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Anti-dumping duties on Chinese tyres in US, Europe big opportunity for Indian Cos: Ceat

The European market holds the biggest export potential for the RPG Group company, Goenka told ET. As an erstwhile Italian brand, Ceat is a familiar name in Europe and that aids in marketing, he added.

, ET Bureau|
Last Updated: Jan 23, 2020, 08.47 PM IST
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About 27% of Ceat’s sales come from supply to vehicle manufacturers, according to a company presentation filed with the exchanges. Replacement demand and exports account for 58% and 15%, respectively.
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MUMBAI: Anti-dumping duties by Europe and the US on Chinese tyre makers have opened a window of export opportunity for the Indian tyre industry when dampened demand at home gnawed into sales growth, said Anant Goenka, managing director of Ceat.

The European market holds the biggest export potential for the RPG Group company, Goenka told ET. As an erstwhile Italian brand, Ceat is a familiar name in Europe and that aids in marketing, he added.

In October 2018, the European Union imposed an anti-dumping duty on tyres made in China. The US too has imposed similar duties.

In Europe, Goenka’s RPG sells tyres for passenger vehicles in Spain, Italy and UK and there is an opportunity to grow in excess of 50% annually there, he said. In the off-highway tyre segment, which the company entered recently, there is potential to double sales, he said. The company presently does not have truck and bus tyres compatible for the European market.

The Indian market, meanwhile, is expected to be under pressure for at least three more quarters, mainly due to the slowdown in sales of new automobiles, Goenka said.

The domestic automobile industry has been grappling with falling sales amidst price increases due to multiple regulatory changes and a poor macroeconomic environment. In turn, that has affected the tyre industry, a large part of sales for which come from supply to vehicle makers.

About 27% of Ceat’s sales come from supply to vehicle manufacturers, according to a company presentation filed with the exchanges. Replacement demand and exports account for 58% and 15%, respectively.

“I think it is going to be challenging for at least another 8 months and that's largely because of the price increase for automobiles that will happen from April because of changeover to BS-VI norms,” he said. While there is no guarantee things will get better October onwards, Goenka said, things will surely be difficult at least till then.

Ceat is going ahead with its capacity expansion plans, albeit at a slower pace due to the demand downturn. It has deferred about Rs 500 crore of investment from its planned capital expenditure of Rs 3,500 crore, according to Goenka.

The company on Wednesday announced its financial result for December quarter where revenue and profits were mostly stagnant at Rs 1,762 crore and Rs 53 crore, respectively, while the Earnings before interest, tax, depreciation and amortization (ebitda) margin improved 2.1 percentage points to 10.7%.

“CEAT continues to invest in R&D and capacity, which is likely to keep free cash flow subdued for FY21-22. Under the current scenario, earnings could bottom out in FY21,” ICICI Securities said in a report, revising the target price for the stock upwards to Rs 1,015 per share from Rs 909.

The stock gained 1.05% to close at Rs 1010 per share on the BSE on Thursday.

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