CEAT to Halt Expansion Plans! Will Invest 40% Less

CEAT Tyres is halting its expansion plans as it has decided to cut capital expenditure by 40% in its new tyre manufacturing facility in FY-23 after a sharp decline in demand for tyres.

The company had planned to invest Rs. 1200 crores for the commercial vehicle tyre plant in Chennai, scheduled to complete in October this year but due to the rising input and raw material costs, continuing operational struggles and supply chain woes have forced it to cut investment by Rs. 500 crores and differ the plant opening by at least six months. The Ceat tyre price will be hiked by 2-3% over the ongoing quarter to stable its margins as its December 2021 quarter reported a YOY loss of Rs. 20 crores against the profit of Rs. 132 crores in December 2019 quarter. This was due to increased commodity prices coupled with reduced demand for replacement tyres from fleet transporters.

Even-though, the YOY, consolidated revenue grew by 9% to Rs 2,413 crore, the input material costs continued to grow at 24%, which is reducing the company’s profits.

CEAT has one of its big chunks of tyre sales, about 65%, from replacement tyres from CV operators, cars and two-wheelers but the demand from commercial transporters was subdued which affected the profits of the company in the last quarter.

The company reported that prices of raw materials used in tyre production like rubber, steel and crude oil were up by 40% in the last year and since they account for about 60% of the tyre manufacturing costs the company will look to offset this by increasing prices by 2-3% this quarter and then will increase the prices by another 5-6% over the next 6 months. This will have a negative effect on consumers as well.

The world is struggling from the aftereffects as well as the latest Omicron wave of the COVID-19 virus and businesses around the world continue to be affected while the consumers too are also paying more for every product due to increased demand, low production and strained supply.