The Hindu Business Line : Price hike vital to fight steep input cost rise: CEAT

With rubber prices at Rs 106 per kg, the Managing Director of CEAT, Mr P.K. Chowdhary, says that they hope to get 9-10 per cent hike from auto manufacturers.

He adds that they need a price hike basically because there is a steep price rise in most of their raw materials.

Excerpts from CNBC-TV18's exclusive interview with Mr P.K. Chowdhary:

Can you confirm as to whom you are supplying to at this point, has there been a shortage between demand and supply?

We have been supplying to all the major vehicle manufacturers. There has been strong growth in demand this year in the summer. In the replacement market also, the demand growth has been good. There have been some difficulties with some of the vehicle manufacturers in the last two months to get adequate number of tyres.

There has also been talk that you have been talking to auto manufacturers to raise prices by up to 20 per cent, is that true? Are you lobbying for a price hike as steep as that?

We had one price hike in April that was around 5 per cent approximately. Then we had a 12 per cent price hike on June 1 and we sought another price hike onJuly 1. So all put together it works to about the figure you said. This price hike is basically coming from a very steep rise in most of our raw materials. As rubber prices are hovering around Rs 106, an unprecedented kind of price for a commodity like that, we have been constrained to seek price increases for this order.

Will the auto manufacturers agree, because they have been struggling with their margins as well? They have also been hit, not only by metal prices but also by a host of other raw material hikes. They need to preserve their margins as well. Do you think they will play along given that they have already given you 15 per cent plus hike this year?

They have already given anything between 15-17 per cent for different types of tyres. We hope to get another 9-10 per cent if we have to protect our margins, or see some improvement in the margin, because our margins have been at all time lows in the last five years.

We are down to 5-6 per cent gross profit before interest and depreciation. This is a very low figure and for us to be able to constantly upgrade the facilities and enhance our manufacturing base, we need to look for better margins than this. We are at a decimally poor level of margin at this point of time.

With 10 per cent hike, how much impact will that have on your margins, or will it go down as net neutral because of the rubber prices?

It all depends on where rubber prices ultimately stay. The present hike that we are seeking will be covering us up to about Rs 100 of rubber prices. But I do not know to what extent rubber prices will change because there are all kinds of predictions.

There are predictions that rubber may hit Rs 140 later this year, there are also predictions that it may go down along with many commodities, which have gone down off late. So, we really do not know what will happen. But if we get this price hike we are at least covered up to about Rs 100.

Is this price hike something that you are speaking individually with your suppliers, or are all tyre manufacturers pushing for a 10 per cent hike?

There is no system of a joint discussion. We always talk to vehicle manufacturers on a one-on-one basis and every tyre company has its own relationship with different vehicle manufacturers. We have a very strong relationship with Tata Motors because we are both in Maharashtra.

So we are their natural suppliers. We keep talking to them and that's precisely what we are doing now. We understand their difficulty in giving us huge price increases but we are also equally constrainedto protect our margins.

There have been some wild rumours over the last one month suggesting that Tata Motors could be looking at acquiring Ceat's tyre business, any truth to that at all?

I also heard these rumours but I think it is totally baseless. There have been no discussions of any kind whatsoever.