Raw material prices might rise by 6-7% in Q3: Ceat

Ceat is contemplating a mild hike in prices of tyres in the third quarter. Arnab Banerjee, its executive director- Operations, says that domestic prices of rubber and non-rubber raw materials are also picking up. Prices of raw materials may also rise by 6-7 percent in Q3, he told CNBC-TV18.

Speaking on the company’s performance and strategy, he says that the focus will be more on value additions of a sale, which is consumer business of two-wheeler and four-wheeler tyres. He also sees better volumes in the domestic replacement market. Topline growth in H2FY14 will be similar to the first half, but the product mix will be better, he adds.

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Below is the edited transcript of his interview to CNBC-TV18.

Q: Is there a possibility of a price hike? Are you contemplating that?

A: There is an inflation trend, which indicates that the raw material prices might go up by about 6-7 percent in Q3. Ceat has a natural hedge against imports by way of a very high percentage of exports in our turnover compared to some other companies in the country. To that extent, the pressure on us will be lower. However, domestic prices of rubber and non-rubber raw materials are also picking up.

So we may contemplate a mild price increase as we go into Q3. Looking at the demand scenario, exports and domestic markets’ demand doesn’t look to be good. Competitive pressures will be high. That is another consideration in mind when we decide on a price hike.

Q: As of now, in the quarter gone by, about a month and a half to two months in Q2, have we seen domestic rubber prices go up at all? If yes, how much and how do you expect margins to pan out because you haven’t taken tyre price increase as of now?

A: Margins are dependent on the value addition that we do over raw material. So our strategy has been quite different because one cannot influence raw material prices. We have seen prices stabilise at a high levels in domestic around Rs 180-185, import prices of rubber are also quite high.

We had been focusing more on the value added component of a sale, which is consumer business of two-wheeler and four-wheeler tyres. We are focusing on market share hikes and that is what we are achieving in Q1, Q2 and now also in Q3 we plan to do that.

Q: What about volume growth, what would your target be possibly in the second half of the fiscal and how is this quarter panning out for you?

A: Volume growth is close to double digit. It isn’t what we would ideally like to have because of a dip in sales in OEM (original equipment manufacturer) segment. Also, due to currency devaluation across several countries in export market, volume growth is not very good in export.

However, domestic replacement market is good for us. The OEM had grown handsomely in the past two-three years that is why replacement demand is coming up especially in the consumer segments where Ceat is having a strong play.

Q: Overall what are you expecting by way of revenues in FY14? In Q1, you had a revenue growth of close to about 7.5 percent thereabouts. Will things pick up in the next nine months and push your revenue growth to double digits for the entire year?

A: We expect second half to be similar in terms of topline growth over the first half, but the product mix will be better.