Ceat plans to increase exports in the coming years

A sustained increase in prices of raw materials like rubber, aslowdown in demand due to the second wave of covid-19, and the limited capacity of manufacturers to pass on the increased costs to customers might adversely impact the company in the short term.

“It is targeting a 3x increase in exports over the next five years ( ₹10.65 billion in FY21). It is seeding the right markets, along with market-specific product development. It is focused on passenger car radial tyres, truck and bus radial tyres, and off the road tyres in Europe; two-wheeler tyres in southeast Asia; and off the road tyres in the US. It would be selling through a local distributor, who would be driving marketing,” said analysts of Motilal Oswal in a note.

The company aims to maintain its leadership in the two-wheeler segment (at 28-30%) and expand its dominance in the passenger car segment to 20% from the existing market share of 13-15%, said the analysts further. In the truck and bus segment, Ceat aims to increase its market share to 13-15% from 8% currently.

With a swift rebound in economic activity and vehicle production in August- March in FY21, tyre manufacturers had reported a recovery in their financials in the third and the fourth quarters. The second wave of covid-19 infections, however, may derail this recovery as economic activity gets hit by regional lockdowns and other disruptions linked to the pandemic.

“The near-term outlook is challenging, impacted by demand weakness due to covid-19 and sharp raw material cost inflation. The latter will be gradually passed on over the next 2-3 quarters as demand returns once the pandemic ends. However, cyclical recovery in both original equipment manufacturers (OEMs) and replacement will enable faster absorption of new capacities and drive benefits of operating leverage,” the analysts added.