Restricted imports bode well for tyre companies: CEAT's Anant Goenka

The RPG flagship is riding high on a strong order book, will go ahead with investment plans to ramp up production to meet the domestic and export needs

The restrictions on tyre imports into the country yield an opportunity for domestic manufacturers to step up their presence and expand their offerings, says Anant Goenka, managing director at CEAT Tyres.

Amid the pandemic, the RPG Enterprise firm is going ahead with its investment plans to ramp up production at its plants to meet the domestic and export needs.

“It’s (the restrictions on imports) an opportunity for us to increase our share of the market versus imported tyres,” Goenka told Business Standard pointing out with a diversified range that includes tyres for animal drawn vehicle to an air plane, the domestic manufacturers have enough capacity to meet the entire needs of the country.

In June this year, in a bid to curb uninterrupted tyre imports into the country, the Directorate General of Foreign Trade (DGFT) issued a notification moving imports of certain new pneumatic tyres of passenger vehicles, buses/lorries and two-wheelers from the free list to the restricted list.

This implies that now an importer would require a license or permission from DGFT for imports. Though the restriction is for imports from all countries, most such tyres are sourced from China.

The move came as a shot in the arm for tyre makers that have been on steady path to recovery in volumes on back of a strong replacement demand, robust rural sales and preference for personal mobility. A strong volume run amid the disruption caused by Covid-19 has helped most including Ceat, JK Tyres MRF Tyres and Apollo Tyres to report a very healthy September quarter earnings.  

Ceat for instance, reported an over four-fold increase in its consolidated net profit to Rs 182.18 crore. The company had posted a net profit of Rs 43.64 crore in the July-September period previous fiscal.

“From July August onwards things have been getting better and better, as a matter of fact, it got better than last year too. This has been surprising,” says Goenka. 

Prompted by the steady progress, Ceat that presently is operating at an average 85-90 per cent capacity utilisation rate is going ahead with the planned expansion. The company had outlined Rs 3,500 crore. Of this Rs 2,000 core has already been invested and the rest will be done over the next couple of year including Rs600 crore this year.

The high capex has made analysts cautious of the road ahead for the company.  “We remain cautious over depressed return ratios in the wake of on-going capex cycle and margin pressure despite improving demand environment,” wrote Saksham Kaushal, analyst at Phillip Capital in post earnings report.  It maintains neutral rating with a target of Rs 1,183, valuing the company at 12x FY23 earnings.

Lot of these expansions will also feed the export markets, which too has been expanding at a brisk rate Company’s exports have been growing 10 per cent month-on-month and expected to advance by over 20 per cent in the current quarter, he said. It currently exports its range of products to over 100 countries and accounts for close to 12-13 per cent in company’s turnover.

Goenka said India will remain an export hub and the company has no plans to have a manufacturing footprint in any of the countries even as it plans to make deeper inroads into markets like North America and Europe for specialty tyres. Its research and development centre in Frankfurt, will play an important role in meeting the requirements for high-performance tyres.