Q&A: Anant Goenka, Deputy MD, Ceat

'There'll be pressure on margins for the rest of the year'

Ceat Deputy Managing Director Anant Goenka talks about his plans in an interview with Ram Prasad Sahu. Edited excerpts:

Despite strong demand from the replacement and original equipment manufacturer (OEM) segments, the sector does not have any pricing power?
With radialisation, there is a pressure on older technology, where demand is either flattening or going down. Most of the current capacity in the truck and bus segment is in the older technology. We are not able to effect price increases and find it tough to sell in this (older technology) segment. While everyone is getting into radial tyres, the existing capacity continues to remain and it cannot be substituted overnight.

Higher raw material costs led to losses in the March quarter. How do you plan to tackle the rise in natural rubber prices?
In the March quarter, while we raised prices by five per cent, raw material prices rose 11 per cent quarter-on-quarter. For the year, while we had a price increase of 17-18 per cent, we needed to take a price increase of 30 per cent or so to maintain margins. In the June quarter, we would look at taking a price increase of about 11 per cent, which will help us to cushion the raw material cost spike.

How will the 150-tonne a day radial tyre expansion at the Halol plant help?
We are at 40 per cent capacity utilisation at Halol now and should reach 100 per cent by April 2012. The Halol ramp-up and product mix improvement will aid in margin expansion. The capacity expansion in passenger car radials and two-wheeler tyres at the plant will help us sell a larger portion of these profitable segments, which will increase realisations.

What kind of revenue and volume growth do you expect in 2011-12?
We expect 35-40 per cent revenue growth in FY12. While Halol and other expansions will help us grow by over 20 per cent, the rest is likely to come from inflation. In volume terms, we should grow by 20 per cent. While the replacement segment (65 per cent of sales) fetches higher margins than the OEM business, the latter is of strategic importance. OEMs give us the volumes and impacts replacement demand, especially in cars and two wheelers. Given that rubber prices are likely to remain steady, there will be pressure on margins for the rest of the year, with the situation improving only in the fourth quarter of the current financial year.

How do you plan to improve your overseas presence?
Increase of exports will come about due to the brand buy we did last year. We bought the global rights to the Ceat brand, which allows us to market our products in Latin America and Europe. We are looking at improving our export sales from Rs 600 crore annually to about Rs 1,000 crore.