Continue To Maintain Double-Digit Growth Guidance, While Demand Remains Mixed: Ceat | CNBC TV18

Summary

In this insightful discussion, Arnab Banerjee, CEO of CET, shares his perspective on the tire industry amidst fluctuating raw material prices, including rubber and crude oil. While rubber prices have remained stable domestically, crude oil price hikes and geopolitical uncertainties pose challenges. Despite these, Banerjee is optimistic about a gradual improvement in margins from Q2 onward. He discusses mixed demand in both domestic and export markets, highlighting expected growth in regions like Europe, Latin America, and the Middle East. Although the luxury car market is struggling, CET is focused on gaining market share, particularly in the replacement segment, to maintain double-digit growth for the year.

Takeaways

• 😀 Rubber prices in the domestic market have remained stable between ₹197 to ₹200 per kg, but international prices have decreased to $1650 per ton.
• 😀 Crude oil prices have slightly increased, which impacts raw material costs, but the overall effect on tire manufacturing is expected to be marginal due to inventory management.
• 😀 Geopolitical uncertainties, especially in the global market, are impacting exports, but the company remains optimistic about growth in Europe, Latin America, and the Middle East.
• 😀 Despite geopolitical challenges, the company is confident in achieving a double-digit growth in exports for the full year, especially in Europe and emerging markets.
• 😀 The U.S. market, while small for the company, is expected to recover in Q2 or Q3, boosting export performance in the longer term.
• 😀 The domestic OEM market is experiencing muted growth, especially in the two-wheeler and passenger vehicle segments, but new model fitments from OEMs are expected to drive growth.
• 😀 The replacement market is performing better, with strong demand in rural and small-town areas. Scooters and motorcycles are leading the demand in the domestic market.
• 😀 The recent 5-year anti-dumping duty on insoluble sulfur imports from China and Japan will have a marginal impact on the business, as the material represents a small portion of overall costs.
• 😀 The company anticipates slow margin improvement starting from Q2, driven by the gradual tapering of raw material costs and inventory management.
• 😀 Despite slower growth in luxury car sales and challenges in the overall automotive market, the company sees opportunities to increase market share in specific geographies and segments, particularly in replacement and OEM fitments.

Q & A

How have raw material prices affected the tire industry in the first quarter?

Rubber prices in the domestic market have remained stable, while international rubber prices have decreased. Crude oil prices have fluctuated, with recent spikes, which have impacted raw material costs. However, the overall impact of these changes on the industry is expected to be marginal in the short term, given the company’s inventory management.

What is the outlook for raw material prices in the second quarter?

Raw material prices are expected to taper off gradually in the second quarter, provided there are no significant geopolitical disruptions. The impact of inventory carryover and stable domestic rubber prices will mitigate some of the price volatility.

How does the anti-dumping duty on insoluble sulfur affect the business?

The anti-dumping duty on insoluble sulfur imports from China and Japan will have a slight adverse effect on costs but will not significantly impact the overall cost structure of the business, as insoluble sulfur is a small portion of the total raw material cost.

What is the current state of demand in the export markets?

The demand for tire exports remains strong in key markets such as Europe, Latin America, and the Middle East. However, U.S. demand has a relatively low contribution to overall turnover. The company expects growth in these markets, with a particular focus on the second and third quarters.

How has the domestic market performed in terms of OEM and replacement demand?

The domestic OEM market is seeing slow growth, with little progress in two-wheelers, passenger vehicles, or commercial vehicles. However, replacement demand remains stable, with rural and small-town markets driving the growth, especially in the two-wheeler segment.

What impact has the growth slowdown in passenger and commercial vehicles had on the tire industry?

The slowdown in growth for passenger and commercial vehicles has created challenges for the tire industry, as these segments are experiencing muted demand. However, the company expects continued growth in the replacement market, where demand remains relatively steady.

What strategies are in place to maintain growth despite the challenges in the automotive market?

The company is focusing on gaining market share in specific geographies and through new vehicle fitments that are not dependent on overall market growth. They also plan to leverage the replacement market, which is less affected by the stagnation in vehicle sales.

What factors are contributing to the stable outlook for the tire industry despite global uncertainties?

The stability in the outlook is driven by steady domestic rubber prices, the company’s inventory management, and expected growth in key export markets. Additionally, the company is focusing on replacement demand, which remains resilient in rural and small-town markets.

How significant is the role of geopolitical uncertainty in the tire industry’s performance?

Geopolitical uncertainty, particularly fluctuations in crude oil prices, can affect raw material costs and freight rates. However, the company remains confident that any potential volatility will have a marginal impact on their operations, given their inventory and strategic planning.

What are the expectations for luxury car sales and how does it impact the tire industry?

Luxury car sales have decreased for the first time in 20 years, which reflects a broader trend in the automotive industry. However, the tire industry is less impacted by this trend, as the company relies more on replacement demand and market share growth rather than luxury car sales.