Ceat to prune and postpone investment in new plant due to tepid demand, eroding margins

Tyres maker Ceat has decided to prune and postpone its capital expenditure by 40% or Rs 500 crore in FY-23 after a sharp fall in demand for tyres from road transporters.
To add to the operational woes, the soaring commodity prices has put sustained pressure on its cost, compelling the company to pass on the price increase, with Q3 slipping into red on steep rise in cost.

The company will be taking price hikes to the tune of 2-3% over the ongoing quarter to aid its margins.

Anant Goenka, the managing director of Ceat, told ET that the planned investment of Rs 1,200 crore in its upcoming commercial vehicles (CV) tyre plant near Chennai will be slashed by Rs 500 crore and the opening of the plant will also be delayed by six months.

“We had expected the plant to be ready by the October this year. Now it would be somewhere around the first half of the next (calendar) year and a smaller version of the plant will happen,” he said.

The demand for replacement tyres from transport fleet operators was low, as per Goenka. This is one of the largest market segments for the tyre maker. Replacement demand from CV operators, passenger cars and two-wheelers accounts for about 65% of its sales.

“We will wait and watch on the demand side. How things pick up on the CV side and then only we will give the go-ahead for the expenditure,” Goenka said.

Ceat reported a loss in the December-quarter because of high input costs that it could not completely pass on to consumers. Tyre makers rely on commodities like rubber, crude and steel, which account for up to 60% of their costs. Prices of these commodities have soared as much as 40% on average compared to the same period last year, Goenka said.

Now, the Mumbai-based tyre maker is looking to hike prices by 2-3% this quarter and about 5-6% over the next six months to offset the increased input costs, as per its managing director. The competitive pressure in the market, however, will be limiting its ability to hike prices, he added.