CEAT · risk themes across the available quarters.
Bear-case history
Despite aggressive price hikes, there is a lag between cost increases and price realization. Gross margins collapsed to 33.9% in Q1 from normal 40-41%, and management expects continued pressure in Q2 before potential recovery in H2.
Domestic rubber prices at ₹280/kg, a 15-year high and at a ₹15-20/kg premium to international prices. Q2 rubber prices are 'kind of fixed' due to pipeline inventory; any correction likely only in Q3-Q4 if commodity markets normalize.
The $80 million loan to Sri Lankan subsidiary created a ₹48 crore finance cost hit in Q1 due to LKR depreciation (312 to 335/dollar). While 30% of debt will convert to equity to reduce exposure, currency fluctuations will continue impacting consolidated earnings until fully addressed.
Management flagged El Nino risk to rural demand via reduced farm incomes and supply chain disruptions from West Asia crisis. Q2 may see 'some moderation' though demand is not expected to 'fall off a cliff'. Replacement demand for MHCV expected mid single-digit.
Rupee depreciation from ₹87 to ₹91/USD and rising natural rubber prices could impact margins by 1-1.5% in Q4 and beyond.
US tariffs of 25% on on-road tires and 50% on OHT persist, limiting growth in the US market; India-US trade deal uncertainty remains.
CAMSO revenue run-rate is below initial expectations ($80M annualized vs $140-150M guided), and full normalization may take 3-5 quarters.
Strong replacement growth may partly reflect channel restocking; sustainability beyond a couple of quarters is uncertain.