How did CEAT Tyre's witnessed Profit growth even though people are not driving

CEAT is an Indian based Tyre manufacturing company. The company is owned by the RPG group. The CEAT company was founded in Italy in the year 1924. The company has its headquarters in Mumbai, India. CEAT is considered to be the leading tyre manufacturer in the country with a global presence.

CEAT manufactures tyres for trucks, busses, passenger cars, two wheelers, earth movers, light commercial vehicles, tractors, auto rickshaws and trailers. Let’s look at the reason behind the growth of the company’s profit even though the driving and riding of vehicles in the country has reduced.

Results of Q3
Reason for the Profit
Segments in Focus
Focus Markets of Ceat
FAQ

Results of Q3

On 4 May 2021, CEAT Ltd which is a company under RPG group had announced that the company has achieved a net profit of INR 132.34 crore during the Q3 which was ended on 31 December 2020. The net profit has been reduced to around 27.35 % when compared to the previous quarter of the same fiscal year.

The company had achieved a net profit of INR 182.8 crore in the Q2 of this fiscal year. CEAT Ltd has seen an increase in its revenue from operations for the Q3 of this fiscal year of INR 2,221 crore when compared to the Q2 of the fiscal year which was INR 1,978 crore.

When compared to a year-on-year basis the profit of CEAT tyres has seen an increase by INR 152.07 % compared to the previous year's quarter’s INR 52.5 crore. The revenue from operations has also seen an increase on the year-on-year basis of around 26.08 %. The revenue from operations in the previous year was INR 1,761.77 crore.

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Reason for the Profit

Kumar Subbiah who is the CFO of CEAT Limited conveyed that the Tyre manufacturing industry is facing an increased demand with a robust demand in the replacement market. He added that the growth of the company in the last quarter of this fiscal year will largely be because of the demand by the replacement market.

He added that the company despite having a not so good quarter has grown the most in past nine months when compared to the same period during the last year. Compared to last year, the quarter 2 of this fiscal year has seen a growth of around 14 % and around 27 % in quarter 3 compared to the last year’s quarter 3 growth.

Kumar Subbiah said that for the Q4 the company is expected the demand to increase in most of the categories. He added that in the OEM sector the demand for some categories has come down after the festival season.

The company wants its growth to be driven largely by the replacement market which should be followed by the OEM. He said that around 15 % of the company’s revenue comes from exports, around 60 % through the replacement market and around 30 – 35 % from the OEM sector.

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Segments in Focus

The company said that going forward it would be looking to focus on the passenger sector which will be completely on the passenger car and two-wheeler tyres.

He said that the company’s investment in Chennai and Nagpur factories is completely concentrated and directed towards the passenger segment.

Focus Markets of CEAT

The company said that it would focus on the North American and the European market in the coming years. The CFO added that the company’s presence in the European market has been increasing and the company is working towards increasing its presence in North America.

He added that there are a lot of queries from different countries that are looking to reduce Chinese manufacturers and enquiring whether India could start producing it locally and supply the required tyres to them. He added that, India is in a great position to take the advantage of the situation.

FAQ

Where are CEAT Tyres made?

Ceat tyres currently has 4 manufacturing facilities at Bhandup Nashik Nagpur and Halol and is setting up a new facility near Chennai.

When did RPG acquire Ceat?

RPG group acquired CEAT Tyres of India in 1981.

Who is Radha Goenka?

Radha Goenka is the Director at RPG Foundation.

Conclusion

CEAT had planned to invest around INR 800-900 crore this fiscal year but due to the global pandemic and the slowdown of the economy they had to cut it down to INR 550 - 600 crore. The company is planning to spend more in the next fiscal year as there is some traction and the sales are expected to increase this year.