Softening rubber prices push operating margins of Ceat

MUMBAI: Notwithstanding the slowdown in the automobile industry, which has had a rub-off effect on the auto component manufacturers as well, Ceat, one of the country’s leading tyre manufacturers, surprised the street with not just an upbeat revenue growth in FY ’13 over previous year but also by an impressive improvement in margins over previous year, thanks to the significant decline in the key raw material price – rubber.

Ceat’s consolidated revenue growth of close to 9% was largely accountable for 6% growth in volumes and the balance 3% to the product mix. The company as such has been gradually strengthening its market share in the OE (original equipment) market and has recently entered into new alliance with the Eicher group for the supply of tyres to Volvo-Eicher Commercial vehicles as well as for the royal Enfield bikes.

According to the management, its market share in the two-wheeler segment has improvement significantly by close to 500 basis points to 19% over last year.

The reasonable revenue growth was well supported by lower than expected operating expenditure, thanks to the softening of the commodity prices, especially that of rubber, in 2012-13.

Thus, despite growth in volumes, raw material cost for the company remained almost flat, pushing up its consolidated EBITDA (earnings before interest, depreciation and tax) margins by over 300 basis points to close to 9% for the year as compared to the previous year.

Ceat’s consolidated raw material cost in relation to sales improved significantly from 75% in FY ’12 to 69% in FY ’13. There was however a marginal rise of about 70 basis points in its employee cost in relation to sales.

The company’s share rose by 4.49% to Rs 118.65 at the end of the day’s trade.