‘The biggest challenge is recovering raw-material inflation,’ says CEAT CFO Kumar Subbiah

CEAT is grappling with a growth-versus-margin dilemma as sharp raw-material inflation erodes profitability despite strong demand and double-digit revenue growth. The company has raised replacement tyre prices by a cumulative 10.5-11 per cent through July 1 and announced another ~3 per cent hike for the second half of July, with a further increase planned in August.

While Q1 FY27 consolidated revenue rose 22.4 per cent to ₹4,318 crore, net profit plunged 96.4 per cent to ₹4 crore as raw-material costs surged nearly 20 per cent q-o-q, far outpacing the 4.5 per cent average pricing benefit.

With input costs expected to rise another 7-8 per cent in Q2, CEAT faces the challenge of restoring margins without hurting demand or market share.

In an interaction with businessline, CFO Kumar Subbiah discusses the company’s response to commodity inflation, rupee depreciation and supply-chain disruptions, and shares his outlook on pricing, demand, Camso, capex, debt and margin recovery.

How much did raw-material costs increase during Q1, how much pricing has CEAT taken and what is the remaining gap?

Raw-material costs rose nearly 20% q-o-q in Q1, driven mainly by natural rubber, which increased from about ₹180/kg to ₹280/kg. CEAT expects a further 7-8 per cent increase in Q2.. The company raised replacement-market prices by 6-7 per cent during Q1, translating into about 4.5 per cent average realisation benefit. Additional hikes of 3-3.5 per cent from July 1, 3 per cent in late July, and another increase planned for August are expected to narrow the gap. CEAT aims to recover most of the cost increase by the end of Q2, though some lag may remain.

Could repeated price increases weaken demand, and what is CEAT’s growth outlook?

Demand remains strong despite industry-wide price hikes. Q1 standalone revenue grew 18.7 per cent y-o-y, with roughly one-third from pricing and two-thirds from volume growth. Replacement, OEM and international businesses all posted double-digit growth. CEAT expects strong double-digit growth in FY27, supported by both volumes and pricing.

Has the weaker rupee helped exports, and how is CEAT managing the wider West Asia disruption?

While a weaker rupee has modestly improved export realisations, it has also increased input costs, limiting any net benefit. Exports account for about 20 per cent of standalone revenue. CEAT increased international prices by 5-7 per cent on fresh orders and is focusing on higher-margin geographies and products. To manage West Asia disruptions, it secured raw-material supplies early, reduced discretionary spending, restricted travel, slowed hiring and strengthened currency hedging.

Where does the Camso business stand, and when will CEAT provide growth and margin guidance?

Camso was flat to slightly down in Q1. CEAT expects to complete most customer-facing and sales integration by end-Q2 and plans to provide clearer growth and profitability guidance from Q3 onward.

Will margin pressure affect CEAT’s capex, and should investors expect debt to rise?

CEAT spent about ₹300 crore on capex in Q1 and continues to prioritise capacity-expansion projects. FY27 capex guidance of ₹1,300-1,400 crore remains unchanged for now. Debt rose about ₹90 crore in Q1, mainly due to higher raw-material inventory. The company expects most capex to be funded through internal accruals, with only limited additional borrowing if required.

When should investors expect margins to recover, and what is CEAT’s broader FY27 guidance?

Margin pressure is likely to persist in Q2 as input costs rise faster than pricing benefits flow through. CEAT expects to recover most of the raw-material inflation by the end of Q2, with Q3 likely to see improvement if commodity prices stabilise. The company remains focused on strong double-digit growth, gradual margin recovery and stronger profitability in H2 FY27.