Expecting 5-7% tonnage growth in Q3: Ceat

In an interview to CNBC-TV18, Manish Dugar, chief financial officer, Ceat gives details on the company's performance. He has a positive outlook for Q3 and Q4.

"We are expecting rubber prices to harden a bit in the January-February-March period when the global demand goes up and the season comes down," he adds.

Also read: Rupee rules steady against dollar in late morning trade

Below is the edited trancript of Dugar's interview.  Q: Give us an idea of how business is at the moment? How are rubber prices headed? Are you atleast going to see the second half bring you better margins as well give us an idea of volumes?
A: Clearly atleast till now October-November have looked good, relative to what we saw in the previous quarter. While the original equipment manufacturer (OEM) volumes could be a little better and the exports could be a little better, but overall we expect this quarter to be better than what we saw the last quarter.
Coming to rubber prices, they are hovering around Rs 170-175 per kg, which are lower levels than what we saw in the previous quarter. Given that we had one time expense that came into our profit and loss (P/L) last quarter, we expect our profitability for this quarter to be certainly better than the run rate margins and also certainly better than what we saw in the September ending quarter.
Overall, I think it is a positive outlook for this quarter as well as in the January-February-March. We are expecting rubber prices to harden a bit in the January-February-March period when the global demand goes up and the season comes down. We need to see how October-November-December goes and January-February-March can at best be same as October-November-December from a profitability perspective. Q: Give us some numbers on the volumes?
A: From a tonnage perspective, at an overall level we did about 51,000 tonnes of sale in the September ending quarter. We expect around 5 to 7 percent growth in tonnage terms in the October-November-December quarter.
_PAGEBREAK_ Q: Focusing on the margins, on sequential basis there was a bit of a down-tick on margins by around 200 basis points. There was high amount of inventory. Is the entire high inventory over and done with? Are you all procuring rubber at lower prices, so could we see an improvement in margins going forward?
A: Inventory of rubber is typically dependent on two things; one is the production and sales and the second, is the quantum of input that we do against the exports, that gives us an entitlement. So, we have import obligations which were not fully consumed. Since the timeline for consumption and delivery of material is two months, it takes a while for liquidation of that inventory and we are seeing a reduction in that level. Plus, the newer purchases that have happened, have happened at much lower levels which are nearly at same prices we are procuring in the market.
The other thing that impacted our prices on rubber was the increase in the exchange rates. So depreciation of rupee did have an impact on imported raw material. I would expect all of that to get neutralised, if not negated in the quarter ending December. Hence, we should see some goodness in profitability on the raw material side. Q: So margins will move up from 7.2 to what?
A: I would avoid giving a forward looking statement. I would say that it would be industry leading. So we would certainly be better than what the competition did and what we have done in the last two quarters.


Q: How is the top-line looking? In the previous quarter, there wasn’t a significant increase in the top-line and the concerns remain by the analyst that the replacement demand has not picked up and your export demand or your export markets were pretty sluggish such as Latin America. Just throw some light on these two segments?
A: We had a growth in our revenues last quarter on a year-on-year basis and it is not necessarily right to compare quarter-on-quarter because it is a seasonal market. We expect a growth in our revenues in the December quarter as well, over the last year December quarter.
Coming to those specific segments, especially in the truck and bus segment, we have given the radialistion. The replacement market for truck and bus tyres has seen a decline. Even on the exports, we are seeing markets like Latin-America significantly impacted given the macro-economic situation.
If you look at continental Europe, the demand is not as much as we would expect it to be, so there has been a sluggishness, but I would say that a lot of that has got neutralised by increased demand in the OEMs especially in the UVR sector and the two-wheeler sector. Overall, we expect both volume as well as value growth in terms of top-line. There will be a change in the mix of sales though and we will probably not see exports contributing to that growth significantly.


_PAGEBREAK_ Q: You reduced your debt by Rs 60 crore. Any further reductions, any changes to debt and capital?
A: We have realised and we believe that we need to work towards asset live model. While our profitability was low numbers, but a lot of it was because of non-cash expenses. So decrease in working capital and some of the other efforts in terms of reducing cost, which are of cash in nature, has helped us reduce the debt. Q: Will there be further reductions in debt and will there be further increases in capital?
A: That is the intent. We do believe that there will be reduction although there will be more capex plans also, given that we are now going live in Bangladesh. Overall, you should see and expect a reduction in the debt levels.