Tyre major CEAT to opt for small price hikes

Chennai: Tyre major CEAT is planning to opt for small price hikes in the current quarter to improve margins amidst increase in international freight rates and rising natural rubber prices. The company, which saw its EBITDA margin contract by 121 bps from Q4FY24 to Q1FY25, took a price hike in May and July of around 1 to 2% each. “The natural rubber tapping has started from June so arrivals will improve but the challenge is the increase in lead time on import of materials,” said CEAT CFO Kumar Subbiah. “Earlier it used to take a consignment three weeks to reach from South East Asia but now it takes more than 60 days.” As a result, there has been a sharp increase in demand and prices for local natural rubber. “The local prices are at Rs 205 per kg which is the highest in last 12 years,” he added.The freight disruption due to the ongoing Red Sea crisis is also impacting the company’s export plans. CEAT, which clocked just over Rs 149 crore net profit for Q1FY25 on revenue of Rs 3,168 crore, is planning to maintain double digit export growth through the current fiscal. “Currently exports are 20% of our revenue and we want to hit 25% in two to three years,” he said. “However availability of containers is a challenge so we’re facing logistics issues,” added Subbiah. “Last month and this month we could have exported more,” he said. The crisis has pushed up freight rates by three to four times in many sectors over what it was six months ago.The company is planning a combined capex cash flow of Rs 400 to 500 crore in Chennai in FY 24-25. This will cover both the newly commissioned truck and bus radial facility as well as expansion of the passenger vehicle radial tyre facility. Subbiah said, “We are commissioning our truck and bus radial tyre facility in Chennai early next quarter. We have approval for about Rs 700 crore for this of which we have already spent Rs 300 crore as of last year and we will spend a large portion of the balance in the current year.” The capacity approval for this facility is 1,500 tyres/day. The rest of the capex amount will be spent on downstream expansion at the passenger vehicle radial tyre plant in Chennai. “We’re likely to spend over Rs 200 crore in the current year in terms of cash flow on this,” he added. Including the expansion capex at Chennai, the tyre company is planning to spend around Rs 1,000 crore in capex this year, said Subbiah. “This includes projects that are capacity related on which we will spend around Rs 750 crore and another Rs 250 crore will be spent on operational R&D,” he added. The company has already spent Rs 255 crore on capex in Q1. The capacity expansion includes increasing farm radial tyre capacity at Ambernath factory in Maharashtra from 105 tonne to 155 tonne per day.
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