Will continue to grow at 10-15% levels: Ceat

Anant Goenka, MD of tyre-maker Ceat says ramp up at its Halol plant and stable rubber prices aided the first quarter results of the company.

The RPG group company posted a consolidated net profit of Rs 29 crore for the first quarter ending June of FY13 as against the loss of Rs 41 crore the company posted for the same period last year. The net sales of the tyre maker rose 10% at Rs 1,225 crore for April to June of 2012 versus Rs 1110.5 crore it posted for the same period last fiscal, even as volumes are under pressure with the overall slowdown in the industry. Goenka says slowdown in Europe and South America is hurting exports. "The replacement volume growth has been sluggish at less than 3%," he told CNBC-TV18. Ceat expects volume growth to improve in the second half of the year. "We will continue to grow at 10-15% levels," he says. Below is the edited transcript of Goenka's interview with CNBC-TV18. Q: Can you take us through what was behind the good numbers was it largely lower rubber prices or other factors which contributed? A: If you were to compare it to last year same time, then last year was a difficult quarter for us because of increased interest in depreciation from our new plant at Halol. Secondly, last year rubber prices had reached its peak. Since then rubber has stabilised a bit, our Halol plant has ramped up as well. We have taken some action with respect to shifting towards more favourable market and product mix. So, we are finding with rupee depreciation exports becoming quite profitable. We are moving more towards the non-truck segment which we find, a segment to be less volatile with respect to rubber prices as well as more profitable. So, these actions from the management’s side has also helped. Q: Your revenues have grown about 10% but they are flattish and a bit lower quarter on quarter (QoQ) do you expect significant double-digit revenue growth driven by the Halol plant off take now? A: We have seen some sluggishness with respect to overall growth. The overall macro economic environment is not in a great position right now. We find that our original equipment manufacturer (OEM) customers are beginning to cut capacities. On the export side, there is a slowdown in Europe as well as South America. Because of all these reasons we are finding some slow down with respect to overall demand. Secondly, there is radialisation which is also happening which is causing demand for the older technology truck bus bias tyres to go down. While radials are replacing truck bus bias tyres, so there is one segment which is degrowing, one segment which is growing. So, net-net the overall growth therefore is not very high in volume terms. Q: Which segments are you seeing most sluggishness from? A: Currently, we are seeing sluggishness from export. Replacement segment is also flattish at about 0 to 3% kind of volume growth. In the OEM we are beginning to see some cuts from our customers as well. So, in nearly all segments we are seeing challenges with respect to growth. Q: Do you see these challenges intensifying as the year progresses, I am asking you what the trends are in the current quarter in July-August so far? A: No, I would not say that these challenges would intensify. We are taking strong actions to make sure that we continue to grow at about 10-15% levels and I see that kind of growth continuing. I believe that growth will accelerate going forward for the rest of the year. _PAGEBREAK_ While the economic environment is not very strong or there is no light right now at the end of the tunnel, I do believe that actions with respect to increasing radial sales, increased focus in two-wheelers and moving towards segments that are growing fast will certainly help. Towards the latter half of the year, I do believe that our growth will only grow now. Q: What kind of trends are you witnessing in the international rubber prices? A: International rubber prices have cooled down a fair amount. From about Rs 180-190 per kg equivalent prices they have now come down to about Rs 155 per kg on a duty free basis. This is just on an ex-coaching equivalent pricing. So, on a duty paid basis, international rubber is coming in at about Rs 175 per kg while domestic rubber is at about Rs 180 per kg. We have seen a good correction in rubber prices over the past six months or so. Q: Any attempt or chance of the interest cost coming down, they have gone up because of the capitalization at Halol but during the course of the year, do you expect to repay a debt and bring down interest cost at all? A: We will be reducing our debt a little bit by reducing our working capital, but I don’t see too much of an impact out there. I do believe that we can look at about Rs 100-200 crore kind of reduction in debt. Q: There is talk that this week or next week we will get the order for tyre makers from the CCI, what are your expectations? A: Very difficult to say. We have been waiting for the order nearly for the past four months or so and it is very difficult to say what will happen. I do hope that there is no adverse verdict but cannot predict at this point of time whether it would be positive or negative. Q: What were your meetings like with the CCI? Do you think they could present a strong case for cartelization and price fixing? A:  I would not be able to predict or talk much on that because I am not aware about what they are thinking and what is likely to happen at this point of time. Q: What was your submission to the CCI since you met them? A: We did submit a situation that over the period of investigation none of the tyre companies or atleast Ceat has not made any abnormal profits at that time, our margins have been under tremendous pressure. Another thing is that our capacity utilization has been very high. It has always been at more than 95%. From that sense, it is a situation where our case is pretty strong. I am hopeful that the judgement would be favourable for us.