Allaying fears that a flood of cheap Chinese tyres, which have reportedly hit a record-high market share of 18-20 percent, may disrupt the Indian market, CEAT CFO A Subba Rao said he didn‘t foresee it to be a serious threat.
Allaying fears that a flood of cheap Chinese tyres, which have reportedly hit a record-high market share of 18-20 percent, may disrupt the Indian market, CEAT CFO A Subba Rao said he didn’t foresee it to be a serious threat.
“There is some demand [for Chinese tyres] in the taxi, truck and bus market in the replacement segment. But they are not present in the original equipment manufacturer (OEM) segment,” he said. “They are cheap but they lack the service element.”
Commenting on CEAT’s own business and the industry at large, Subba Rao said the company’s capacities were all used up and that it was in the process of expanding its Nagpur plant for two- and three-wheeler tyres to 120 tonne a day and set up another 120 tonne radial plant in Halol, Gujarat.
On the commercial vehicle segment, the CEAT CFO said the space had seen recovery in the second half of the last financial year (FY15) and added that pick-up in mining activity (thanks to the coal auction) would bode well for it.
Below is the transcript of the interview to CNBC-TV18’s Ekta Batra and Reema Tendulkar
Reema: We begin FY16 but there are also some disturbing reports about how the market share of Chinese imported tyre is at a recorded high of 18-20 percent versus normal average of about 8-10 percent. Is there any truth to this and have you last market share?
A: It is true that the Chinese tyre presence is growing up in the markets because particularly in certain segments like in the case of passenger cars the taxi market is catching on to Chinese tyres.
In the case of truck and bus also there is a growing consumption of the Chinese tyres particularly because of the low cost. It is true but it is not in a threatening position. We have to see how it is, because there is no service element for the Chinese tyres the cost is no doubt low but the service element is missing for those tyres.
Original Equipment Manufacturer (OEM) do not consume Chinese tyres it is only in the replacement market that can have some influence of the Chinese tyres. Coming to market share we have not lost any market share. Our all over capacities are completely used.
Ekta: One of the other takeaways was that the Chinese imports will start declining possibly in the second half of FY16. Do you expect that to take place according to you and do you expect the commercial vehicle (CV) recovery to possibly come through second half and if not by when?
A: CV recovery has been happening in the second half of the current year which is this financial year 14-15 so the recovery has been happening. We do not know the outlook, it is little uncertain but the second half of last year that is FY14-15 the recovery has been significant almost 40 percent up in the OEM segment. We have to wait and see whether it gets sustained but outlook looks little mixed.
Ekta: Do you think there could be an impact because of the unseasonal rains because we have been taking to a couple of the non banking financial companies (NBFCs) who lend the likes of Shriram Transport Finance and even analyst opinion has been that may be there could be a further slowdown because of the unseasonal rains and may be interms of disbursements for used CVs and even new commercial vehicles. Do you think that would impact the anticipated growth that was there?
A: Unseasonal rains will not have a permanent impact. It could be temporarily impact. However, there are positive factors like opening of the mining sector so that could be a huge positive for the commercial vehicles.
Reema: Because the Chinese imported tyre is significantly cheaper than what the domestic industry tyre cost is there pressure on you or the industry per se to cut prices? Have you done so or anyone in the industry likely to cut prices?
A: There has been slight price drop not because of the Chinese competition but because of raw materials so we passed on some kind of that benefit.
Reema: What was the quantum and what could it be going ahead as well?
A: In the case of the commercial vehicle it has happened about 3 percent price drop has happened over a period of last few months.
Reema: Will you cut prices in any segment going ahead?
A: Difficult to say it is all industry competitive action so nobody can forecast this.
Ekta: What is your capacity expansion? We do understand that it is around at least 35 percent by Q1 of FY17 may be over a year. Can you take us through what sort of capacity are you expanding and what kind of demand are you seeing in order to may be service it?
A: We are setting up 120 tonne per day radial plant. It is completely passenger radial plant in Halol adjacent to our existing unit that is one capacity. Another capacity that will come into operation this financial year is Nagpur the two-wheeler plant. That is another 120 tonne per day. 120 plus 120 so 240 tonne per day capacity will come into operation.
I won’t say that the entire capacity will come into operation on the day one. There is a ram-up; the ram-up takes nearly one year. So, it is a progressive capacity utilisation that will come with this 240 tonne over a period of next one year from the date of the commissioning of the operations it will happen. It does not come on the day 1 the entire capacity.
Reema: We keep talking about the crude prices, generally for your company in this quarter how would the raw material cost compare with the last year as well in the previous quarter? Has it come down further?
A: It has come down. It is steadily coming down.
Reema: Even in this quarter compared to the previous quarter.
A: Because the crude derivatives it has not come down earlier it has tried coming down in this quarter little bit.
Reema: How much?
A: I won’t be able to figure on this but it has come down it has been positive. However, raw material cost there has been lot of emphasis on the raw material cost. Raw material cost constitutes about 60-65 percent of the overall production cost. However, the rest of the costs keep going up.
Ekta: When you talk about rest of the cost what would you mean?
A: About 35 percent you have your overheads, you have employees cost, you have sales and distribution cost so the inflation keeps impacting those costs. That 35 percent cost keeps going up by close to 10 percent every year. Also the realisations keep dropping.
Suppose we are in exports markets, there is a heavy Chinese competition in the export market. There is a little drop and again OEM segment whereas the supply price to OEM is linked to the raw material price that also keeps coming down. There are balancing factors on both the sides.The Great Diwali Discount!
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