Third quarter domestic volume growth has been good, but exports continued to reel under pressure said Anant Goenka, MD of Ceat in an interview to CNBC-TV18. However, price cuts have been done across markets in line with lower input costs, he added.
Export market is seeing a clear slowdown due to the currency depreciation, he said adding the company posted overall 6 percent volume growth during the third quarter.
Overall margins are likely to be at the first half levels due to lower raw material costs in Q4 as well, he said.
He expressed concern over the continued surplus supply of Chinese tyres into the country, the market share of which has risen to 40 percent in the truck radial segment.
He also listed out the company’s plans to invest over Rs 1000 crore for expanding its facility at Halol and setting up a new off-the-road tyre unit.
"We will raise debt for the new plant. So the debt on books will increase by Rs 500 crore in 2 years, from Rs 650 crore now,"Goenka said.Below is the verbatim transcript of Anant Goenka's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Sonia: Let me ask you about the demand situation, is it still very weak?A: Volume basis we have seen a growth of about 6 percent whereas in a value terms, we have shown a negative 2 percent growth. So there is an 8 percent difference in terms of value to volume levels. So at volume terms, domestically things have grown well where there is a challenge is clearly we are finding in the export markets where there has been a very clear slowdown. There has been a clear currency depreciation in a number of countries that we export to. Chinese tyres are also creating havoc all around the world, which is causing demand for Indian tyres to come down. So it is largely the export markets that is causing volumes to come down.Sonia: Since you spoke about the export markets and the volumes that are getting hit there, have you taken any incremental price cuts in the export market in the quarter gone by?A: Yes. So price cuts have been taken in all markets in OEM replacement as well as exports over the last one year\\'s time. It has been happening at a continuous level every quarter and it has largely been mirroring the raw material price drops that have happened. So to a certain extent, margins have expanded but not to the extent at which raw material prices have come down and that is largely because of the price drops that have happened.Latha: Let me come to the margins. Will the impact of lower raw materials still give you some brownie points in the current and the next quarter as well?A: Very difficult to predict. I think raw material prices, the impact is further to be felt going forward for the next quarter as well because crude continued to fall towards the last quarter and the impact will come in between February-March-April month. So I do think raw material prices will come down.Going forward, I don’t think further raw material prices drops are expected but I do expect raw material prices to remain at somewhere around current levels. I don’t expect them to go up because of the current overall situation particularly China, is under a lot of pressure. There is a fair amount of surplus supply coming in from rubber, crude is at a relatively lower levels. So I don’t see raw material prices going up substantially. So I do feel margin should be at similar levels at least in the near-term.Sonia: When you say similar levels in the near-term, can you give us some figures, what will the margins be in the first half of FY17?A: Very difficult to give a number but I would say clearly that we expect margins to remain consistent for the next couple of quarters at least. There is a lot of positive work being done internally towards improving efficiencies, towards improving our product mix, we have a new plant that has come up so we hope with that ramp up, the mix improves. So all of that I do hope will help in encountering any price cuts that could happen going forward as well.Latha: What about the Chinese tyres competition that you referred to? How much cheaper are the Chinese tyres and what is their market share now?A: Chinese tyres have substantially gone up. They have been growing by over 70-80 percent on a year-on-year (Y-o-Y) basis. Market shares of Chinese tyres particularly in the truck radial segment is over 35 maybe close to 40 percent kind of market share that they have. So it is extremely high we are finding and I don’t see any let down going coming forward as well.Sonia: Tell us about this new facility that you are setting up for the off-the-road tyres. So will it be purely for exports and when will the revenues start from this plant?A: We are exploring now setting up a small facility near Mumbai itself and this is for setting up off-highway-tyre plant. Off-highway-tyres are largely what we are talking about are farm radial tyres and these are tyres that are used by farmers in US and Europe primarily. We feel that there is a good opportunity there because there is a fair amount of labour arbitrage that exists between India and these countries and the Indian companies can leverage a good margin as a result of this opportunity.
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