Nomura has downgraded Ceat to Reduce from Neural as the company’s March quarter earnings were below expectations. The brokerage has also sharply cut the target price for the stock to Rs 1,207 per share from Rs 1,491 earlier as it believes that growth and margins headwinds ahead for the company.

Ceat’s Q4FY21 EBITDA of Rs 2.6 billion was below Nomura’s and consensus’ estimates. EBITDA margin disappointed at 11.4 percent led by higher other expenses, while commodity cost pressure also went up sharply.

Commodity costs have increased further by 8-10 percent QoQ in Q1FY22F and no price hikes in April/May will lead to higher margin pressure in H1FY22F, Nomura said.

“As lockdown restrictions ease, demand should recover; however, for the replacement industry over FY22-24F, growth is likely to be around 5-6% for PV/2W due to a flattish OE industry in the past,” Nomura said in a report.

On the commodity side, Nomura sees a 500 bps further increase currently and no price hikes in April/May as it estimates demand uncertainty will impact margins in the near term.

“Going ahead, expansion in TBR, where competition is high, stronger push in PV OEs and limited growth in the 2W segment remain headwinds for meaningful improvement in margins,” Nomura said.

It also expects net debt of the company to rise. Nomura also does not expect more than 7 percent EBITDA CAGR between FY21 and FY23.

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(Edited by : Ankit Gohel)