CEAT Ltd. is considering a 2-3% increase in tyre prices to counteract rising raw material costs, according to Managing Director and CEO Arnab Banerjee.
“The increase in finished goods prices has not matched the rise in raw material costs,” Banerjee explained on Tuesday. “Considering the current price adjustments, we expect a 2-3% increase, with approximately half of that likely to be implemented in September,” he added.
The company’s margins, which shrank by 12% in the first quarter of fiscal year 2024-25, are expected to remain under pressure during the second quarter. “Banerjee noted that we expect raw material costs to stabilize in the third quarter and possibly decrease starting in the fourth quarter.
He also mentioned that raw material costs have risen by 4-5% sequentially in the current quarter, citing unprecedented volatility. This is largely due to natural rubber prices hitting a 15-year high.
Domestic tyre manufacturers are particularly affected since India imports approximately 40% of its rubber needs. The raw material costs, primarily influenced by natural rubber and crude oil derivatives, continue to be a challenge. Although crude oil prices have declined, the prices of crude intermediates, which impact synthetic rubber and fabric, have not yet decreased, Banerjee said.
In the upcoming quarter, natural rubber will be a major area of concentration. Only a significant drop in natural rubber prices will lead to a notable moderation in the overall raw material costs,” he added.
Growth Targets
Despite margin pressures from rising raw material costs, CEAT is still targeting double-digit growth for this fiscal year, according to Banerjee.
The increasing proportion of sports utility vehicles in overall car sales is benefiting the demand for premium tyres, he noted.
“Banerjee also emphasized the company’s strong position in the market for replacement tires. ‘Replacement tyres make up 20% of our sales,’ he said, noting that growth in the two-wheeler replacement segment is anticipated to be in the double digits.”
Regarding growing its market share abroad, CEAT is upbeat. “We want to double our exports in the next three years,” Banerjee stated.
Exports currently contribute 20% to the company’s revenue and positively impact margins at the EBITD level. “Increasing exports will further enhance our margins,” he added.
The shift in Europe from premium to value tyres has also been advantageous for CEAT, though Banerjee acknowledged that China remains a significant competitor in export markets.
Comparing the same period last year to the quarter ending in June 2024, CEAT reported a 2.74% increase in net profit to Rs 149.79 crore. There was an 8.79% increase in operating revenue to Rs 3,192.82 crore.
CEAT shares were trading 0.51% higher at Rs 2,865.00 on the BSE, compared to a 0.17% increase in the benchmark Sensex at 11 a.m.