The RPG Group owns CEAT Limited, an Indian multinational tyre manufacturing company

that was formerly known as Cavi Elettrici e Affini Torino. It was founded in Turin, Italy, in
1924. It is present in international markets. CEAT produces around 165 million tyres
annually and makes tyres for automobiles, motorcycles, light trucks, buses, earthmoving
equipment, forklifts, tractors, trailers, and auto-rickshaws. The factories of CEAT tyres can
currently produce more than 800 tonnes per day.  CEAT Tyres of India was formed in
Mumbai on March 10, 1958. The business first worked with the Tata Group.  The business
established a research and development department at Bhandup in 1972. Deccan Fibre Glass
Limited was amalgamated with the business in 1981.

The business was purchased by RPG Group in 1982, and it changed its name to CEAT in
1990. The business partnered with Yokohama Rubber Company in 1993 to produce radial
tyres at its Nashik facility.  In order to manufacture and sell, CEAT joined together with Asia
MotorWorks (AMW) and Kelani Tyres to form CEAT Kelani.

Vision : Making mobility safer & smarter every day

Mission: CEAT accelerates movement with the finest tyres known for their durability,
smooth ride and secure grip on roads.

Traded as BSE –500878

NSE -CEAT Limited(CEATLTDEQ)
Subsidiaries Associated CEAT Holdings Company
(Private) Limited, CEAT AKKhan Limited,
Bangladesh, Rado Tyres Limited, CEAT
Specialty Tires, Inc.
Managing director Anant Vardhan Goenka
ISIN INE482A01020
HEADQUATERS Headquarters, Worli, Mumbai, India
 WEBSITE www.ceat.com

2.2 capitalization

Capitalization is an accounting method in which a cost is included in the value of an asset and
expensed over the useful life of that asset, rather than being expensed in the period the cost
was originally incurred. In addition to this usage, market capitalization refers to the number
of outstanding shares multiplied by the share price, which is a measure of the total market
value of a company. capitalization is an accounting rule used to recognize a cash outlay as an
asset on the balance sheet, rather than an expense on the income statement.

The capitalisation position of CEAT limited of last 3 years :

Particulars 2022-21 2021-20 2020-19

Equity share 40.45 40.45 40.45
capital
Reserves and 3109.82 3124.29 2720.15
surplus
Long-term 1719.16 1341.04 1640.78
borrowings
Table 1-sources of long term debt of ceat ltd

Source- money control

Long-term liabilities or debt are obligations that are recorded on a company's books but are
not due for at least a year. Long-term liabilities include loans for land, machinery, and other
assets; rent, on the other hand, is a short-term debt that must be paid within a year. Analysis
of a company's debt structure and financial leverage can be done by comparing its long-term
debt to other economic variables.

Debt equity ration

The debt-to-equity ratio indicates how much debt a company needs to pay on each rupee of
equity it has. For example: debt-to equity ratio of FY 2022-21 indicates that for every 0.66
rupee of debt we have equity of Rs.1 to pay, means the company needs to struggle a little bit
to pay its equity and company needs to concentrate on how to reduce the debt equity ratio .
 Years Debt equity ratio
F.Y 2022-21 0.66
F.Y 2021-20 0.42
F.Y 2020-29 0.67
Table 2- debt to equity ratio

Source-“moneycontrol.com”

By seeing this ratios we can also say that company is using its funds efficiently and also the
company would have been working as efficiently as it’s working now. Purely from a risk
standpoint, debt ratios of 0.4 or less are preferred, whereas a debt ratio of 0.6 or more makes
borrowing money more challenging. While a low debt ratio signals a corporation is more
creditworthy, holding too little debt carries danger as well . Therefore, its said that the
company is overcapitalized.

Even in this situation it is unpleasant because instead of keeping amount idle would have
invested the same amount which could have generated some returns and the management
may not work as efficiently. otherwise the company can stat a new project or can invest in
research and development or pay dividend to shareholders, because overcapitalization is also
as much a problem as undercapitalization .

3.2 capital structure

Capital is the most important factor in launching a business. It serves as the business's
cornerstone. The two main sources of money for a firm are debt and equity. A company's capital
structure is the combination of stock and debt used to fund both the general operations of the
business and its expansion.

COMPONENTS CEAT ltd In Rs. Crore

F.Y. 2022-21 F.Y. 2021-20 F.Y. 2020-19
Equity
Authorized Capital 75.2 75.2 46.1
Issued Equity Share 40.5 40.5 40.5

Debt
Long Term Borrowings 1719.16 1341.04 1640.78
(Includes debentures)
Short Term Borrowings 381.90 488.80 106.30
Trade Payables 9761.00 488.80 106.30

Net Worth
Profits 4582.30 5159.40 7064.80
Reserves and Surplus 53935.00 51215.80 48286.00
Non-Current Investment 36663.20 33371.00 35248.80
Current Investment 4100.10 8415.70 1218.80
Table 3- capital structure of CEAT ltd

Source: Balance Sheet and Profit & Loss Statement of CEAT LTD. from FY2019 to FY
2022.

3.3 Leverages

Table 4- leverages

F.Y. 2022-21 F.Y. 2021-20 F.Y. 2020-19

Sales 9312.63 7572.79 6581.11
Less(variable cost ) 6186.90 4173.76 3185.97
Contribution 3125.73 3399.03 3395.14

Ebit 281.21 631.95 461.49

 Ebt 77.24 458.90 338.53

Operating leverage 11.1152 5.3786 7.3569

Financial leverage 3.6407 1.3770 1.3632
Combined leverage 40.4671 7.4063 10.0289

Table 4- leverages

Sources: Profit and Loss statement of CEAT Ltd from F.Y. 2019 to 2022.

Working Note:

1. Variable cost = cost of materials consumed = raw materials + stores+ spares + loose
tools.

2. EBIT =EBT +IN

o F.Y. 2022-21 = 77.24+203.97=281.21

o F.Y. 2021-20 = 458.90+173.05=631.95
o F.Y. 2020-19 = 338.53+122.96=461.49

Operating Fixed cost is the cost related to the assets of our business, like depreciation,
rent, lease. Operating leverage tells the impact of operating fixed cost on the profits of the
business .It indicates how well the firm has used the assets on which fixed cost is paid to
increase the profits.

The price paid for debentures, loans, preference shares, etc. is referred to as a financial
fixed cost. Financial leverage explains how fixed costs have an impact on earnings per
share (EPS). It explains the connection between EPS and EBIT. It shows how effectively
the fixed cost funds are applied to boost equity shareholders' returns.
3.4 cost of capital

1.cost of equity

Cost of equity(ke)=dividend/market share price

 F.Y 2022-21=3/1722=0.17%
 F.Y 2021-20=18/1255=1.43%
 F.Y 2020-19=12/1128=1.06%

“market prices are taken according to end of the year”

2.cost of debt

Cost of debt - (interest paid *100)/total borrowings

 F.Y 2022-21= (19,129*100)/ 2,07,547=9.21

 F.Y 2021-20= (16,014*100)/ 1,40,188=11.42
 F.Y 2020-19= (6,268*100)/1,26,313=4.96

3. Cost of Retained Earnings (Kr): is the cost of retaining the surplus in the organisation,
this surplus would otherwise have been paid to the stakeholders.

Using formula, Kr= Ke x (1-Ti)/(1-Tb)

 F.Y 2022-21=0.17%
 F.Y 2021-20=1.43%
 F.Y 2020-19=1.06%

Dividend policy
A dividend is essentially a return on investment, and generally speaking,
dividends are subject to tax. One of the three primary decisions and one of the
most crucial aspects of financial management is the dividend decision. The
dividend decision is the choice of whether to distribute the surplus as a dividend
or keep it for yourself. Another way to obtain dividends is by the acquisition of
shares, share repurchase, property dividends, scrip dividends, and liquidating
dividends.

Figure 1:dividends given by company for last 3 years .

Figure 2: Dividend Yield and dividend per share pattern over last 10 years.
Source: Simplywall.st, 2022
 The trend line clearly suggests that the amount of dividend paid by ceat ltd is
continuously increasing since last 3 years.
 The analysts at simplywall.st also feel the same. So, although company has irregular
dividend policy on papers but it is paying regular dividend and following residual
dividend policy thereby investing in company’s long-term growth and sharing returns
with stakeholders as well.
 The Dividend Yield and dividend per share have been increasing last three years.
 The company had its highest yield in between 2020-21.

Future plans
 According to Ceat Ltd.'s MD, Anant Goenka, the company has finalised plans for
capital expenditures totalling rupees 800 crore for FY23 to develop its greenfield
factory at Kancheepuram, decongest its factories, and invest in renewable energy.

 Ceat has planned to invest Rs.50 crore in expanding capacity at its existing Nashik unit in Maharashtra,

and for setting up a new unit in Sri Lanka. The plan involves expanding the radial tyre capacity at the

Nashik plant from 40,000 units per month to 65,000 units per month. set up a new unit for

manufacturing will increase it capacity by20,000 tyres per month.

 it also has plans to make a fresh investment of Rs 1200 crore in truck and bus plant.
 It is also working with all major electric 2W makers.

references
https://www.moneycontrol.com/financials/ceat/balance-sheetVI/C07

https://www.thehindubusinessline.com/companies/ceat-to-put-a-stronger-focus-on-3-
profitable-segments-over-the-medium-term/article64959150.ece

https://www.moneycontrol.com/financials/ceat/profit-lossVI/C07

https://www.indmoney.com/stocks/ceat-ltd-ceatltd-share-price/INDS01148