Ceat aiming for greater profitability

India’s RPG Enterprises, parent company of Ceat Ltd, shares that the tyre maker aims to become one of the most profitable firms within the domestic market. Comments made by Ceat managing director Anant Goenka to this effect during an interview with local motoring journal Motown India were published on RPG’s website on 25 July.

The 32-year old son of RPG chairman Harsh Goenka has held the reins at Ceat since April 2012 and told Motown India that his primary aim was to make Ceat “amongst the most profitable tyre companies in India in the next five to six years by strengthening the brand and improving operational efficiencies.” He concedes that entering the global tyre manufacturing top ten is not a realistic goal in the foreseeable future, however he believes in investing for growth; Goenka aims for the tyre maker to be “at the leading edge of tyre technology by focusing on research and development of radial tyres and development of alternate materials.”

Product mix is being tweaked and focuses more on passenger car radials, Goenka told the motoring journal, the aim being to improve the company’s margins. At present, radial production accounts for more than 90 per cent of Ceat’s passenger car tyre production; these are manufactured at its Halol factory in Gujarat State, which opened in 2011. Passenger car tyre production at the plant is now at 70 tonnes per day, and this is complemented by 80 tonnes per day truck tyre production. The plant is operating at 80 per cent capacity and Goenka said Ceat aims to increase capacity utilisation to 100 per cent. Once this is achieved, Ceat will consider investing in further radial expansion, perhaps at Halol. At any rate, there are no plans to invest in expansion at the company’s cross-ply facilities in Mumbai and Nasik.

On the subject of expansion, Goenka adds that domestic market capex is presently fully accounted for and upcoming expansion plans involve growth outside of India. He was also quick to add that Ceat doesn’t intend to follow Apollo’s lead in the takeover game. “We are not looking at acquisitions at this point of time,” he told Motown India. “Organically too, the company is not looking at any heavy investments in the (domestic market). However, the company is looking at enhancing its presence in some specific segments of the automobile industry. We are looking at a few key sectors that we have identified and are important for us. We are looking at expanding in categories like motorcycle sector, passenger vehicle segment.” 

One overseas market on Ceat’s radar is Bangladesh. At the start of the year the company signed a joint venture agreement with local business conglomerate AK Khan & Co Ltd, and Ceat is investing US$67 million to gain a 70 per cent share in the 110 tonne per day cross-ply facility. “We have already acquired the land and the new plant should also be in place in about a year and a half or two years from now,” shares Goenka. “So that is going to be our next area of growth internationally. We are also looking at countries in the subcontinent like South East Asia through the export route from this plant.” It is hoped the joint venture plant will achieve a 40 per cent share of Bangladesh’s tyre market by 2016.

Ceat’s profitability has improved of late; the company’s EBITA margins doubled to 8.8 per cent between the 2011 and 2013 financial years and profit after tax rocketed from Rs 182 million in 2012 to Rs 1,202 million (£13.2 million) a year later. As already mentioned, the tyre maker plans to enhance its profitability even further. “I think this profitability will continue over a short period of time because of the benefits that we are getting like reduced raw material prices,” the managing director opines. “Rubber prices have come down from Rs 240 a kilogramme three years ago to Rs 160 a kilogramme now. It is not a challenge anymore.” Goenka declined to voice his expectations for the 2013-14 financial year, however he said that “revenue growth of ten per cent and a slightly higher profitable growth would be good for us.”