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Ceat burns rubber to cope with surge in demand for tyres

Ceat scrambles to ramp up production as heavy demand from replacement market and two-wheeler makers wipes out inventory

August 28, 2020 / 05:35 PM IST

Tyre maker Ceat has ramped up production to 80 percent across its factories from zero in April following a surge in demand that has wiped out its inventory.

The Mumbai-based company witnessed heavy demand from the replacement market and to some extent from two-wheeler manufacturers. After a total shutdown of production and sales operations in April, which spilled over to May, demand for tyres shot up after a gradual reopening in June.

Several vehicle makers, including Bajaj Auto, Hero MotoCorp and TVS Motor Company have already hit pre-Covid sales levels. Sales of car makers Maruti Suzuki and Hyundai, too, are close to hitting pre-Covid levels. Tractor sales in June were the third highest in 30 months, while production hit a 20-month high.

Stocking up for future lockdowns

Speaking to Moneycontrol, Kumar Subbaiah, Ceat’s Chief Financial Officer,  said:  “It is important for us to produce and keep inventory because lockdowns could occur again or there can be some restrictions. Two-wheeler companies are operating at reasonable levels and other OEMs are operating a little low. Our plants are operating at 80 percent utilisation to meet the demand and increase inventory.”

Tyre demand from the replacement market was high all through July. This became possible after almost every retail outlet across the country became operational. Inventories thus began shrinking faster than expected across segments, with the exception of the commercial vehicle industry, which saw subdued utilisation levels.

Besides its six manufacturing facilities in India, Ceat has more than 4,000 dealers and channel partners, including more than 300 two-wheeler tyre distributors. The company is the leader in the two-wheeler tyre segment in the replacement segment.

Sales close to normal levels

“We normally maintain our inventory at 30-day levels and they vary on actual sales versus forecast. A comfortable level is 25-30 days. Right now our inventory levels are 21-22 days. With regard to the replacement demand, our sales are close to what they were prior to the Covid-19 impact. For OEMs it depends on the numbers they are running at,” added Subbaiah.

The revival in tyre demand is mirroring the trend for new vehicles. Rural and semi-urban markets have taken the lead in the revival thanks to a relatively unscathed agrarian economy.

“Due to strengthening of the rural economy and expectations of a normal monsoon, tyre demand is picking up there. As for urban markets they are expected to pick up in the coming weeks. OEM sales, too, should see an uptick from the second half of the year,” said a senior executive at a rival tyre maker.

Swaraj Baggonkar
Swaraj Baggonkar
first published: Aug 6, 2020 09:36 am