CEAT Limited (500878) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the CEAT Limited Q3 FY '20 Earnings Conference Call hosted by Edelweiss Securities Limited. [Operator Instructions] Please note, this conference is being recorded. I now hand the conference over to Mr. Chirag Shah from Edelweiss. Thank you, and over to you, sir.

Thank you, Bikram, and good morning, everyone. On behalf of Edelweiss Securities, I would like to welcome you all to Q3 FY '20 post-result conference call of CEAT Limited. CEAT is represented by Mr. Anant Goenka, Managing Director; and Mr. Kumar Subbiah, Chief Financial Officer. I would like to thank the management for taking the time out for the call and giving us the opportunity to host the call. We'll start the session with the opening comments from the management, followed by Q&A. Over to you, Anant.

Thank you, Chirag. Good morning, everyone. A very warm welcome. I'm Anant Goenka, and I have our CFO, Kumar Subbiah, here with me. I'll share some financial and operational highlights for the quarter and the half year gone by, which will be followed by some -- with some further financial commentary by Kumar, and then we'll be happy to take some questions. For quarter 3 FY '20 on a stand-alone basis, our revenue for the quarter stood at INR 1,709 crores, a sequential growth of 3.8% and a Y-o-Y growth of 1.2%. Our revenue growth was majorly driven by growth in volumes. The demand environment continues to be challenging. However, we saw some sequential respite in this quarter, both on the OEM and replacement markets. Our overall volume growth of 3.6% was an account of single-digit growth in both the OEM and replacement segments. Our overall commercial vehicle tires saw sequential growth in high single digits while our passenger segments remained flattish as we continue to be constrained due to capacities. We're looking forward to commissioning our passenger plant -- both our plants, passenger and 2-wheeler plants this quarter, and we expect them to contribute towards an accelerated growth for CEAT in this year. Our raw material basket for the quarter went down by about 1.4% on a quarter-on-quarter basis. And as a result, our gross margin saw an expansion of 190 basis points, both on quarter-on-quarter and on a year-on-year basis. Our stand-alone EBITDA expanded marginally by about 20 basis points and continues to be in the double-digit range at 10.6%. Some other highlights for the quarter. OEMs have been gearing up for BS VI transition from April 1, 2020, onwards, and many BS VI compliant models have come out into the market. On 2-wheelers, we continue to be the partner of choice for all leading OEMs, various BS VI compliant models like the RE Classic 350, Himalayan, Honda Activa, Hero MotoCorp, Splendor, iSmart, have all launched on CEAT tires. M&M's Jawa, the Perak is another new addition to our roster. In the 4-wheeler space, Maruti's festive launch, the S-Presso was launched on CEAT tires. The recent Alto VXI Plus launch has also been rolled out on CEAT. With our Halol truck radial capacity ramping up, we have started making headways on the commercial vehicle tires as well. We gained entry into Ashok Leyland, the existing truck model, the 1618. And we continue to work on further developing all our CV OEM relationships. We also partnered with India Bike Week and launched 2 range of motorcycle tires, that's Tubeless Gripp XL and the Zoom X3 Series. CEAT was also the associate sponsor for Bigg Boss Tamil and the Bengali show Dadagiri to strengthen our regional equity. With this, I will hand over the call to Kumar.

Thank you, Anant. Ladies and gentlemen, thank you for joining our quarter 3 FY '20 earnings call. I will now present some key financial numbers. Let me start with the revenue. Our consolidated net revenue for the quarter stood at INR 1,762 crores, a growth of about 4.2% quarter-on-quarter and 1.8% year-on-year. The revenue growth was primarily on account of higher volumes, as our realization remains flattish. Our consolidated gross margin for the quarter was 43%, an improvement of about 180 basis points quarter-on-quarter, about 150 basis points over same period the previous year. The improvement in margins was largely an account of lower raw material prices, and also increase in finished goods also has impact -- favorable impact on gross margins as it is reported. Our employee cost for quarter 2 had a one-time reversal of lower payment of bonus for the previous year. Hence, our quarter 3 employee cost would look as though it has gone up by INR 20 crores, as this is only a normalization of employee cost for the quarter, in line with earlier quarters. Our other expenses for the quarter were higher primarily due to higher volume of activities, resulting in increase in freight and outsourcing conversion costs. We also had a onetime expenses to the tune of about INR 5 crores, which has been classified as other operational expenses. Let me come to EBITDA now, our consolidated EBITDA for the quarter in absolute terms was INR 188 crores, translating to 10.7% of revenue, an improvement of about 30 basis points over quarter 2 and 206 basis points over quarter 3 of the previous year. Our profit after tax for the quarter stood at INR 53 crores and stand-alone profit stood at INR 62 crores. Improvement in EBITDA that I just now spoke about has also flowed through in our overall profit numbers. With respect to changes in the income tax rates, we are still in the process of analyzing the net impact on tax basis made by the government during quarter 2. We are yet to take a final decision on our approach. And hence, our taxes -- tax rates continue to be in line with previous quarters. Now let me come to our capital expenditure. We continued our focus on improving efficiencies in cash flow and working capital during the quarter. As a result, though we incurred a project capital expenditure of INR 268 crores on a consolidated basis, our debt levels moved up by only INR 46 crores during the quarter. Our stand-alone capital expenditure for the year on projects has been around INR 880 crores out of our total planned CapEx of about INR 3,500 crores on a total basis. And against that, we have to date spent about INR 1,900 crores. Our expected capital expenditure on projects for the stand-alone entity is approximately about INR 1,100 crores. And while we are working out our project capital expenditure requirement for the next year, our initial working indicates CapEx of about INR 800 crores to INR 1,000 crores for a stand-alone entity. And for our CEAT specialty business, we're yet to work out the final numbers. Our continued focus on cash flow during the quarter and also during the year helped us to keep our consolidated level debt at INR 1,890 crores, which is an increase of about INR 46 crores over the previous quarter. Our debt-to-equity ratio remained healthy at 0.65 on a consolidated basis, a marginal increase over the previous quarter. Our stand-alone debt-to-equity maintained at 0.56. I would also like to take this opportunity to share with you our credit rating agency, CARE, a confirmed credit rating of AA for long-term and A1 plus for short-term with stable outlook. Now let's open the floor for Q&A.

[Operator Instructions] We have a first question from the line of Hitesh Goel from Kotak Securities.

Sir, I just wanted to understand this volume growth of 3.6% that you said, the single-digit growth in OEM and replacement. Can you give us more color because if we look at the production of OEM on a Y-o-Y has declined, both in the 2-wheeler segment and the CV segment and replacement of vehicles that so you must have gained some market share there? And in the placement segment, if you can give some color on 2-wheeler replacement, how it's doing, PV replacement and truck? And what has caused this slowdown? And just that dealers are facing concerns -- these concerns on liquidity funding or generally, the demand is low? So that's it.

So starting -- sorry, you're talking about year-on-year or quarter-on-quarter numbers?

Sir, you said volume growth of 3.6% Y-o-Y, which is single-digit growth in OEM and replacement. This is Y-o-Y, I'm assuming.

Right. So no, this is sequential what I shared with you.

Okay. Okay. So can you give us Y-o-Y numbers also then?

Yes, so Y-o-Y has been quite positive, both in the -- I mean largely in the passenger segment, whereas commercial segment has been flattish. So year-on-year basis, our growth has been at about 2% levels. Truck has been flat. And between passenger and 2-wheeler, we've been at double-digit kind of growth levels.

This is OEM?

No, this is total.

Okay. Any color on the OEMs?

OEM growth has been negative. So truck has got hit quite badly. If you look, minus 25%, 30% in the truck segment. And 2-wheeler has also been negative double digits in OEM, whereas passenger car has been very strong for us in the OEM side. And overall passenger has been strong positive growth between 2-wheeler and PC, UV.

And 2-wheeler Y-o-Y has declined?

That's right. 2-wheeler OEM.

OEM. Okay. And sir, some color on the replacement segment. Can you give us what is the reason for slowdown? I mean, last 2 quarters, we've seen some slowdown. Is it just economic issue or some dealers facing some funding constraint? What are you reading in the market?

Yes, so the replacement segment has been largely flattish. It has not been at a negative territory, flattish, slight positive kind of growth. Even quarter-on-quarter, this time, we've seen positive growth, high single-digit replacement growth. So to that extent, the market is slow versus, say, 10%, 15% growth that we were seeing earlier. There is a clear drop of about 5%, 7%, and that is very visible in overall sentiment that is there. So large part of it is because of funding constraints. But the other couple of reasons was, which we have also shared in the past is because of the efficiencies that have come up as a result of GST and the change in overloading loans, particularly for the commercial segment. So both these have caused a fair amount of excess capacity in the truck segment.

Okay. Okay. And sir, my final question is on the subsidiary. Can you give us some color what is happening on the OHT segment? Your revenue growth is quite good in this quarter, but losses have expanded. So can you just get -- give us some color on subsidiary business?

Yes. Would you like to...

Yes. See, in fact, there has been some growth on the top line quarter-on-quarter, that is quarter 3 versus quarter 2 subsidiary business to the tune of about INR 20 crores or so. And the losses have come down by about INR 5 crores. That's one of the reasons as to why our consolidated EBITDA is better this quarter versus the last quarter. And so top line is about INR 20 crores growth and losses have come down by about INR 5 crores in the quarter 3 versus quarter 2.

We're seeing positive growth here. I think the focus in the off-highway tire business right now is to expand our reach. Usually, we are limited to adding about 100, 120 tires -- types of tires, additional new products per annum. So I think we'll be in a much better position in about 6, 8 months' time with some more further expansion that we are looking at in our range side in off-highway tires.

We have next question from the line of [ Raghunandan ] from Emkay Global.

Just continuing on the volume side. Can you indicate how was the replacement growth Y-o-Y for CV, 2-wheeler, PVs? And also, can you give some color on how the competition intensity is?

Yes. So replacement growth all has been in high single-digit kind of growth numbers on a year-on-year basis. For truck, 2-wheeler and PC, UV relatively similar kind of levels between, say, 7% to 12% kind of range.

Understood, sir. And you think that is a sustainable then going forward?

Yes, I think things would be quite positive because, I mean, if you look, there's also the base effect that would have come into effect from November onwards. Last year's November was the IL&FS crisis started. So till October, things were challenging if you look at year-on-year data. From November onwards, things started to slow down last year. So to that extent, I think that data will certainly show positive in replacement segment. But I'd still say the market is weak. There is no major change that we are seeing that maybe on, say, quarter 3 versus quarter 4, will there be a big shift or quarter 4 versus quarter 1 next year, will there be a big shift? It's still out to be seen. I think on our side, we are investing a fair amount in our PCR capacity with this coming up and that will help in PCR growth particularly. Truck radial also, we have some upside capacity. We have seen a little bit more positive in these 2 categories.

And how are you seeing the competition part?

I think it's a similar kind of situation. This is what I shared with you the challenge with respect to [indiscernible] industry level itself.

And sir, on the commodity prices, there has been some uptick. And I just wanted to understand how do you see the RMB per kg moving for the next quarter? And any pricing action expected?

See, natural rubber prices have moved up in the last couple of months. And -- so the natural rubber was hovering around INR 125 to INR 130 per kg. Now it's in the range of INR 135 to INR 140. And however, the petrochemical derivatives have been some correction, particularly carbon black, synthetic rubber. As far as current quarter is concerned, I think we expect our raw material prices to be in line with quarter 3. However, if natural rubber prices continue to stay at the current level, it may have some impact in the next quarter. So you'll have to wait and watch in terms of how the market unfolds in the next 2 months. As of now, at overall level, it looks stable.

We have next question from the line of Ashutosh Tiwari from Equirus Securities.

Just first question is on the TBR segment, how is your utilization level of the new plant in Halol of 300, 200 tonnes per day?

Yes, we've seen very good growth in TBR considering, especially, we were at a much lower base last year. We are seeing growth of higher than 30%, 40% levels on a year-on-year basis. So we are happy with the growth. But with the capacity that we set up, it's higher. So the utilization levels, there's still a lot of upside. We would be still having comfortably another 20,000, 30,000 tires that we can sell over time as we ramp up. So we've set up about a 40,000 tires, I mean we had about 40,000 tires per day. We are going up to about 120,000 tires per day capacity once this peaks in about a year's time. So there is a fair amount of upside that is there.

So currently, where we are in terms of per month?

Approximately, we would be doing about 75,000 -- 70,000 tires or so per month.

So we have, let's say, the peak will be about 120,000 -- around 120,000?

Yes.

The peak would be around 120,000, 1.2 lakhs?

Yes. That's right.

Okay. And in the TBR -- in the PCR segment, the -- I think we had undertaken a big expansion of 240 tonnes per day. So I mean, initially, will the OEM share be higher over there? Or how we look at it over the next say 6 months to 1 year?

So I think there is a fair amount of upside opportunity on both segments. Even in replacement, today, we are short on capacity. We've also entered a few new OEMs over the past 6, 8 months where the supplies will start from the coming 6 months' time period. So both sides, we should see good growth coming in. Even exports is a good opportunity because Europe is one area where we've been investing in. And there also, there's a fair amount of upside that is there. So we see across-the-board passenger cars opportunity for growth.

Okay. But see, if you look at TBR, obviously, things are shifting a bit slowly, maybe now from TBB to TBR , and we had a void over there to fill because we were not so big in TBR compared to what our market share is in TBB. But when we go to PCR, essentially, I think, it's a crowded market where a number of players having a decent market share. So what would be your strategy to basically increase market share over there, especially the replacement market?

In the replacement PCR market, so it's a mix of kind of everything. So we've just launched our -- we -- not recently, but we launched our 1 lakh kilometer tire about 1 year, 1.5 years ago. That's getting excellent traction in the market. We're also coming out with upgrading our product range. We'll be coming out with a high-end PCR tire for sedans, et cetera, going forward in the next 3, 4 months. So it's some amount of product. With respect to brand, we have always been there with the key cricket properties. So continuous advertising and visibility. And I think the big area of focus will be on distribution. So how can we leverage distribution, increase the number of CEAT shops that we have, increase deeper penetration. Because with shorter capacities -- lower capacity that we've had, we've not been able to go all out in the market with respect to increasing our channel presence. So we can now do that once this plant is commissioned in this coming quarter.

Lastly, question on the PCR inventory...

Sorry to interrupt, would you like to come back in the queue. This is the operator.

Sure.

[Operator Instructions] We have next question from the line of Siddhartha Bera from Nomura Securities.

Sir, my first question is on the TBR plant. So like you indicated, we are already doing around 70,000 tires per month now. If you can indicate how much will be our market share in the replacement side this year, last year? And I mean how much scope? Where are we in terms of -- in the last 1 year, how it has trended?

Yes, market share would be around close to 5%, 6%, 6% or so on the TBR side. We would have been at about 3%, 3.5% about a year ago. So maybe about a couple of percentage points growth, maybe 0.5% here or there. I may be wrong in terms of data. But that's the kind of market share shift that we see. We are at about 60 -- between 60,000 and 70,000 tires, not 70,000, but between 60,000 and 70,000. I'd like to correct that.

Okay. So basically, right now, whatever we are producing, we are selling from the plants, operating at nearly full utilization plant?

So there is upside that is there. So there's -- I mean, even now. So the plant is not fully utilized. It would be maybe at about 80% utilization today.

Okay. And on the 2-wheeler side, sir, how are things progressing? Because competition was slightly aggressive on that part also. So how are the pricing and the utilization levels for our 2-wheeler plant?

Yes, the 2-wheeler plant out of our old facilities, that means our first stage of Nagpur as well as the capacity that we outsource, we are at about 85% to 90% utilization. Now with the new capacity coming in, that's going to be an area where we will need to develop more of the market. This is going to be an area where we also have to wait for the market to turn around. So here, our market share is anyways quite high, close to between 27% to 30% kind of range in market share. We are there with all the OEMs. So it's more about waiting for the market. There, our capacities have come in a little bit at a time when the market is down.

Okay. Got it, sir. So basically, I think our Chennai plant ramp-up, initial plan was to do it in Q3. I think it has got now delayed to Q4. So I mean, should we expect that the full impact of the plant in terms of depreciation or interest rate should come in Q4 onwards?

Yes. We'll be starting to commission it from, say, around middle of February or so. So I think some amount of the interest depreciation will hit us from then.

We have next question from the line of Abhishek Jain from Dolat Capital.

As you said that there was a 3.6% growth on volume front, but revenue grew only 2%. So is there any price cut taken, especially in the 2-wheeler on PC side?

No, largely because of mix. There's been no impact on price.

Okay. And sir, just wanted to know that what is the growth in last 9 months FY '20 in CVs, PCR and 2-wheelers?

So on a YTD basis, so in -- across all categories, right?

Yes.

That YTD basis approximately, volume in commercial, bias has been weak. Bias has been negative whereas truck radial has grown quite well. Overall, we have been flattish in truck segment. We've also been flat on the 2-wheeler side. And passenger vehicle has shown a growth of high single digits.

And what was the decline in the TBR segment -- sorry, TBB segment?

TBB would be kind of somewhere around 15% kind of, between 15% and 20% negative growth.

And how much growth is in the TBR?

TBR would be high. So on a YTD basis, over 30% growth.

30%. So what sort of the growth you're looking from FY '21 in the TBR segment -- TBR and PCR segment?

Well, we hope to sustain the similar kind of growth going forward also.

Okay. So we can expect around 25% to 30% growth in the TBR segment?

We'll be aiming for at least 20% growth in TBR.

Okay. And how much growth was it from the export front in the last 9 months? And what is the outlook going ahead?

Which one?

On export in the last 9 months?

Yes.

Exports has seen a growth -- has also just been at single-digit, low single-digit kind of levels. But now with PCR coming in and also our off-highway tire capacity being there, exports should grow at a better pace, somewhere maybe between 5%, 10% kind of range.

Okay. So what is the current contribution if we talk about the last 9-month export number? Because in the first half, it was around 15%. And last 9 months, what is the contribution in the revenue?

14%.

Yes. We shared this at the end of the second half.

Okay. Sir, as the company is ramping on the production, the PCR and the TBR segment, while other players are also quite aggressive like the few -- Indian players are also adding capacity and other foreign players like Yokohama and Continental Michelin are also quite aggressive. So what sort of the pricing pressure you're looking in the PCR and to -- PCR segment?

No, we don't see any pricing pressure at this point of time. I think margins are not at abnormally high levels or anything. I also feel that in terms of our position in the market, we feel very confident because our brand equity is very strong. So there is no pressure at this point of time. And with -- as we launch new sizes and prices which are better than competitors in the market, I think we can keep our pricing strong as well.

So is there any price rise because of that...

Sorry to interrupt. You'll have to come back in the queue.

Okay.

We have a next question from the line of Bharat Gianani from Sharekhan.

I just wanted to touch base on the CapEx front. So what would be your overall guidance as the -- as you earlier pointed out that for stand-alone CapEx, we are looking at about INR 800 crores to INR 1,000 crores for FY '21. So I guess, this is slightly lower than what we are guiding earlier. And so what would be your revised guidance including the OHT business, specialty business? If you can throw some light on that FY '21?

FY '21, we'll be looking at about INR 1,000 crores CapEx or so.

Yes. INR 800 crores.

INR 800 crores to INR 1,000 crores. And overall, out of INR 3,500 crores that we had earlier said, we will be bringing this down to about INR 3,000 crores CapEx at a overall...

Okay. So that would be from over the next 3 years, right?

Yes.

We have a next question from the line of Ronak Sarda from Systematix.

Anant, couple of questions. First, I mean, on the gross margin expansion sequentially. Would you be able to help us understand what's the contribution from mix change and the commodity price movement?

Yes. Mix effect is from commodity price drop, maybe about 0.5 percentage point from net realization because of mix change. And the balance is all relating to raw materials.

Okay. And I mean, the assumption is OEMs see some recovery given how the base fares and if economy does well. So should we see some negative impact on the gross margin if OEMs recover? Or the other way around to look is sales capacities are ramping up, there would be some operating leverage benefit?

I think overall gross margins should be relatively intact right now. I think as we grow in the passenger car segment and in that area, there can be some adverse impacts with increased OEM share. But on an overall basis, there shouldn't be much impact on gross margin.

So I mean, assuming CVs recover from here given how they have declined in the OE space, that won't have a major impact on our gross margin?

No, should not. In my view, it should be overall at a similar kind of level. If you look OE as a percentage of sale for CEAT has not even gone down too much during this downturn, maybe marginally here and there. So overall, I think we should be quite okay.

We have next question from the line of [ Amyn Pirani ] from YES BANK.

My question was on the TBB. So you mentioned a significant decline in volumes. So while I understand the truck segment is going through some pain. But since TBB is almost -- like a significant part of it is replacement, are you saying that the replacement has been so weak? Or you have -- because you've been cutting capacity, lost some market share there. So what's happening on the TBB side?

No. The weaker segment has been the OEM segment here for us in truck bias. Even exports has been weak. I'd say, in fact, replacement has been out of the 3 segments shown the lowest negative growth. So far also this is because as we ramp up our TBR, say, for example, in the replacement segment, it is sometimes difficult for the channel to grow to the full extent of TBR. So they try and convert those customers from PC, UV to TBR to a certain extent, but most of it has come because of slow growth in OEM.

Okay, okay, okay. Understood, understood. But overall, on the truck replacement side, obviously, you have grown almost flattish, but that is mostly because of OEM. So in the truck replacement side, given your high single-digit growth, would you say that you have gained market share on an overall basis? Or is the market also growing at that rate? Overall truck?

So I think on the truck, 1 minute, I'll just see if I have the data. I think, overall, our market share would be quite intact. I think in the truck radial side, we would have gained by about 2 percentage. On the truck bias, it has been relatively flattish. It would have maybe gone down by 0.5 percentage point or stayed flat, I think, over the last 1 year in my view. Yes, this is a [ recently seen ] market share.

Okay, okay. Even despite the economic slowdown, the truck replacement has remained relatively okay-ish. So what are the -- what is the -- I mean, is there any signs that you're getting from the dealer side or from the customer side, like in the coming quarters, do you think this could continue? Or we could see a delayed impact of the economic slowdown on this category?

What would continue the slowdown?

No. So basically, given despite the slowdown in GDP and IIP, the truck replacement has continued to be quite resilient.

Right.

Do you expect this trend to continue? Or you feel that this could moderate going forward?

No. In my view, I don't think it will really moderate much now. The adverse impact has all been largely felt. So I don't think things will get worse than it is. It will take time for things to get better, but I don't see things getting worse than they are now.

We have next question from the line of Jinesh Gandhi from Motilal Oswal.

My question pertains to the CapEx part. So you indicated that the total project CapEx is now going to be close to about INR 3,000 crore, right?

So you said that last quarter, INR 500 crores, we won't spend in the next 2 years' time. That is what Anant mentioned.

Okay. So INR 500 crores would not be in the next 2 years. Okay. And the second part, second question pertains to -- hello?

Yes, go ahead.

Yes. The second question pertains to the RM basket. So can you indicate about the cost for average rubber and all those things for you?

On the raw material side, we'll not be able to share our actual cost, but I can share with you that on an overall basis, as I shared, raw material has come down by about 1 percentage to -- 1 to 2 percentage points in the last -- from quarter 2 to quarter 3. And that's been led by largely lower pricing in natural rubber and carbon black.

Okay. You used to share average RM cost. So last quarter, you indicated INR 123.7 per kg. You will not be able to share that?

We will not say that.

We have next question from the line of Kashyap Jhaveri from Emkay Investment Managers.

Congratulations sir on a good set of performance. 1 question on your CapEx guidance, which you revised to INR 3,000 crores versus INR 3,500 crores earlier. So I just wanted to understand this INR 500 crore reduction, so would you -- would we be cutting down on capacity? Or what exactly is driving this reduction?

No. So yes, we have the option of delaying some of our capacities. So that's how we are largely looking at planning this. So we had that flexibility to either take a call at a later point. So that's a call depending on how the market picks up, we will take a call on the last INR 500 crores later.

See, our original plan was to finish that INR 3,500 crores for the stand-alone entity by FY '22, okay? So based on our current estimate, we expect that to be around INR 3,000 crores instead of INR 3,500 crores.

Okay. And as of date, out of this INR 3,000 crores, how much have you already spent as of on the M9 of this year?

Yes, till date, cumulatively, we've spent about INR 1,900 crores, stand-alone. It doesn't include some INR 500 crores that we plan to spend for specialty where we have spent a small amount of money. So out of INR 3,500 crores, INR 1,900 crores has been spent.

Okay, okay, okay. And just 1 question on this. One of our co-promoter exiting the stake, there have been bulk deals reported. But if I look at -- I'm not too sure whether you can probably reply to this, but I can't find much on the new person who has entered in, and he will be holding, they will be holding roughly about -- they will be fourth largest shareholder of the company. So can you throw some light on that?

No, we don't have any information on this data.

We have a next question from the line of Ashutosh Tiwari from Equirus Securities.

Sir, what is the CWIP number stand-alone as of December?

Which one?

CWIP.

Capital work in progress?

Okay. I'll -- shall I take that question -- any other questions?

Also, you shared that in the [indiscernible] there was some INR 5 crore one-off in the quarter, is that correct?

That's right. Some OpEx.

Yes. Okay. And lastly, on this 2-wheeler OEMs side because 2-wheelers are seeing a big increase with BS VI, are we feeling some extra pressure from the OEM for the price cut or cost cut over there? Or is it normal that you mentioned that we have?

No, no. That thing with OEM are at similar -- same levels. There's no change. There are links to formula-based [ accounting ], or mostly linked to formula-based [ accounting ], so that's how we are continuing.

Okay, okay, that's from my side. CWIP, you can share...

CWIP, approximately about INR 1,400 crores is our capital work in progress, okay? And as we are commissioning our Chennai plant and Nagpur plant, some of them would get capitalized.

We have next question from the line of Chirag Shah from Edelweiss.

Just 2 questions. One is slightly on the 2-wheeler demand side. The -- earlier, there were a lot of talk about Maxxis coming in and they're trying to be very aggressive in the system and Apollo was also being a new entrant. Can you show some -- can you shed light on that? How are you finding the industry balance given that they have spent reasonable time now? Because there were a lot of questions raised on profitability of the industry as such.

Right. So with respect to profitability of the industry, there was some price correction that was taken about, if I recollect, in May of 2017 or '18, after which the profitability of the industry did go down. But since then, I think there has been no adverse price -- pricing action that has been taken or an overall change in profitability. We continue to maintain our market share. But yes, there are new players that have come in and they do have a small share in the business at this point of time. As you said, I believe some of them have also entered some of the OEMs, and certainly, there will be new players in the market who we have to compete against. I won't be able to comment much on how they are doing, et cetera.

Yes. And just a small clarification on this one-time OpEx that you have indicated. Is it more of a maintenance kind of an OpEx that we have done for a particular plant? Or how should we look at this one-off number?

No, I think this was just some kind of R&D and some consulting expenditures that were there, which will not get repeated going forward. Some test tires and things like that.

And if I can ask just 1 last clarification on the effective tax rate. So we have still not moved to the new regime. So is it right to assume that we would stay in old regime and kind of the merger of the OHT plant will happen, and hence, that it's getting delayed? So we'll be the old regime of taxation for this year as well as next year, would be the right way of looking at it?

No, see, it has nothing to do with the merger of the specialty entity. It's more to do with what happens to your accumulated balance of MAT credit. And so I think that would be 1 of the factors that would determine whether to move to a new rate of tax or old rate of tax. So in the event you move to a new rate of tax, it appears that MAT credit something would not be available going forward. So I think that's where I think we are seeking -- we are trying to understand the impact.

Okay. So -- but I presume MAT credit would get consumed in a year's time or 2 years' time. That's the max the time frame that you are looking at?

No, it is not clear to us. MAT credit because of large amount of capitalization that we will be doing this year than last year...

Yes. Yes.

So the -- not sure whether MAT credit will get fully utilized or it'll increase. So we're still trying to understand the impact of it.

We have next question from the line of Priya Ranjan from Antique Stockbroking.

Anant, just 1 thing on the speciality segment. I mean, what kind of run rate we are doing in terms of the production? And what's the overall plan for the -- I mean, say, next year? How we are looking at in terms of volume?

Yes. So the specialty radial segment, which is where we have done the investment and it's growing quite well on a year-on-year basis. Where we are seeing challenges is on the domestic OEM side. So here, with the mining segment and all of those segments getting hit, we are seeing a challenge as well as the domestic farm segment is weak at this point of time. So while the international business is relatively okay because anyway, the base effect was low, domestic, there are fair amount of challenges with respect to headwinds at this point.

And any color in terms of kind of volume we are doing as of now and utilization level and et cetera?

Yes, utilization levels are at about 50% level so -- at this point of time of our new facility.

Okay. And when do you see -- I mean, at what utilization level it can turn profitable? Any idea, any color on that?

Actually, I would say at about 75% to 80% utilization level that we need to go up there. So that's another about -- yes, say, it's another 40%, 50% growth. And I hope that we will reach there, since it's a small capacity, in about 6 months' time or so.

And just what was the onetime OpEx? I mean, the quantum of onetime OpEx, I just missed it.

No, I think, he just now clarified, Anant. It's more about -- there are certain expenses, which are incurred in a particular quarter. We had incurred some more expenses on tire -- test tire purchases, largely relating to R&D and some small amount of consulting expenses. So at the overall full year level, there's no major issue. But sometimes, these expenses are incurred in a particular quarter. I think that is what Anant called out.

Okay. So it's actually basically not one time, it's more of a -- which quarter you are actually...

But the impact of it has come in quarter 3. It has not distributed throughout there.

Okay. And that total, I mean, consol level, what is the debt situation as of now?

As of 31st of December, it's about INR 1,880 crores.

INR 1,880 crores.

Okay.

It's moved up by about a little over INR 40 crores in quarter 3.

We have the next question from the line of Mayur Milak from IndiaNivesh.

So just, correct me if I'm wrong on this. So you initially said that on the volume side, we've seen a 20% decline into the OE sales on the truck bus. And in the replacement, we are seeing a double-digit growth, but that would not be in excess of 20%. I believe -- I'm just trying to reconcile that we've seen a positive volume growth, but if the decline in OE is that sharp, even if I assume the share of business would be higher in replacement, the mathematics really does not come through?

You're talking about year-on-year growth level?

I guess. You mentioned a 3.5% volume growth for this quarter, right, Y-o-Y growth?

For truck segment?

Overall. If you could just give me -- help me with the breakup of what is the OE growth and what is the replacement growth segment-wise. Maybe 3 segments, CV, PV and 2-wheelers.

So overall, year-on-year growth has been in volume terms at about 2% levels. And while OE has been at single-digit -- negative high single-digit about 8% kind of negative growth, replacement export has been at about 8% to 10% -- 8% or so positive growth. Overall, across all categories.

Okay, okay. And in the 2-wheeler space, I believe we would have a 50-50 share between OE and replacement?

About 60% replacement and 40% OE.

40% OE and 60% all.

Yes, all.

Let me just get through this, and if there is a trouble, I'll come back to you.

Sure.

We have a next question from the line of Jaimin Desai from ICICIdirect.

So just wanted to check some media article suggest that government is thinking about increasing the basic customs duty on tire imports. So have we, as industry, makes a presentation, if it were to come to, how it's going to benefit us?

Yes. So I'm not aware about the change in custom duty on -- I think this -- there could be an anti-dumping duty that can be -- I know that there is a surge -- substantial surge in increase of tire imports from Thailand. So that is an area where we have petitions into the government to look at whether there is a -- to explore whether we believe there is injury happening to the industry there. And they're evaluating where there is a case for duty for tires coming into the country from Thailand. I think that's the only one that I'm aware of.

Okay. And sir, just on a basic concept of [indiscernible]. So in case these increasing custom duty, so it will be respective of that type of tire, right? It could be PCR and TBR. Because right now, the -- all the potential material is just for the TBR category?

I think custom duty may be -- if I recollect, will be -- maybe across all tires, but antidumping duty is for a particular category of tires.

Right, right. So as an industry, you haven't made any presentation for increasing customs or you're not aware of it?

I don't think so. No, not across all categories.

Okay.

But the government increased their customs duty on passenger car last year in the budget. But otherwise, there has not been any change in the recent year.

Second, sir, in your presentation, you mentioned that we have been recent entrants in the Royal Enfield Classic 350 BS VI variants as well as Honda Activa. So were we present in the base variant as well, BS IV or these are fresh entrants?

No, no. We were there in them and BS IV as well.

In the base variants as well?

Yes, yes.

And sir, for MG Hector and Kia, what will be an engagement as of now?

Yes. So we have entry into MG Hector, not the current launch that is there, but in their future launches, we are there in 1 or 2 areas. With Kia, also, the future launches that they will be having somewhere in the middle of this year by, I think, expected in May, June. We'll be there with a few of the models there as well.

Okay. And sir, so just a last thing. There has been interesting talk about silica replacing carbon black as a raw material for tire manufacturing. Any color or any view of your sort on the same will help.

Yes, this is a continuous endeavor that has been happening over many years' time actually. So there's always a desire to move towards more and more silica because it is more environmentally friendly as a raw material. It also helps the -- improve rolling resistance of tires. And as you move to high-performance tires, passenger car segment tires, all these areas require more silica. So that is a shift that has been happening for some time. There's not going to be any kind of a step change on this. But every year, we try and shift by a few percentage points. There are particular challenges towards fully replacing. It cannot replace 100% carbon black. But as much as possible, we try and replace it.

So what will be the blended percentage that we are blending silica as a raw material?

I think it really depends on each mix also. So your passenger car will be much higher. Your truck will be lower. I won't have the details right here in terms of this. Yes.

We have next question from the line of Lokesh Manik from Vallum Capital.

My question was regarding the OHT segment. If you can just give us a feedback in terms of how you are seeing the segment develop? And can this be a potential growth driver going forward, say, in the next 5 years? Or would our strategy be to focus on consumer side, that is your PCR and your 2-wheeler segment given that we've done a lot of brand expansions there?

Yes. We are quite optimistic about the OHT segment. So we've set up this small capacity at this point of time. Because it was a new product for us, completely new technology, new market, so the risks were high. So we said, we'll -- let's set up a small capacity, let's get a good product out. And once the feedback is positive, we'll look at further expansions. Where we stand at this point of time is that our utilization level is at about 50%. Feedback on the product has been very good. The key now is to increase our range and increase our channel presence in, particularly, U.S. and Europe. And that's where we are. I think once we reach a capacity utilization of about 75% to 80%, we will look at further expansion of our tires -- of our factory. So this will be a good growth engine for us. It's a high-margin segment once you reach a certain scale. And India has established a strong brand equity in these countries as well for producing good quality tires.

Right, right. Any particular focus on either farm or off-highway, I mean, you're mining?

No, by off-highway, I'm talking about 100% is right now farm radial tires.

Farm radial. All would be radial on both the sides, specialty and farm?

No, by specialty, I'm talking -- by off-highway tires right now, I'm talking only about farm radial.

Okay.

Bias. There is also some amount of bias that goes in out there. This has been going in from our old Bhandup plant anyways. If I'm talking farm radials, this is from our new plant. There is also some amount of mining and sports tires that we have always been doing. So there's no new capacity that's coming in that front. Those are biased tires.

And our focus would be exports or domestic or both?

Exports. 100% exports.

We've next question from the line of Dhagash Shah from CD EquiSearch.

So my question was that what is the current capacity utilization for passenger vehicles?

Near 100% because we don't have enough capacity right now. So for example, we are supposed to be -- we are not able to produce fully with whatever we wanted. We are debottlenecking our plants. We've made good progress out there as well. But today, whatever we produce, we are selling.

All right. So what do you think, sir, with the Chennai plant coming in, what would be the utilization levels then?

So this will be -- Chennai will be expanding over 2 years' time. So I think in the first say, 4 to 6 months, we will still be fully utilized because there are various OEM entries. There's enough space in the market to grow, et cetera. But certainly, we set up a large capacity. So I think maybe once we cross a certain threshold, utilization levels will come down, and that I expect to happen maybe in 6 to 8 months' time.

All right. And sir, you mentioned previously about the replacement markets, but if you could give some more color on what are the current trends that are going on there.

Current trends, I think the key is to switch over to BS VI overall. That's causing some amount of uncertainty at this point of time as to when it's -- when people should buy their vehicle and should they wait until April, should they look at buying now, et cetera. So this uncertainty is happening even on the OEM side. They're all switching over until April 1st. After that, of course, there will be an inflation of pricing that will happen. So we expect the market to be weak all the way until at least August because anyway, as monsoon months are weak months for sales. And then let's wait and see. Hopefully, the festive season will pick up. But that also depends on other macroeconomic factors such as liquidity, GDP growth rates, consumption picking up and so on and so forth. So there has to be some action, whether it is in the budget or whether it is overall pick up in investment. Some of these things, we have to wait and watch.

Ladies and gentlemen, that was the last question. I'd now like to hand the conference over to the management for closing comments. Sir, over to you.

So thank you, everyone, for your interest in CEAT. Thank you for your time, and look forward to catching up with you all once again same time next quarter.

Thank you very much, sir. Ladies and gentlemen, on behalf of Edelweiss Securities, that concludes this conference call. Thank you for joining with us, and you may now disconnect your lines.