The Hindu Business Line : Ceat re-negotiates export order prices

Hot wheels
Ceat plans to sharpen its focus on exports this fiscal.
It expects to increase its export turnover by over 20 per cent from Rs 506 crore.

Amit Mitra

Mumbai, Aug 4 Tyre manufacturer Ceat, part of the Rs 13,500-crore RPG Group, has been able to re-negotiate prices for a bulk of its existing export orders for the next 4-5 months on steep surge in cost of inputs such as rubber and carbon black.

With the company managing to re-negotiate the prices for nearly 80 per cent of its inventory of export orders in July, this is expected to reflect in its second quarter earnings this fiscal. Last quarter, the company had taken a hit in its export realisation, as it had to supply products at older prices.

“This is the first time we are re-negotiating prices for our export orders and this will perhaps be the last time. We were compelled to take this step as the rise in input costs had been abnormal,” Mr Paras K. Chowdhary, Ceat Managing Director, told Business Line.

Focused on Exports

Normally, the company has export orders for a period of 4-5 months at any given time, with its average export turnover for a quarter being Rs 120 crore at present.

As exports are beginning to yield better price realisation for its tyre products, Ceat plans to sharpen its focus on exports this fiscal. Last fiscal, its export turnover was Rs 506 crore and this year it expects to increase this by over 20 per cent.

Industry sources say that the spiral in raw material costs was, indeed, abnormal. Generally, most companies in this sector calculate raw material prices as weighted average ‘recipe’– they take the weighted average prices of the different inputs they consume to manufacture tyres.

According to the sources, the weighted average recipe price was at a comfortable level of about Rs 85 a kg in the first quarter of 2006-07, but it rose to between Rs 90 and Rs 93 a kg in the January to March 2008 period. In the last quarter, the recipe price further shot up to Rs 104 a kg, with industry players fearing that it may get into the range of Rs 115-120 a kg in the current quarter.

Without disclosing the actual increase in the input costs, Mr Chowdhary, however, agreed that in the first quarter of this fiscal the rise in raw material prices was about 15 per cent and this quarter it was expected to be 10 per cent.

Tyre prices

Ceat, which had increased prices of its products four times between February and July this year, may have to go in for another round of price rise if rubber prices do not ease this quarter. The company hiked prices by an average of two per cent in February, four per cent in April, 2.5 per cent in June and six per cent in July.

“However, this would depend on the way rubber prices moved. These prices have fallen in the last few days and if this trend continues there may not be a need for another price increase,” Mr Chowdhary said.

In the long run, Ceat plans to counter input cost surge through substitution of certain raw materials, energy optimisation and reduction in operational costs.