Margins should be sustainable at current levels: Ceat

A: In revenue terms we have grown by about 8.5 percent largely led by good growth in the Original equipment manufacturer (OEM) segment. So, on the market side while the OEM segment has not been growing well for us we have grown pretty well at about 15 percent with respect to OEM growth. Replacement is beginning to see positive signs, earlier it was growing at about 5 percent over the last say, year to year and half time. It has now picked up to about 8-9 percent kind of growth levels.

Exports is one area which is now looking like a challenge largely because of two reasons. We are finding a lot of Chinese competition infiltrating countries all around the world. The second is largely the aspect of radialisation in developing countries where people are shifting from the older technology cross ply tyres to radial tyres. So exports has largely been flat on a year-on-year (Y-o-Y) basis for this quarter.

Reema: In the previous quarter your margins were impacted on accounts of ad spends as well as promotional activity. This quarter also if I look at your P&L your other expenses have gone up close to about 20 percent on year-on-year (Y-o-Y) basis. What was the ad spend that the company incurred in this quarter and what is the forecast on ad spends going ahead as well?

A: Our ad spends are largely in line with what we have planned. With respect to on a year-on-year (Y-o-Y) comparison it might be up by about 5-7 percent and marginally a little lower than what was there in quarter one but we continue to focus and plan to grow with respect to growth in the brand.

The other area where other expenses could have gone up would have largely been with respect to employee costs. So that has been going up. We have had our long term settlement in couple of our plants and therefore wage levels have gone up in this quarter as a result of that.

Ekta: We have a question from one of our viewers Mr Pravin for you who asks the management has guided for 10-11 percent margin growth in FY15 and it has improved to 12.2 percent or 10-11 percent margins I presume. Will you stick to the guidance or raise it higher?

A: Generally we avoid giving guidance but with respect to raw material prices we have seen a good run. Crude prices are at very low levels which is about 30 percent of our raw material basket. On the rubber side also prices have been quite low. So we believe that margins will be somewhere around current levels. I don’t see a major change with respect to margins but the external environment is certainly looking favourable with raw material prices looking low and the macro environment slowly beginning to improve. We are seeing an improvement in the passenger side. Commercial vehicles will take another six months to pick up.

Reema: What is the contribution of exports to your overall revenues? Secondly what was the export growth in this quarter, was it a de-growth and for how many more quarters do you expect this pressure on exports?

A: Exports is about 20 percent of our revenues. It has been a challenge for a few quarters but I expect this trend to continue as until we move towards more and more radial sales which is slowly happening. So as I said there is a shift globally towards radial tyres. Historically we were selling cross ply tyres. So, as we make this shift we will be replacing cross ply tyres and therefore growth will be limited.

This year we have grown on a year-on-year (Y-o-Y) basis somewhere between zero and five percent in volume terms. So there has been growth but we expect growth to remain at current levels for the next quarter or so and then maybe pick up a little bit after some tome.

Ekta: Can you just give us what your tonnage growth was this quarter in specific and I just wanted a sense in terms of what the price cut or price rise movement has been because you have benefitted from rubber prices. Has there been any sort of room to possibly pass it on?

A: Our volume growth has been about 9 percent, our value growth is around 8 percent. Some amount of gain we have also got because of our shift in product mix and market mix but overall there has been no price cut in the replacement segment. On the OE side with few OEMs we have a relationship where it is a formula based pricing strategy. So with a few OEMs pricing it could have come down and we have had to pass on some prices in the export segment.

So a very mixed kind of approach with each depending on which market and which customer we are working with.

Reema: You have indicated that Rs 420 crore is what the board has approved to set up a unit for manufacturing two wheelers. A: when will it be operational and is this a Greenfield plan that you are looking to invest in or are you expanding your existing capacities?

A: We expect it to be operational in about a year and a half’s time from now and this is going to be a Greenfield facility. We are more than doubling our current capacities, our current capacities are around 10-12 lakh tyres. We are adding another 12.5 lakh tyres. So it is a huge increase in capacities that we are planning. We are very bullish on the two wheeler segment. We are seeing a lot of positivity all around in the recent future and we expect that to continue to grow going forward. So, we have taken big bets on the two wheeler side.