Plants running at 80% capacity, have lined up Rs 1,000cr capex for FY21, says CEAT's Anant Goenka

Mumbai-based CEAT announced a flat net profit growth in the December quarter. Severe slowdown in new vehicle market was the primary reason. However, the management is not holding back any new capacity addition plans.

Anant Goenka, Managing Director, CEAT, said demand will continue to remain subdued for another six-to-eight months. "Till August, things on the demand side can be challenging."

Q. You are commissioning new plants in Chennai and Nagpur at a time when demand is weak? A. On the passenger car (PC) side, we are fully utilised in terms of capacity. We do need the Chennai plant for growth in coming years. On the two-wheeler side, we took a call on investing in capex when things were good and things started to get tough only in November last year. We have to wait and ride out the slowdown and will be ready for future growth. Historically, we have always been chasing capacity.

Q. What is CEAT’s capacity utilisation levels as of today? A. It will be over 80 percent across categories. Radial tyre capacity is at high utilisation levels. We have idle capacity in cross-ply, which are old technology tyres. This has been showing negative growth over a period of time. That’s where the utilisation levels are low, bringing down the overall level to 80 percent.

Q. Are you scaling down new vehicle production due to BS-VI rollout? A. OEM share in our sales is about 25 percent. We do not have to make any changes to our production. Demand will continue to remain subdued for another six-to-eight months. Till August, things on the demand side can be challenging.

Q. What was capex for FY20 and what will it be for FY21? A. It is Rs 1,100 crore for FY20 and about Rs 1,000 crore next fiscal. We have incurred Rs 1,000 crore so far and about Rs 100 will be undertaken in Q4.

Q. How did raw materials prices shape up in Q3 and what is the outlook for Q4? A. Raw materials have remained subdued till Q3. Rubber and crude have been down. In the last two-to-three weeks, we have seen raw materials trend a little bit higher. About 50-55 percent of our raw material is crude and crude derivative products and about 35 percent is rubber. After the Iran-US conflict, crude prices have risen to around $70 a barrel.

Q. What is the outlook on margin for Q4 given that demand is expected to remain subdued? A. Margin will be in similar range, I don’t see much impact. Whatever we had to buy for Q4 has been bought. There can be an impact on Q1, but there is still time to determine that.

Q. How has Ceat positioned itself on pricing compared to competition? A. In two-wheelers, we are clearly the premium play. We have a strong 30 percent market share. In the passenger car segment, our pricing is lower than say a Michelin or Bridgestone, but similar levels to Indian players: JK Tyres, Apollo or MRF.

A. We have undertaken enough capital expenditure for now. May be in the next capex (cycle) we will see if there is a large enough share. If we are selling to a certain region, then we can look at it, but nothing right now.

Q. Would the VRS scheme be extended to more employees in the coming fiscal? A. Yes, there is a fair chance that it will continue. It will entirely depend on whether the employees will take the scheme or not. We have couple of old plants, which are not fully utilised and there we are continuously trying to reduce our cost by offering VRS.