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Growth to be driven by digitization/advanced manufacturing

* About the Chennai plant:

The plant spans 160 acres with 25% of its area covered by greenery and operates in three shifts. Primarily, the plant produces PCR tyres for 17 different platforms (e.g., long-lasting tyres, performance tyres) with a production capacity of 20k tyres/day (potentially increasing to 28-28.5k tyres/day). It would also start manufacturing TBR tyres from 2QFY25, initially producing 1,500tyres/day, with plans to ramp up to 3,000 tyres/day. Export from this plant comprises 40% of its output. This plant stands out as digitally and technically advanced, with a special focus on quality management, resulting in OEM approval for its tyres in 25 months (vs. 5 years from a new greenfield plant).

* Digital initiatives of the company are based on used cases: CEAT digital initiative focuses more on used cases rather than the technology used. Its KPI-based impact has enabled it to increase both OEM and export sales. The company’s initiatives yield a payback period of two to three years and can be replicated across CEAT’s other plants. Utilizing virtual reality for new employee training has reduced the training time to two to three months (vs. six months earlier). CEAT has also established a digital centre of excellence, employing 25 individuals across locations in Nagpur, Halol, and Chennai.

* Advanced manufacturing to drive new process development and focus on quality:

It has developed the new motorcycle steel radial tech, which is used in the 350-1,200cc motorcycle segment, requiring long-range usage in-house. The recently launched RE Himalayan 450cc motorcycle utilizes this tyre technology, with CEAT serving as the exclusive supplier. Furthermore, CEAT has also developed a new Silica mixing technology, which has helped it meet the EU/US/OEM/EV markets, while maintaining a strong focus on product consistency

* The company’s focus on higher rim sizes (~40% of the PCR supply is for the greater than 15 inches tyre sizes) in the PCR segment was met by the development of the unistage tyre building machine. Presently, overall rejection rates at the Chennai plant stand at ~1.75% (Halol plant has lesser rejections) and the company is actively working to further reduce these rejection rates. Specifically, the rejection rate stands at 0.5% at the finished good stage and is 0.2-0.3% at the RM stage.

* Domestic demand remains a mixed bag; RM costs could see an uptick in 1QFY25: 4Q remains the best quarter for the company in terms of replacement demand and this time, it is no different. There has been a steady uptick in the 2W replacement demand; 2W OEM demand is recovering well. It has gained market share in the PCR segment. The OHT segment remains weak. NR prices and crude oil have been volatile in 4Q, which would impact gross margins in 1QFY25.

* Exports contribution target at 25% of revenues (vs. 18% in FY23): FY23 was a weak year for exports and this low base led to a 25% YoY growth in 3QFY24 for exports. The company would be launching two of its tyre categories (PCR and TBR) in the US/LatAm markets, leveraging its presence in OHT. Operations in Africa and the Middle East are performing well. It took a price cut in the exports market to focus on the value segment. Presently, Red-Sea crisis has a limited impact on the profitability for CEAT.

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SEBI Registration number is INH000000412