Expect revenue growth to pick up to 5-7% in FY16: Ceat

Q: The revenue growth for the company has slowed down substantially to just 2 percent this quarter, where are you facing challenges and will that continue in FY16?

A: For this quarter, certainly there were two areas of challenges that we faced. One, the original equipment manufacturer (OEM) segment continues to face some amount of slowdown, particularly, the tractor segment.

The motorcycle segment is beginning to see some slowdown and the truck segment in certain areas is beginning to up but I would say overall it is still sluggish. Certainly on the OEM side things have still not improved enough.

With respect to replacement market, there have been some positive signs, the MHCV industry or heavy goods carriers segment has begun to show some up tick. The scooter segment is growing very well that is one area, which has resulted largely in better growth.

The big challenge have come largely from the exports area where we are finding a lot of competition from Chinese players outside of India as well as the fact that radialisation is happening in a lot of developing countries like Africa, Middle East and South East Asia and that has had an impact on exports.

Q: Given the fact that segments like tractors, motorcycles are slowing down, do you expect to continue with low single digit revenue growth even in the first half of FY16?

A: Growth will begin to pick up now, I think we are seeing positivity overall in the economy. A lot of reforms that have been kick started by the government will start to take effect going forward in the next year, mining is beginning to show some activity now, the base levels also of a lot of the OEMs have come down after two-three years of negative growth. As a result of that I see more positivity in FY16 than what we saw in FY15 for sure. So while in FY15, we have shown about 4 percent growth for the entire year. This year should be a little bit better than what we have seen in FY15.

Q: This import of cheaper tyres from China has been hitting Indian tyre makers quite a bit. Last quarter it was at a record high, the import of cheap tyres, has the situation got worse this quarter and has that impacted your earnings as well?

A: The import of Chinese tyres has increased substantially in the last 6-8 months. It is particularly high in the passenger car segment and in the truck it has begun to increase; there was an anti-dumping duty which is now no longer there since February so we are beginning to see a lot of threat and challenge players in India.

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Q: Your margins have improved due to the fall in raw material prices. Will you be able to maintain this 12 percent margins or given the fact that crude prices have started rising this quarter your margins will moderate from these levels?

A: I see raw material prices continuing to come down not at the base level but what had happened in the last 4 months with crude prices having come down and therefore it will start reflecting forward in Q1, maybe a little bit in Q2.

Our utilisation of lower cost will continue, which will have a positive impact on margins, difficult to give a number but certainly I think the lower cost - there will be some amount of downtrend in Q1 versus Q4 of last year and I think raw material prices will continue to remain subdued largely because of China where we are beginning to see some slowdown in demand out there.

Q: Given the slowdown that you are facing, will you restrict your capex this year, you have not done capex for a while, so for FY16 do you have any plans and if yes, what does the capex amount stand at?

A: No, in the last couple of years we have not really done any capital expenditure. We had done a large capital expenditure about four years ago in our radial facility in Halol.

This year will be a big year for capital expenditure because we are doing two plants, we have done an expansion in our Halol facility where we spent about Rs 600 crore where we are adding about another 110 tonnes per day of capacity for passenger car tyres. So that is an expansion which will come on stream from about Q2 of this year and we are also doing a two-wheeler expansion in Nagpur where we are adding about 10 lakh tyres per month, that is a large expansion, which will come in from Q4 of next year.

Both these categories are areas where we are fully stocked out and there is good demand coming in, we have been doing a lot of branding and as a result of that, the utilisation levels should be good from early on itself.

Q: The Bangladesh market has seen a big slowdown due to political issues, has that impacted your subsidiary’s performance?

A: In Bangladesh, sales are picking up, there have been political changes out there but we have just entered so our base itself was quite low.

We had looked at investing in a plant out there, the plans are still on but we had some local challenges with respect to land acquisition out there and therefore the plant has not yet started construction.

We have not done any investment, we have planned some investments, there have been delays of about 6-8 months in the Bangladesh plant.

Q: You were telling us that you will do better in FY16 than FY15, what can the realistic revenue growth be for the year and how long do you think it would take for the company to return to double digit revenue growth?

A: We can expect approximately over 5 percent kind of revenue growth for the year, in a certain way with raw material prices coming down and some price drops happening in the export and OEM market particularly.

In value terms, there has been slight negative inflation out here but overall in volume terms, certainly over 5-7 percent kind of growth going forward in FY16.