‘Margins under pressure for tyre manufacturers’

June 21, 2011 12:31 pm

Backed by the strong growth in auto sales, tyre production in India has been on the rise over the last couple of years. However, ever-increasing rise in rubber price has hit the margins of tyre manufacturers. In an interview with OEM Update; Anant Goenka, deputy managing director at CEAT Limited expresses his concern
 
Post recession, at what rate has the tyres manufacturing industry in India been growing? What has been the growth for CEAT Tyres?
In FY 2010-11, the tyre industry grew by 24 per cent. CEAT has also grown by 24 per cent in FY11.
 
What strategies do you have to improve your market share?
We are increasing our investments in the brand and expanding our capacity in high growth segments like motorcycles, last mile, passenger car and truck radial tyres.
 
What is your current production capacity? What are your CAPEX plans for ramping-up production capacity of Halol facility?
Halol plant has become operational in FY 10-11. Our two largest segments are truck and light truck where we produce 2047000 and 749000 numbers tyres every year respectively. At Halol, we have invested Rs. 620 crore, we should reach 150 MT/day in a year’s time.
 
You are also going to set-up a facility at Ambernath in Maharashtra. Can you brief us about this facility in details? What is the production capacity expected?
We have recently acquired some land for a future plant. We are still working on the details.
 
Rubber prices have been rising and this has hit the margins of OEMs. How have the increased input costs impacted the tyre manufacturing industry and more particularly your company?
Rubber being the main raw material accounting for more than 40 per cent of tyre cost, the price increase in rubber has hit all tyre manufacturers. We are no exception. We have not been able to pass on the entire cost increase to the customer and therefore our margins are under pressure.
 
Standing in this kind of situation, what are your pricing strategies to remain competitive?
While we are focusing on improving manufacturing and selling efficiencies, we are cutting costs wherever possible to bring down operational expenses. In addition, we are altering our market and product mix towards more profitable segments.
 
Recently, OEMs are importing tyres from low-cost countries like China due to supply constraints in the domestic industry. What is your say in this regard?
According to us there is no constraint of capacity among Indian manufacturers, in almost all categories. All tyre manufacturers have aggressive expansions underway.
 
CEAT acquired global rights to the CEAT brand last year from Pirelli. How significant was this achievement? Can you tell us about your growth in export market?
This is a significant milestone for us since it opens up the world market for us. We can sell CEAT branded products across the world, particularly opening up Latin American and European markets. It will also help us in increasing our realisations in the export market while at the same time provide a superior brand to our customers. We can also now outsource in the CEAT brand from low cost countries which was earlier restricted.
 
What are your plans to scale up overseas operations in the future?
With the acquisition of the CEAT brand we will have access to newer customer segments and channels across the world. This will help us double our export in the next two years.