The Hindu Business Line : Ceat plans to set up truck radial facility

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Kolkata Feb. 19 Ceat Ltd, a RPG Enterprises company, is planning to set up a truck radial facility primarily to cater to domestic demand. The plant may have an initial capacity of 20,000-50,000 tyres, expandable to two lakh tyres. Currently, only J K Tyre has such facility in India.

New facility apart, Ceat is also planning modernisation and expansion of the existing capacities in off-the-road tyres (OTR) and passenger car radials. The total investment is estimated to be close to Rs 700 crore.

Stating that the new plant may be set up in technical tie-up with a foreign collaborator, a senior company official said, adding that a "decision in regard to the proposed investment is expected in next three to four months".

Ceat currently outsource 1,000-1,500 truck radials from Pirelli of UK. While it is not clear whether Pirelli will offer the requisite know-how for the proposed venture, sources said that Ceat is "satisfied" with its existing outsourcing arrangements with the foreign major.

On location, sources said Ceat currently suffers 1-1.5 per cent cost disadvantage, as its facility is located in octroi zone in Maharashtra. "We will prefer an octroi free zone for the new plant," the official said.

Radial sales

According to sources, truck radial sales are expected to register 15-20 per cent growth in India in the next three years with introduction of more multi-axel trucks.

While the market is currently dominated by imported Michelin tyres, Ceat wants to grab a sizable market-share before its own facility come into being in next three years.

A similar strategy is also in place for the passenger car radial segment. The company has already ramped up its car and jeep radial capacities to over 70,000 pieces and is now targeting a further expansion to over 1 lakh pieces.

OTR tyres

Having established its presence in the OE segment of fast expanding OTR market in last two years, Ceat is now gearing up to storm the OTR replacement market. Ceat is a supplier to major global construction equipment makers such as Dynapack, Komatsu, Noel Fantusi, Caterpillar (India) and others.

"We will now focus on the replacement market where margins are higher", the official said adding that OTRs are a major contributor to Ceat's export earnings.

Stress on profitability

Ceat is focussing on enhancing profitability by selling more of high value items. "We will not buy market share," the official said adding that the company would maintain its 15 per cent share in the tyre sector.

"Our policy has paid in terms of a dramatic rise in EBITA (earning before interest tax and amortisation) during the last quarter. We are now looking forward to pushing it up further," he said.

Ceat had posted a net profit of Rs 37 lakh on a turnover of Rs 1,952 crore in 2005-06.