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There's an opportunity in export for tyres, especially to Europe, says Anant Goenka, MD, Ceat

The tyre industry in India has seen its growth momentum getting arrested due to a slowdown in the sales of vehicles, which has led Cear to defer some of its planned capital investment but they still see an opportunity in export.

Last Updated: Jan 24, 2020, 01.49 PM IST
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MUMBAI: The tyre industry in India has seen its growth momentum getting arrested due to a slowdown in the sales of vehicles. The situation will remain challenging at least till the end of the September quarter, Anant Goenka, managing director of Ceat said in an interview with Satish John and Nehal Chaliawala.

The company has deferred some of its planned capital investment in the face of the slowdown in the domestic market, but sees an opportunity in export, especially to Europe, Goenka said.

Edited excerpts:

How do you see the market environment in the coming quarter?
I think it is going to be challenging for at least another eight months and that's largely because of the price increase for automobiles that will happen from 1 April because of BS-VI norms. And anyway, when the monsoon comes, sales are generally down. So, we will have to wait for the festive season October onwards for things to hopefully get better. There's no guarantee that things will get better then, but I think we are quite sure that things will be tough until then at least.

It, of course, also depends upon the economic activity, consumer spending power, et cetera. So, the macroeconomic effects are also a big factor. Base effect will also have some impact on the growth numbers that you see. November 2018 was the time when the IL&FS crisis started and things started looking challenging. So, if you start looking from now on or from March-April onwards, year-on-year growth numbers will start looking a little better.

Tyre industry also has a substantial replacement segment. How is that faring?
Replacement is about 60% of the market. People need to replace tyres. To that extent, it is not as prone to economic ups and downs and that's why that's the area where we have seen much better growth than the auto players. Automakers have de-grown by 10% to 20% while we are just about kind of flat and that's because of better growth in exports and replacement segment.

Is the sales mix of OEM (Original Equipment Manufacturers/Vehicle makers) and replacement segment different for Ceat than the industry?
No, the mix is similar to the industry. About 60% of sales are from the replacement segment, about 25% goes to OEMs, and about 15% is exported. On average, the industry is similar, maybe a 5% shift here and there.

Is there more scope for increasing your exports revenue?
Export is about 13% of our revenue. We have been selling our passenger car tyres to Europe and that is something that is also getting very positive feedback. There is a lot of growth potential there because the market itself is so large. Germany itself is larger than India.

There is dumping duty being imposed on Chinese tyres from Europe and the US and that makes it an opportunity for India to sell to these countries. Primarily in the truck and car segment. Europe has the highest potential market for Ceat.

Ceat is an erstwhile Italian brand. It's a known brand and to that extent the marketing need is lower there; it's much easier to sell tyres to Italy, Spain and some countries.

You have decided to go ahead with the expansion plan in Chennai and Nagpur. How does this add to the capacity?
We are adding substantial capacity in all categories. The truck radial tyres (plant) was the first one that came up, taking up our capacity from 40,000 tyres per month to about 120,000 per month - a 3X increase from our earlier capacity. That plant came on stream just under a year ago. The expansion itself to reach full capacity will take about two years because that's how the expansion was planned assuming that demand also will grow gradually. We planned our capex (capital expenditure) accordingly.

The two-wheeler (plant) will come on stream now and then the passenger car (plant) is also expected to come on stream in Q4. On the two-wheeler side, we are adding close to a million tyres a month in capacity and in passenger car it's about 70,000 tyres per day eventually, but that will also take about two years. That's how a large capacity is coming on stream.

Some amount we have deferred. We delayed it a little bit because of the downturn. We had planned a total capex of about Rs 3,500 crore initially, but we delayed some of that for now. To that extent, we have pared it down by about Rs 500 crore.

How do you the raw material prices going forward?
Raw material prices have been stable until now. In the last four weeks, there has been an upsurge in both rubber and crude oil. For us, about 35% of raw material cost is rubber, 50% is crude and crude derivative products, and the balance is steel and other chemicals.

Crude has gone up a little bit after the US-Iran issue. That's something that will have some impact after about four months. Rubber is about 5%-7% higher than it was.

You are also raising funds through non-convertible debentures. What is that for?
That is just an enabling resolution that we took so that if the need arises we can use it. There is no plan to use it immediately at this point in time.

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