Expect coming quarters to be stable: Ceat

Tyre maker Ceat is hopeful of reporting stable financial performances in the coming quarter. CFO A Subba Rao says the company has now shifted its focus from low margin truck and tyre segment to two-wheeler and cars. Also, it has made huge investments in branding. These moves, are expected to boost the company's performance on the margin front going ahead, he added. The company’s overall capacity utilisation across plants at Nashik, Bhandup, and Baroda has also been good, he tells CNBC-TV18. Currently, the demand situation is improving, but the slowdown in auto industry is playing its part in the tyre industry as well, Rao says. Also read: Cooper Tire in tentative deal with workers over merger Below is the edited transcript of his interview to CNBC-TV18. Q: What is the on ground situation looking like for Ceat especially in terms of demand? What will the second half will look like in terms of demand? A: The auto industry continues to be under pressure. It is going through perhaps one of the severest drought, but the tyre industry has saving grace. It has a replacement market that keeps contributing to demand, but overall demand for the tyre industry cannot be great if auto industry is not good. We are going through perhaps one of the low periods in the tyre industry but the days to come when the auto industry recovers, the demand will certainly go up. By next quarters we will be stable. We will be able to maintain the current demand. We have been focusing on certain segments of the markets, where we have been increasing our market share like two-wheelers, passenger cars, where there is brand power. We have been investing on the brand in the last few quarters heavily. We are increasing our presence and market shares in these branded segments and that is what is driving us; our growth coupled with our export performance. Q: The story for tyre companies in the first half was margin performance. Even your operating margins were 13 percent versus 8 percent. We have seen quite a bit of cool off in rubber prices. Do you think that story is sustainable in the second half of the year and maybe in next financial year as well? A: Margin performance comes from two factors; one is rubber prices which have been benign and other is change in the product mix. For Ceat, both the factors have been working. However, rubber prices have been benign in the last few quarters and our product mix has been significantly changing from low margin truck and tyre segment to high margin passenger segment which is car and two-wheelers. So, both these factors and our ability to push the raw material cost when they go up to the market. It depends upon various other factors. We have to wait and see how we will be able to do that but our effort is to keep the margins intact or almost same around the current margins. Even if the raw material prices go up, we will have to work out a strategy for this. _PAGEBREAK_ Q: Can you tell us what your capacity utilisation is at plant currently? A: There are three factories at Nashik, Bhandup, and Baroda. Aggregate capacity utilisation is around 80 percent and we have some outsourced production. There also it is more than 80-85 percent capacity utilisation. Our product is completely sold out. The capacity utilisation has been fairly good. Q: Has it come down on a sequential basis? Was it 90 percent in the quarter gone by or is it the same? A: It is same. The sales have been flattish between both the quarters because Q2 is dull because monsoon period is there. Therefore, during monsoon period the replacement market also becomes dull.