CEAT expects double-digit growth in tire replacement, despite rubber price hike impact

Rubber price hike impact: Tire maker CEAT Ltd expects double-digit growth in replacement and international business this fiscal despite a high natural rubber price forcing it to hike product rates, according to its MD and CEO Arnab Banerjee. The company, which has taken price hikes of 2-2.5 per cent in the replacement segment since May, expects another round of increase towards the end of July but is betting on robust demand across categories and turnaround of the rural market to drive growth.

"We would like to think that unless there are some unforeseen headwinds, the growth will be steady and positive. We would like to maintain double-digit growth in the replacement segment and international business," Banerjee told PTI. As for the company's sales to OEM, he said, "We see growth potential much ahead of 3 per cent in the passenger segment for CEAT on the basis of the model pipeline".

In the first quarter of the ongoing fiscal, the company had posted good topline growth as rural demand has come back while premiumisation strategy and higher margin tyres did well, he said, adding that "commercial vehicle and two-wheeler (segments) have come back strongly". CEAT posted consolidated revenue from operations at Rs 3,192.82 crore in the first quarter against Rs 2,935.17 crore in the year-ago period.

Asked about the impact of the rise in natural rubber prices, he acknowledged that it has affected margins. "Natural rubber prices are at a 13-year high and crossed Rs 200 per tires kg, and also, availability is a concern," he said, adding that CEAT had to increase tire prices to partially offset the impact. The company had increased costs of replacement tire prices by 2-2.5 per cent with incremental increases in May and June, he said, adding that "We will have another price hike by the end of July". When asked how much a price hike would be required to offset the increase in natural rubber cost, he said, "If you compare with April, then we will need about 5-7 per cent. We have covered about 2-2.5 per cent in the replacement segment".tire  costs replacement

He, however, said that as supplies to automakers (original equipment manufacturers) and into replacement market costs are 'indexed', there is a lag in price increases. When asked about the possible impact of price hikes on demand, Banerjee said demand remains strong and the equation is positive. There will be better growth for the rest of the year if the other factors remain the same, Banerjee said, adding that despite the impact of the natural rubber price increase, CEAT is looking at "double-digit growth in replacement segment and international market".costs

"The rural market has come back well, and overall GDP growth is robust. Highway construction, mining activity and monsoons are going to be good. We enter the festive season by the middle of the year," he said, adding that the "situation in international markets is mixed, but they're not bad, and we can't complain". Yet, he said, "We have to see how the raw material prices pan out. If it keeps going up, there will be an impact on demand".
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