CEAT May Hike Tyre Prices By 2-3% In September, Says CEO Arnab Banerjee

CEAT Ltd. may hike tyre prices by 2-3% to offset the impact of a surge in raw material costs, according to Managing Director and Chief Executive Officer Arnab Banerjee.

"The finished goods price hike is not commensurate with the raw material's price hike," Banerjee told NDTV Profit on Tuesday. "If you look at the basket of price hikes, around 2-3% of the hike is required, and we may take half of that in September," he said.

The company's margins, which contracted by 12% in the first quarter of fiscal year 2024-25, will also remain under pressure in the second quarter, the CEO said. "We expect the raw material basket to even out in the third quarter and may moderate a little from the fourth quarter onwards," he said.

In the ongoing quarter, raw material costs have climbed by 4-5% sequentially, Banerjee said. "This kind of volatility is unseen," he said, pointing towards the natural rubber prices, which are at a 15-year high.

This adversely impacts the domestic tyre manufacturers as India imports roughly 40% of its rubber requirements, he said.

The raw material basket is primarily dependent on natural rubber and crude derivatives. While crude oil prices have trended lower, crude intermediates, which affect synthetic rubber and fabric prices, are yet to moderate, Banerjee said.

"In the next quarter, natural rubber remains in focus. If natural rubber comes down significantly, only then the raw material basket will moderate significantly," he added.

Growth Targets

Despite the contraction in margin due to a surge in raw material rates, CEAT "still maintains a double-digit growth target" for this fiscal year, Banerjee said.

The higher share of sports utility vehicles in total car sales also helps sales of premium tyres, he said.

The CEAT MD also highlighted the company's strong prospects in the replacement tyres segment. "20% of our sales come from replacement markets," Banerjee said. He added that the growth in this segment's two-wheeler category is likely to be double digits.

The company is also upbeat about its potential to grow in the overseas market. "We are looking to double exports in a period of three years," Banerjee said.

"Exports contribute to 20% to our topline, and our exports are margin accretive on EBITD levels. The more we export, the better it is for improving our margins."

The shift in Europe from premium to value tyres has also benefitted the company, Banerjee said. He, however, noted that China is a "very serious competitor in all export markets".

CEAT reported a 2.74% year-on-year rise in the net profit to Rs 149.79 crore in the quarter ended June 2024. Its revenue from operations during the same period climbed 8.79% on the year to Rs 3,192.82 crore.

Shares of CEAT were trading 0.51% higher at Rs 2,865.00 apiece on the BSE, compared with 0.17% gains in the benchmark Sensex at 11 a.m.