'No impact of US, EU crisis on CEAT, exports to be 25% of revenue in 2 yrs'

The share of exports in our revenue is around 19.5%. We are targeting to increase it to 25% in the next 2 years, said Arnab Banerjee, MD & CEO, CEAT

As many corporates are staying away from Europe and the United States due to the ongoing crisis in those countries, leading Indian tyremakers like CEAT are increasing their presence in the region. Arnab Banerjee, managing director and chief executive officer, CEAT talks about the company’s overseas strategy, electric vehicle (EV) business and 2030 roadmap, in an exclusive telephonic interview with Shine Jacob.

Edited Excerpts:

The US and Europe markets are going through a crisis, did it affect your overseas growth. What is your export strategy going ahead?

The share of exports in our revenue is around 19.5 per cent. We are targeting to increase it to 25 per cent in the next two years. We are bullish because of two categories, one is agriculture radial tyres, which we export primarily to Europe, US and Latin America. We are putting up a huge capacity at Ambernath and are bullish on that. The second category is car radial, which is very big in Europe. We would be crossing 1 million tyres per annum in Europe alone. We are launching this in the US by the end of this year and do pretty well in Latin America also.

As far as the global crisis is concerned, we are a value brand. We give the performance of a premium brand at reasonable prices to the consumers. When recession happens, we will be able to convert the customers to a value brand. That’s a positive. Second is, our network is still under creation and has not matured well in this market. Our base is very small. For us, creating a network and getting access to new markets is important. We are that way not impacted by the crisis as we are creating access to the market.

The EV segment is fast growing in India. How are you adapting to the situation?

EV tyres are completely different. The tyre should have much traction because of the heavy batteries that they have. The friction of the tyre with the ground has to be very low so that the charge is enhanced, reducing the charge anxiety among customers. Third, there is no moving part in the engine side of the car. There is no engine noise and the only noise is from the tyre. So, the tyre has to be a very low noise variety. There are various technologies to deliver that. The tyre may look black and round, but it is a totally different tyre. Additional investments are mainly in research and development, for which the capital expenditure is incremental.  

We are already supplying and doing projects with Tata Motors, Kia, MG Motors. In the two-wheeler ecosystem, there are a lot of startups. We are having a 40 per cent share in electric scooters with original equipment manufacturers and have 80 per cent share in supplying tyres to Ola Electric. For Tata’s electric bus Starbus, we have a 100 per cent share. We were the first electric vehicle bus tyre maker in India to be accepted by an OEM. We have BYD and Olectra too. We are very much advanced in the EV sector and have a research centre in Frankfurt.   

With raw material prices coming down, what is your outlook for the current financial year?

We expect a slow recovery in rural demand, which would lead to a revival in two-wheeler tyre demand in the second half of the year. Otherwise, passenger car tyre demand in the replacement market will be growing in single digits. We expect the rim sizes to gradually shift from 13-14 inch to 16-17 inch in passenger sizes. Commercial vehicle tyre market is a bit uncertain. We expect a low single digit growth in trucks, buses and all.  

This year, we have lined up a capex of around Rs 750 crore, out of which Rs 220 crore already happened in the first quarter.

According to industry estimates, India’s tyre industry is expected to touch around Rs 160,000 crore by 2030. How are you preparing for this growth?

We look at it category-wise. We are market leaders in two-wheeler tyres in India. We are trying to increase the gap between us and the number two player. We have a good distribution system and have a strong partnership with OEMs. We want to be number one in passenger cars in the domestic market. We are number three at this point, but our gap with the number one player maybe not more than 2.5-3 per cent. We want to bridge that gap in two-three years.

In truck-bus radial, we are targeting to be in the top three in the next five years. We are currently number four. If you look at all this together, we are seeing strong growth. By 2030, we will be having dominance in passenger as well and will be a strong player in the truck-bus category. Our exports will be 25 per cent of our sales, which means we will be a strong global player by then. We would like to break into the top 15 global players by that time.

You posted a 15-fold rise in net profit during the current quarter. What were the major drivers of this growth?

During the same time last year, the raw material situation was very different. All our numbers are better compared to Q-O-Q and our margins have gone up compared to the fourth quarter also. We clocked our highest volume in the first quarter.

During Covid and post-Covid, whatever hard work was done in terms of improving efficiency is bearing fruit at this point of time. We did not cut any productive expenses. Our marketing spend in the first quarter was big as we are there in the Indian Premier League and advertise heavily during that time. All new product developments were on stream. That has helped us increase the market and along with that drop in raw material prices also helped us during the quarter. There was at least an 11 per cent dip in key raw material prices itself compared to last year. That is happening to everybody, but what incrementally we have built is resilience to the system.

Our gross margin during the first quarter was 41.1 per cent. That is similar to the gross margin of pre-Covid level. Our gross margin used to be between 40-42 per cent between FY17 to FY20. We have gone back to that level.