CEAT pegs FY13 revenue growth at 25%

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Anant Goenka, Dy MD, CEAT Ltd expects FY13 to be a much better year with the company's Halol plant close to full capacity utilization. Further, capacity addition in new areas would result in good growth for the company next year, he said. Goenka is expects about 25% growth in FY13.

Talking about the new tyre plant that CEAT is setting up in Bangladesh, Goenka said that the company is looking capture 40% of the projected demand within a timeframe of 3-4 years.

Below is the edited transcript of the interview. Also watch the accompanying video.

Q: Promoters of CEAT have been buying more into their own company. What should the market takeaway from this? Is there a feeling that FY13 will be a much better year?

A: Yes, we believe FY13 should be a slightly better year for us because we incurred a very high interest and depreciation cost this year, which could not be converted into realization as our new plant at Halol was ramping up. Now that it has reached nearly 70% capacity utilization, we expect to break even and then make money as it reaches full capacity utilization. So, certainly that is one area that will help.

With respect to raw materials which has been surging continuously for a long period of time has seen some amount of plateauing and reduction during Q3. So that too should result in some amount of improvement. One area where we are seeing some challenge is on the demand side. But we are adding capacities in new areas which should result in good growth for the company next year as well.

Q: You have still headroom of 5% for the promoters to raise stake through market purchases. Will that also be something they will resort to?

A: Perhaps, we have just had a warrant issue right now. So we would be looking at that while exercising the warrant. Besides that, there is no other plan to increase our stake at least strategically right now. There could be certain offhand purchases here and there but no real other strategic decisions.

Q: You spoke about interest costs hurting your performance. Now that you have a warrant allotment which will infuse some money in stabilization of your Halol plant, is there a likelihood that the debt on the books will be reduced in FY13? Is there a plan to do so, and if yes, how much?

A: Yes, with respect to Halol plant, we would be paying back our project debt. But we will also require some money for working capital purposes. So on the other side, as our business grows, we expect good growth next year. So we will need some funds for working capital purchases. Perhaps, the debt would shift from project debt to working capital requirement.

Q: Could you tell us a little more about the new tyre plant that you are setting up in Bangladesh? When will that come on-stream in terms of contribution by way of revenues and the funding for that?

A: Yes, we are planning to setup a new plant very soon. It should be ready in about a year and a half to two years time. We are looking at growing there substantially as we would be perhaps the only tyre maker in Bangladesh. So the opportunity of really grabbing a very large market share is very high and we are looking at about 40% in about three to four years time. It would be about a Rs 250 crore investment with a 65 tonne plant in trucks, light trucks and two wheelers.

Q: What's therefore your revenue forecast for FY13?

A: We would be looking at about a 25% kind of growth from this year.

Q: Would you expect margins to rise since you are moving up in terms of value addition?

A: I believe margins in the next year certainly should be better than this year because this year particularly has been a bad year for us. In fact, on a YTD basis or until Q3, we had been facing a loss at PBT level. So certainly, we would be converting that to a positive situation.

Q: How is the demand situation? Are you able to operate to capacity, and if required, will you be able to take price hikes?

A: Demand has not been as good as we had seen about a year ago. From July-August onwards of last year, there has been some slowdown in demand particularly on the truck, bus buyer segment as radialization happened. However, we have seen some amount of good growth again on the truck radial side. With respect to passing on prices right now, I don't see too much opportunity to have price increases because raw material prices have kind of plateaued down, unless there is a further increase in raw material prices in the near future.

Q: What are the sustainable operating margins that the company might see in FY13?

A: Very difficult to give a number, I would say, however, somewhere in the range of 2-4%.

Q: Could you tell us a little more about any plans with respect to monetization of your Bhandup plant?

A: No, we have not taken any decision on that yet. So that continues to be at status quo. We need to setup a new plant first which is still not underway. So no plan or decision has been made yet on the Bhandup plant.