crore, well below its estimate of ₹50.2 crore, even though operating margins were broadly in line with its projections.

According to Motilal Oswal, net sales rose 22.3% year-on-year to ₹4,320 crore, surpassing its estimates, supported by healthy volume growth across segments. The brokerage highlighted that the international business continued its recovery and emerged as the fastest-growing segment during the quarter.

It also pointed out that realisations improved sequentially and year-on-year, driven by price hikes in both domestic and overseas markets.

On the balance sheet, the brokerage noted that capital expenditure (capex) during the quarter stood at ₹293 crore, while debt increased to ₹3,240 crore from ₹3,000 crore in the previous quarter. As a result, the company's debt-to-equity ratio rose to 0.65x, while net working capital also increased sequentially to ₹138 crore.

Motilal Oswal further highlighted that CEAT's ₹1,200-crore capex programme, to be implemented by FY31, is primarily aimed at expanding its two-wheeler tyre production capacity by 53,000 tyres per day, bringing the total capacity to 80,000 tyres per day from the current 80,000 tyres per day. The brokerage believes the investment will support the company's long-term growth prospects.

Sudeep Shah, Head of Technical and Derivatives Research at SBI Securities, said CEAT has turned technically weak after a 7.7% decline, with the stock slipping below its key 20- and 50-day exponential moving averages (EMAs), signalling a deterioration in its near-term price structure.

According to Shah, momentum indicators have also turned bearish. The Relative Strength Index (RSI) is trending lower, indicating increasing downside momentum, while a rising Average Directional Index (ADX) alongside the price decline suggests the bearish trend is strengthening.

Shah believes the ₹3,670-3,700 zone, which coincides with the 20-day EMA, will act as the stock's immediate resistance. He added that as long as CEAT trades below this resistance band, the near-term outlook is likely to remain negative, with the stock expected to stay under selling pressure.