Nomura report highlights CEAT's emphasis on automation at Halol plant

Ceat plans to nearly double its OHT volumes over the next two years.

CEAT, a major domestic tyre company, has focused on the automation and digitalization of its Halol plant in Gujarat, as per a recent report by Nomura. CEAT was awarded the prestigious lighthouse certification by the World Economic Forum a month ago, making it the first tyre brand in the world to receive this recognition.

The certification is awarded to manufacturing facilities that adopt Fourth Industrial Revolution technologies ahead of their peers. According to the report compiled after a visit to the facility, CEAT plans to expand its operations in the areas of exports and off-highway tyres (OHT) over the next few years.

Also read: What is causing all the buzz in the auto-ancillary space?

At around 3:20 pm on March 1, the stock was trading at Rs 1,414.4, which was approximately 2% higher than the market opening on BSE.

“It (the Halol plant) is highly automated with significant digitalisation across machines. These include more than 500 sensors deployed to proactively identify faults, and improve TAT (turnaround time) and productivity. Thus, the plant has one of the lowest rejection rates, at 0.3%, due to better designs and in-house machines,” wrote the analysts in the report. The brokerage has retained its Neutral rating and has set a target price of Rs 1,617, which means an upside of little more than 14 per cent from the current price.

“Its (the company’s) future focus area will be software development and machine learning for proactive resolution. For instance, the company has co-developed sensor-based monitoring systems for truck tyres, in collaboration with a leading automotive technology supplier,” they added in the report.

The Halol plant has the capacity to produce 20,000 passenger car radials (PCRs) and 4,500 truck and bus radials (TBR). It is operating at 80-90% utilization levels, noted the brokerage’s analysts.

Also read: Endurance Tech: Recovery in Europe, order book flex muscles

Regarding the company’s future growth plans, the analysts noted that its exports push will be led by new product launches in the EU and US markets, and the expansion of its OHT. “Exports will remain a focus area for the company and it has launched TBR tyre in EU markets and plans to enter the US market as well. OHT is another segment where it has a decent range now (~700 SKUs vs peers at more than 1,000) and plans to expand significantly (~2x) over next two years,” they wrote.

The analysts also noted that CEAT has a strong focus on research and development. The company has invested in teams consisting of over 300 employees across India and Germany, design studios, compound test facilities, and test tracks. These investments have helped reduce the development time for new products from 12 weeks to just 2 weeks, as per the report.

The R&D focus has resulted in the development of several new products, including EV tyres, which have over 50% market share in 2W EV OEs, puncture-safe PV/2W tyres, all-terrain PV tyres, and TBR tyres for the US and EU markets.