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Higher output, demand to buttress price hike gains for CEAT

Informist, Tuesday, Apr 6, 2021
 

By Sai Ishwarbharath 


CHENNAI – CEAT Tyres Ltd's move to raise prices is likely to give a significant boost to the company because of its large domestic presence and its plans to ramp up production capacities by 50% by 2022-23 (Apr-Mar).
 

Informist had reported earlier today that CEAT Tyres will raise prices of tyres across categories at the dealership level by 2-4% in Apr-Jun to offset the steep rise in input costs. 

 

Reacting to the news, shares of the company briefly rose about 1% to 1,557.50 rupees on the National Stock Exchange.
 

Prices of natural rubber, a key input that accounts for about 50% of the raw material cost, have climbed over 36% on year and around 11% year-to-date. Prices of another major component, synthetic rubber, have also inched up due to rising crude oil prices, which is a key raw material for synthetic rubber.

 

The high domestic exposure and opportunity in the off-highway tyres market augur well for the company, JM Financial said in a recent research report.

 

There is a short supply of imported tyres since the government in June placed tyres in the restricted category, making it mandatory to get a licence for importing them. The move has aided companies like CEAT Tyres, causing a gain market share.

 

The Automotive Tyre Manufacturers' Association has also lobbied the government to levy anti-dumping duty on tyres imported from Thailand, which has emerged as another exporter after China.

 

Also, the recent increase in capacities in Chennai and Halol plants will not only aid margins due to higher profitability, but also enable the company to increase its foothold in the passenger cars market, JM Financial said.


On the capital expenditure front, 23 bln rupees of the planned 35 bln rupees has been spent till September, while the balance will be spent till the financial year ending March 2023. Further, 5 bln rupees will be spent on the specialty business, which is the off-highway tyres business, for around 100 tn of capacity, subject to achievement of milestones. 
 

The whole auto sector is witnessing a V-shape recovery and CEAT is likely to also be a beneficiary of that upcycle, according to Nirmal Bang Securities' recent report. The brokerage expects 9.8% annualised growth in revenue till 2022-23 (Apr-Mar).

 

The RPG-Group company is one of the market leaders in the two-wheeler and three-wheeler segments along with MRF and TVS Srichakra. Each of these players holds about 30% market share. 

 

The company has deep partnerships with original equipment makers such as Royal Enfield, Bajaj Auto, Yamaha and Honda. In the passenger car segment, too, it has supplied tyres to new launches such as Hyundai i20 and Nissan Magnite in the third quarter.


However, the company holds less than 10% share in passenger vehicle and medium and heavy-vehicles segment. It also lags behind its peers in terms of growth in the commercial vehicles segment, given its lower presence in the truck radial segment, Nirmal Bang said. 

 

As of Oct-Dec, 71% of the company's overall business revenue came from the auto replacement market, 17% from original equipment manufacturers and around 13% from exports.

 

The price hikes and cost-optimisation measures are expected to aid the tyre maker in maintaining current margin levels in the near term. The operating margin expanded 470 basis points to 14.8% in the December quarter compared with the same period last year.  This was on account of operating leverage and improvement in product and market mix.

 

Today, shares of CEAT Tyres closed 0.6% lower at 1,539.85 rupees on the NSE.  End

 

Edited by Shirsha Thakur

 

Cogencis news is now Informist. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

 

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