To double 2-wheeler tyre capacity in two years: Ceat

Anant Goenka, MD, Ceat in an interview to CNBC-TV18 said the company has no further fund raising plans post the closing of qualified institutional placement (QIP) yesterday but would look at raising debt for their various projects going forward.

"We are pretty comfortably funded between internal accruals, debt and the QIP funds for future projects for the next year and a half to two years," he added.The debt for the company currently stands at Rs 700 crore and the debt-equity ratio is 0.5. However, post debt raising the debt to equity would rise to 1:1, said Goenka.The company has raised Rs 400 crore via QIP and the promoter holding has been diluted from 57 percent to 51 percent now, he said and has no further plans of equity issuance.Talking about their robust expansion plans, he said the company will invest Rs 420 crore in their new Nagpur plant that manufacture two and three wheeler tyres. It has already made investments of Rs 650 crore in brownfield expansions in its Halol plant, he added The company has ambitious plans of doubling their two-wheeler tyre capacity in Nagpur from 10 lakhs to 23 lakh tyres in two years, he added. The benefit of dip in the raw material prices (rubber) seen in second quarter will be seen in the current quarter and expects positive impact of that on Q3 margins However, the rubber prices in the last 30 days have be largely flat, he added.

Below is the transcript of Anant Goenka's interview with Reema Tendulkar and Sumaira Abidi on CNBC-TV18.Sumaira: Can you take us through how much you have managed to raise through your qualified institutional placement (QIP)? I believe you had a board approval for up to Rs 500 crore and how much equity dilution would this lead to?A: We raised about Rs 400 crore. That is what our target was. We had board approval of up to Rs 500 crore but we chose to limit to Rs 400 crore that was for the sake of flexibility to take a call depending on the prevailing share price etc. So we have raised as much as we would have liked to and this has diluted promoter holding from about 57 percent to about 51 percent or so.Reema: What will be the FII holding in the company post the QIP because you have got in an approval to go up to 45 percent with respect to FII shareholding, so post this where will it stand at and if you could also tell us the names of the institutions which invested in your QIP, who are the buyers?A: FII shareholding would be somewhere between 25 percent and 30 percent at this point. I don’t have the exact number. I will not be able to share with you the investors who have finally invested but largely foreign institutional investors, a small share by the domestic institutions as well.Sumaira: Would your fund raising requirements now be complete for FY15 and FY16 or would you be looking to raise any other funds in a few months?A: No, our fund raising is complete. We have enough capital now for our future plans; we are planning to invest about Rs 650 crore in Brownfield facility in our Halol plant for passenger car and utility vehicle tyres. The project is already underway. We are also looking at a new plant in Nagpur for two-three wheeler tyres, that is about Rs 420 crore investment and we have a capex in Bangladesh that is already underway, which has been funded that is 70:30 joint venture between us and the local Bangladeshi company, which is also underway. So with all of this, we are pretty comfortably funded between internal accruals, debt and the QIP funds for future projects for the next year and a half to two years.Reema: What does your debt currently stand at and the debt to equity?A: The debt would be at about Rs 700 crore and the debt equity post our capital raise would be under 0.5 at this point of time. So we are pretty comfortable at this point.Reema: Would you need to raise more debt for funding Halol, Nagpur as well as Bangladesh capex from the current Rs 700 crore?A: Yes, right. We will be raising debt. It would be something like 65 percent debt, 35 percent equity kind of ratio for the various projects that we have so certainly in the next one year we would be raising fair amount of debt. But at the end of it, we will be pretty comfortable.Reema: Can you give us a number?A: At the end of it, our debt equity even at a peak capex time should be at about 1:1 or about 1:1.1 level.Sumaira: This Nagpur unit that currently you have planned capex for, what will this take your capacity up to and if all the other units combined as well?A: In terms of Nagpur, we are largely producing motorcycle and scooter tyres there. We will be taking our capacities nearly more than doubling our capacities from about 10 lakh tyres today to about 22-23 lakh tyres in about year and a half to two years time so more than doubling our two-wheeler capacity. At an overall tonnage level, at a company level today’s production is at about 750 tonnes per day and all of this capital investments would take our tonnage to about 1,000-1,110 tonnes per day.Reema: If at any point of time the company does require more equity, is the family okay with the promoter shareholding dipping below majority shareholding that is sub-51 percent from where you currently stand at or at any point of time you would like to maintain a majority control?A: Very difficult to say at this point of time, there is no plan for equity issuance at this point. We have just completed it; we have got exactly what we wanted so I don’t see any visibility for further equity issuance from a need of the company perspective. But if there is a need in the future, certainly I don’t think there will be any close mindedness towards further dilution.

_PAGEBREAK_Sumaira: We understand that there is some investment which has been approved for speciality tyres, can you tell us what portion of your business this would account for and what are the plans?A: Currently we have about 5 percent or even less than 5 percent of our business that goes into the off-highway tyre business. We have been actively looking at this business, no final decision yet has been taken whether we want to go ahead or not but currently it is under evaluation mode. It does seem interesting because it is a high margin business, growing well so it is something which we would be looking at exploring in the next month to a month and a half if any final decision is taken, we will certainly let you know.Reema: Since the last time we spoke, there has been any further fall in decline in crude prices. What can be the benefit to your margins in Q3 as well as in Q4. In Q2 you ended with margins of 12.2 percent, what can we expect with respect to your margins in the coming two quarters?A: Yes, raw material prices have been coming down during the period of Q2 as well. So that will hit us in Q3 because there is about 2-3 months lag between the time we buy to the time it affects our actual consumption prices. So there can be further reduction in raw material prices going forward. This could have some positive impact on our margins. I am pretty positive about a positive impact on margins. However, on the growth side, I would say certainly the market has not picked up well enough. We have been growing at about 9-10 percent but the growth is still continuing to be a challenge with respect to the overall auto industry, with respect to overall picking up of the export market etc.Sumaira: Your Original Equipment Manufacturers (OEM) demand has recovered, replacement market growth is quite healthy, is that a trend that you expect to see going forward as well and how much do you think these two could contribute to you in full FY15?A: While OEM demand has continued to be a challenge, we have been growing well with the OEM segment but overall the commercial vehicle segment is still showing negative growth. Even on the passenger side, we have seen out of 5-6 months nearly 3 months of negative growth. So it will still take some time for the OEM segment to pick up. It could be about 4-6 months at least.On the replacement side also, while there is a lot of positive sentiment, it will take at least 6-8 months for further improvement to happen because mining is one area for growth where there is still a lot that needs to be done towards opening up of mines etc and all of these things take time.Second is industrial investment in the country - again with a new government coming in, I am pretty optimistic about changes but all these things take time. So I would still give it about 6-8 months for the impact to come on ground. In terms of share of business for the next year it would be about 80 percent of our business would come in from domestic, which is replacement and OEM business.Reema: When we last spoke to you on October 31 the company had come out with Q2 earnings, since then have rubber prices fallen further?A: Since then rubber prices have largely been flat. So if you were to compare to Q2 which is between June and September it was during then that rubber prices had come down but in the last 30 days it has largely been flat.Reema: Very recently there was a statement from the Maharashtra Chief Minister who indicated that Ceat wants to invest Rs 1,200 crore in Butibori Industrial Sector. Can you walk us through the company’s plans; I believe you had asked for some land as well?A: This is largely the Nagpur land I was talking about. We are investing in the Butibori estate there - the MIDC property called Butibori. We have got permission to invest up to Rs 400 crore maybe phase II and phase III over the course of 5-6 years time in the longer term could convert into a larger investment but this is sufficient for us for the next couple of years.