We expect a strong growth momentum in the next financial year: Arnab Banerjee, CEAT

Quarter one in the upcoming FY might be an optical growth as a result of quarter one final yr was a washout, however we expect strong efficiency throughout the replacement market, OEM market and likewise choose up in worldwide enterprise so far as top-line growth is worried, says Arnab Banerjee, COO, Tyres, throughout an interview with ET NOW. Edited excerpts:

Same time final yr, issues have been a lot totally different however the tyre business was the first to get well inside the complete bigger motown enviornment. How is FY22 prone to pan out?

Arnab Banerjee: The tyre business, in truth, recovered fairly quick in quarter two of final financial yr and the growth fee has continued strongly in quarter three and quarter 4. We expect a related sort of momentum in the next financial yr. Of course, quarter one might be an optical growth as a result of quarter one final yr was a washout however we expect to have strong efficiency throughout the substitute market, OEM market and likewise choose up in worldwide enterprise so far as top-line growth is worried. For CEAT notably, it’s an opportune second as a result of we now have been investing near Rs 4,000 crore over the final couple of years, not all of that funding is full however we now have caught up the cycle in a very opportune time and we expect to have vital ranking leverage in the coming quarters.

Can the upcoming CV cycle drive demand for OEMs for tyres as M&HCV in addition to LCV tyres contribute to about virtually 40% of your OEM gross sales?

Arnab Banerjee: Yes it’s a cyclical business and you’ll see clear cycles if you happen to examine the ups and downs over the final 25 years, I’m speaking of the OEMs. Right now, we’re most likely coming into an upcycle. For the final three-four months, demand has been good and growing so our provides to OEMs is definitely going to see an uptick. In the substitute market, the demand was already very strong and proper by way of the finish of the first quarter, as a result of transportation and wheels are primary drivers of the financial system. I imply if the wheels cease rolling on the roads, the financial system involves a standstill and vice versa. So substitute demand may be very strong and the authorities’s Atmanirbhar coverage has additionally helped as a result of extra demand was obtainable for the home producers. We are well-equipped quality-wise and capability clever to faucet that demand. So substitute and OEM each are going to see good demand and growing demand over the next financial yr.

How precisely ought to one perceive the affect of raw material prices for a B2B enterprise or a quasi B2B enterprise like tyre? Can you go on all the uncooked materials value hike to your prospects?

Arnab Banerjee: We have a vital quantity of enterprise in B2C which is the substitute market, which is like all aggressive market place. We can go on uncooked materials value rise supplied the aggressive depth permits us to, so that’s one. In the B2B half, the place we provide to OEMs, normally, a giant a part of the pricing is listed to publically obtainable information of uncooked materials costs that goes as per the indexation and we go up or down as the uncooked materials value adjustments.

Could there be a state of affairs the place your prime line turns into increased due to uncooked materials costs however the backside line might not enhance in that very same proportion?

Arnab Banerjee: When I talked earlier about top-line growth, I used to be speaking of quantity growth truly. The worth growth is a consequence of assorted elements like combine and value enhance due to uncooked materials, and so on. So after we say that, we see demand for CEAT is bullish, then I used to be speaking of quantity growth throughout the classes and notably for CEAT. There has been a continued enhance in market share in substitute in all classes – minimal 2% in passenger class – we’re rising by 3% to five% so that’s quantity growth.

Coming to your second query about margins, when the uncooked materials value goes up, we implement a value hike infrequently. For instance, the March uncooked materials state of affairs is a minimum of about 10% increased than the quarter three uncooked materials state of affairs. So to nullify that, we might require a 6% sort of value enhance. As we converse, about 4% to five% of that enhance has occurred, there might be a slight lag for the stability 1- 2% pricing enhance which we’re considering proper now in early April. Through the quarter one once more, uncooked materials will additional enhance on the quarter 4 base, which would require one other 2-3% value hike which we’re planning to take by way of quarter one.

How dynamic are your contracts each out of your suppliers, that are uncooked materials suppliers and your consumers which is OEM consumers? How dynamic are you about renegotiating your contracts?

Arnab Banerjee: The ordinary frequency is as soon as a quarter on either side; on the purchaser facet and on the provider facet but when there are conditions the place the spike is just too excessive in a quick span of time then we typically have a look at a smaller timeframe additionally however the ordinary default timeframe is as soon as a quarter.

While we’re speaking about substitute demand, if I’ll add that for the final yr which is the calendar and financial yr has gone, you may have gone by way of a lockdown course of adopted by a semi lockdown which implies a lot of vehicles and a lot of vans and a lot of automobiles haven’t accomplished the regular motoring and commuting which they might have accomplished. Could that have an effect on substitute demand?

Arnab Banerjee: Numerous tyres have been arising for substitute. By March-end, all that stopped, there was no substitute of these tyres by way of the month of April and most of May. In June, it began trying up. So that pure pent up demand got here up. Trucks have been plying on the highway in April, May and June. Yes, there was a second the place it crashed to about 30-40% of the ordinary site visitors however it moved as much as 60-70% fairly rapidly. So the truck tyre put on and tear went up.

Immediately after the pandemic hit, the shared mobility business suffered and so individuals began utilizing their vehicles which have been mendacity in the garages rather more often than that they had ever used in the previous. People began shunning public transport and this was not solely in cities like Mumbai and Delhi, this was additionally about small cities. If you enterprise out to the highways, you will notice individuals utilizing their bikes to commute distances of 50-60 km as an alternative of the state transport bus which they might have in any other case taken. This swap is semi-permanent to everlasting. I have no idea whether or not we are going to bounce again to utilizing shared mobility and public transport in the future. So, the put on and tear have gone up. The next issue after all is the inventory or the trip of the imported tyres which is the Atmanirbhar Bharat initiative of the authorities. That has additionally made obtainable a bigger slice of the pie to us. Therefore we’re increased demand by means of client pull in addition to due to import substitution.

Given what you may have described and with investments in each capability and merchandise in the final couple of years, how do you see the market share increasing? What sort of targets are you working with?

Arnab Banerjee: As I had talked about earlier, we now have gained market share in the final financial yr in the substitute market and OEM market. And we’re fairly bullish about holding and gaining market share in all classes ranging from two-wheelers to passenger automotive tyres to truck tyres. We have the capability, our merchandise have stabilised, we now have gained in community share which is the share of high quality sellers that are additionally dealing in Ceat.

CEAT has the deepest penetration of the hinterland of India by means of a distinctive distribution mannequin which is considerably much like the FMCG distribution mannequin although not in scale. We reached the largest variety of retailers and we’re higher than the competitors by 6-7x in phrases of direct attain of retailers. So we predict that we now have the means to faucet the demand and by means of creation of demand, we now have been investing closely above the line in addition to in digital advertising and marketing. We are client journeys afresh and the world is altering, the outdated mannequin of simply promoting and choosing up demand by way of your community is shifting to extra mass personalisation, customisation of engagement with the prospects. So all these initiatives are there, the merchandise are good, the capacities are arising. We are trying ahead to a lot of pleasure in the next two to a few years as a result of if you discuss market share and investments and the working leverage you don’t discuss one quarter and the next, we’re speaking about the next two to a few years.

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