Ceat's Profit-Boosting Strategy: Price Hikes Amid Falling Input Costs

 

Ceat's Profit-Boosting Strategy: Price Hikes Amid Falling Input Costs

Ceat, one of India's prominent tire manufacturers, defied market trends by implementing a price hike strategy during the September quarter, despite a decrease in input costs. This bold move resulted in a remarkable six-fold increase in standalone net profits, reaching Rs 199 crore year-on-year, even as revenues saw a moderate 5.4% growth, totaling Rs 3,043 crore. Arnab Banerjee, MD and CEO of Ceat, sheds light on their market share improvement and their investment in capacity expansion to meet growing demand.

Q: How much of a price hike did you implement?

A: We raised prices by approximately 1% for truck bus radials (TBR) and 1.5-2% for passenger car utility vehicles (PCUV).

Q: Can the market accommodate further price hikes?

A: Price hikes were driven by our positioning compared to other market options, aligning with the consumers' perspective. Our focus is on strengthening our brand and enhancing our product mix within PCUV, indicating the potential for higher margins.

Q: Have these price hikes affected demand?

A: We anticipate gaining market share in two-wheelers due to increased volumes. Our Q2 performance was unexpectedly robust, especially during the monsoon season. Four-wheeler volumes have remained steady. The price hike didn't result in any adverse consequences; it was a well-calculated move that paid off.

Q: How did raw material prices behave in Q2, and what's your outlook for Q3?

A: Prices of petroleum-based raw materials like synthetic rubber and fabric decreased, while carbon black prices increased. Natural rubber remained stable. Looking ahead, we believe raw material prices have hit their low point, and geopolitical events may lead to a rise in crude-based product costs. We expect a 3-4% increase over the next two quarters.

Q: What's your margin guidance for Q3?

A: Our objective is to maintain stable margins within a narrow band. We will implement various medium-term measures to enhance margins within this range.

Q: How much did exports contribute to your revenue?

A: Exports make up just under 20% of our revenue and are a key focus area. Geopolitical tensions have put pressure on export numbers. While Europe has been in a recession, we anticipate an upturn by the end of Q3 or Q4. However, the US and Latin American markets are performing well.

Q: What's the utilization level of your plants?

A: Broadly, our plants operate at 75% capacity, but this varies across locations. Halol (Gujarat) is almost fully utilized, Ambernath operates at around 60-65% capacity due to ongoing expansion, and Chennai's plant operates at approximately 70%. We have additional capacity available for future growth.

Q: How about your capital expenditure (capex) plans for the year?

A: Initially, we provided a guidance of Rs 750 crore for the year, but we may exceed this amount, mainly for debottlenecking the Halol plant, which offers an attractive opportunity for a brownfield expansion of around Rs 100 crore. While not all of this expansion will occur this year, our capex for this year could surpass Rs 800 crore.