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May 07, 2013, 06.03 PM IST | Source: CNBC-TV18

Ceat sees OEM business growing at over 15% in FY14

In a times when auto Original Equipment Manufacturers (OEMs) are reeling under pressure due to slowdown in demand, Ceat expects its business from OEMs to grow more than 15 percent in 2013-14.

In a times when auto Original Equipment Manufacturers (OEMs) are reeling under pressure due to slowdown in demand, Ceat expects its business from OEMs to grow more than 15 percent in 2013-14, managing director Anant Goenka told CNBC-TV18 today.

"Over 30 percent of our growth has come in from OEMs. Going forward I do see challenging times for OEMs but we are confident because we have entered a lot of new OEMs over the course of the year and I think we should be growing at about 15 percent plus with OEMs in the coming year as well," Goenka explained.

The Mumbai-based tire manufacturer reported 33 percent year-on-year increase in Q4 consolidated net profit at Rs 65 crore. Its consolidated net sales grew by marginal 6 percent to Rs 1,333 crore.

Ceat's margins improved during the quarter due to 6-7 percent decline in prices of key raw material rubber. Goenka sees rubber prices to remain stable over next three to six months.

The company hopes to ramp up utilization of its Halol plant and aims to produce more than 130 tonne per day by second half of fiscal from 115 tonne per day currently. The plant has a capacity to produce 150 tonne per day.

Below is the verbatim transcript of Goenka’s interview

Q: It has been a steady quarter for you all especially on the margin front. Can you start by taking us through how exactly the rubber prices benefitted you all on a sequential basis and what is the trajectory that we can expect going forward?

A: On the raw material side primarily rubber prices have come down. They would have come down from about Rs 165-170 per kilogram in Q3 to about Rs 155-160 per kilogram in Q4. That is a drop of about 6-7 percent quarter on quarter (QoQ). That certainly has led to an improvement in margins. Going forward rubber prices would go up marginally by about a few percentage points but overall in the longer term the next three to six months raw material prices should remain stable.

Q: Can you also take us through what the tonnage growth has been like this year and what it means for your OEM demand and how that has panned out?

A: Overall growth has been at about 9 percent from FY12 to FY13. OEM growth has been particularly strong for us. So, while we read in the newspapers that OEMs are facing a tough time, for Ceat OEMs have grown. Over 30 percent of our growth has come in from OEMs. Going forward I do see challenging times for OEMs, but we are confident because we have entered a lot of new OEMs over the course of the year and I think we should be growing at about 15 percent plus with OEMs in the coming year as well.

Q: Take us through the mix in terms of the volumes times realisations which the company clocked in this quarter and also if you could just take us through the replacement demand which you all saw?

A: We serve three markets the replacement, OEM and export market. Our share of business in the replacement market is at about 55 percent, about 22-23 percent is in the exports and about 22-23 percent is in the OEM segment. The replacement market has been a little sluggish. We have grown by about 3-4 percent in the replacement segment on a year on year (YoY) basis for last quarter. Going forward also I believe replacements should be at about relatively lower growth rate of about 0-5 percent primarily because of radialisation, which is happening in the commercial segment which is causing the life of the tyres to generally be longer than what they were in the older technology.

Q: Last quarter you had to take a price reduction of about 5 percent and this was primarily because of sluggishness that you were witnessing in OEMs. Any price cuts that you are planning now, would there be any price cuts that you have in your horizon?

A: Our price cuts were about 1.5-2 percent last quarter. Going forward we don’t see any possible price cut which is significant in nature. It could be anywhere between perhaps 0-1 percent kind of price cut if at all, but nothing planned immediately in the short term.

Q: How exactly was the utilization at the Halol plant and what was the contribution this quarter and what can be the trajectory that we can expect in terms of utilisation levels going forward?

A: Halol is our new radial plant that has come up. It started off in the year at about 30 percent to 40 percent utilisation. However over the course of the year this has now reached about 80 percent utilisation. Over the course of the coming year we want it to reach about 90 percent utilisation. It is about a 150 tonne per day plant. We are operating at about 115-120 tonne per day. This eventually should reach about 130 plus tonne per day towards the latter half of the year.

Q: You have also been bringing down your debt steadily. What does your debt currently stand at and what are your plans to reduce this debt going forward and also can you take us through what the interest expense was like this quarter?

A: Our debt levels have come down from Rs 1250 crore to about just a little over Rs 1000 crore. We have large amount of capex coming forward in the rest of the year. So, we will continuously work towards reducing our debt level. It should come down perhaps by about Rs 100 crore or so during the course of the year if our performance continues the way it is, but very difficult to say because it depends on your accruals for the year.

Q: Last quarter you all had guided for around a growth of may be a flat to maximum 5 percent growth in the first half of CY13. Now that one quarter is over what exactly does the second quarter look like in terms of growth parameter and what is your guidance for possibly the remaining part or for the foreseeable future that you can guide on?

A: The market conditions have not changed too much from the last quarter. I would say growth will still be a little bit muted. Growth should be somewhere around 5 percent to 10 percent. So, between 5-10 percent is what I would say is going to happen in the first quarter as well as for the rest of year.

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