The Mumbai-based company would now be spending around Rs 1,100-1,150 crore this year as against its capex guidance of Rs 1,500 crore provided in July
RPG Group-controlled Ceat has scaled down its capital expenditure for this year, while moving a significant chunk of it over to next year.
The Mumbai-based company would now be spending around Rs 1,100-1,150 crore this year as against its capex guidance of Rs 1,500 crore provided in July. For FY20, it has raised its guidance to Rs 1,500-1,700 crore from Rs 1,200-1,300 crore.
“Our current inventories are high because the market did not pick-up at the pace we had anticipated it to. Overall demand has been weak. But demand-supply should match up going forward. That is why I am not particularly negative on growth going forward. March is a strong month it should get better from there,” said Managing Director Anant Goenka.
Capex for next year will be used to go on stream, and then ramp-up production at the company’s newest plant in Halol, Gujarat. Ceat will be manufacturing truck and bus radials from this plant. Commercial production of the Halol factory will begin in the next few weeks, company officials stated.
Kumar Subbiah, Chief Financial Officer, Ceat said, “The capex for next year will be Rs 1,500-1,700 crore and we will finish the year with about Rs 1,100-1,150 crore, which will be lower than previously planned. We have some flexibility in scheduling our capex. Halol plant has seen an investment of Rs 450 crore, which is 45 percent of allotted capex. The balance would be spread over an 18-month period.”Better demand
Demand for truck and bus is expected to shoot up due to an expected pre-buying activity in coming months as the next generation trucks under Bharat Stage-VI will cost a minimum Rs 5 lakh more than the current lot. This will push-up demand for tyres from original equipment manufacturers (OEMs).
The same holds true for car and two-wheelers. Ceat is investing about Rs 2,000 crore towards new capacity addition in four manufacturing plants that manufacture passenger car radials. This will increase its capacity to 700,000 tyres per month from 500,000 units at present.
The categories of truck and bus radials (TBR) and off-the-road (OTR) tyres will witness a combined investment of Rs 1,500 crore (Rs 1,000 crore for TBR and Rs 500 crore OTR) towards new capacity addition. The Halol facility, which exclusively produces these tyres, has a peak production capacity of 80,000 units per month.
“We will start with about 5000 units per month and gradually ramp it up to 80,000 levels. We expect to reach full capacity by December 2020,” said Goenka.Below estimatesCeat undertook two price hikes in consecutive months starting October last year. But a rollback in prices was also effected partially in December last year and again in January, said the management in a conference call with analysts.
Ceat posted below-estimate margin for Q3 FY19 due to weak exports, higher raw material costs and slowdown in replacement tyre demand. This segment constitutes nearly 60 percent of the company’s revenue and exports 12 percent.Tyre demand from vehicle manufacturers prevented further margin erosion. Demand from OEMs constitute 29 percent of Ceat’s revenue. The company bagged contracts for supplies to the Hyundai Santro, Hero Destini and Royal Enfield Classic ABS.