The Hindu Business Line : Ceat planning to raise tyre prices by 8 pc in February

TYRE major Ceat Ltd is planning to increase the prices of its tyres between 6-8 per cent in February, a move that may see other companies following suit.

Ceat's Vice-President (sales and marketing), Mr Kalyan K. Paul, told Business Line that increase in raw material costs have hit the industry hard.

"The gap of 7-8 per cent which the manufacturers were taking a hit cannot be sustained for long," Mr Paul said. Stiff competition in the market, apart from increase in raw material costs, has affected the bottomline of several tyre-manufacturing companies, Mr Paul said.

Ceat's net profit is expected to be lower than the previous fiscal's Rs 14 crore. However, its turnover is expected to grow over 15 per cent to Rs 1,905 crore during 2004-05.

Hence, Ceat plans to offset the rise in raw material costs by increasing the prices of its tyres, he said.

Over a period of three years, the Rs 13,500-crore truck industry is growing at a compounded annual growth rate of between 8-9 per cent.

Mr Paul said the company has taken several measures to increase its share in the market. Ceat plans to more than double the output of passenger car radials to around 68,000 units per month. The car radial market is growing at a rate of between five and 10 per cent.

Ceat has also launched products for truck radials. The share of truck radials is currently 2 per cent of the total market for truck tyres, which is around Rs 8,500 crore. This share is expected to grow to around 10 per cent in 2006-07.

Mr Paul said while radials are expensive by nearly 35 per cent compared with the conventional tyres, the mileage could go up by as much as 50 per cent while the savings in fuel could be between 12 and 15 per cent.

Ceat is also planning to focus more on the premium end of the tyre segment. Though the price difference is around 10 per cent, Ceat's sales grew by 32 per cent compared with the industry average of 15 per cent. This was achieved because Ceat went through the OE route first.

Mr Paul said the company has constituted special sales team whose primary task is to generate consumer demand. These sales teams approach customers directly instead of going through the dealers. Apart from offering extremely competitive prices, the sales team also educates customers on getting the maximum value out of tyres and tries to develop a rapport with them.

"Such initiatives have lead to many conversions to our products because relationships are equally important to retain customers," he said. He said between 60-65 per cent of the total number of customers have less than four trucks and hence tyre companies offer special schemes for them.

Ceat, on its part, offers retail financing schemes so that smaller truckers do not have to bear the entire cost of the tyres upfront.

Mr Paul said typically between 30-35 per cent of the customers have no loyalties towards any brands and are called `disengaged customers'.

"It is extremely challenging to wean away this chunk of customers who can tilt the scale either way," Mr Paul said.

Ceat, which has 100 retail stores across the country, is adding an equal number of such shops over the next one year.