Ceat, India's fourth-largest tyre maker, has slashed its capital expenditure to Rs 500 crore, down from the previously outlined Rs 750 crore for FY21, as cash conservation gets top priority in the slowdown-hit automobile industry.
Ceat joins companies like Apollo Tyres, Bajaj Auto, TVS Motor Company and Maruti Suzuki in cutting down their capex amount aggressively for the current year. Some of these companies have also postponed commissioning of new production plants.
"We have cut our capex by Rs 250 crore for the year. We had planned for about Rs 750 crore and brought it down to Rs 500 crore. It will not have any impact on our performance because demand is expected to be relatively muted. We have enough capacity for 15-18 months. We will be ready to ramp up enough demand picks up," said Anant Goenka, managing director, Ceat.
Goenka was talking to analysts after the announcement of the March quarter results, which saw 20 percent fall in consolidated net profit at Rs 52 crore. The nationwide lockdown announced in March by the central government resulted in a financial impact of more than Rs 200 crore on Ceat's revenues.
The Mumbai-based company had projected Rs 3,500 crore capex to ramp up production capacity across plants over a period of 3-4 years in 2019. A part of it was used in setting up a new plant in Tamil Nadu which has remained shut because of the lockdown while six other plants have restarted operations.
"Out of our total planned capex of about Rs 3,500 crore for Ceat stand-alone and another Rs 500 crore for our speciality business, till date we have spent approximately Rs 2,100 crore. Owing to current environment we are working on reducing our capex plans for the year. Our general maintenance capex is Rs 150 crore in a year but in the current conditions we may spend much less," said Kumar Subbiah, chief financial officer, Ceat .
Moreover, like its peers, Ceat is cutting down costs pretty aggressively. It is relooking at all expenses which can be avoided while initiating teams to cut down costs.
"We have taken multiple initiatives in bringing down all key costs. We have taken initiatives to renegotiate fixed costs so that our break-even point comes down. We are questioning every element of cost. We are questioning if we really need so many CFAs and travel. We have kept discretionary costs to the barest minimum. We are questioning every cost relating to consulting and operating expenditure-related expenses. We have put together some cross functional teams to improve efficiency and reduce poor quality and reduce various costs," added Subbiah.
Ceat also said that it is facing manpower shortage of temporary workers following incessant migration of workers from Maharashtra, Karnataka, Tamil Nadu, Gujarat and other states forcing the central government to start special trains to ferry them.Follow our full coverage of the coronavirus outbreak here