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Informist, Wednesday, Sept. 9, 2026

By Anand JC

MUMBAI – Automotive tyre manufacturer CEAT Ltd. expects its gross margin to return to the desired level of around 40% only at the end of the March quarter or later as prices of natural rubber and crude oil have risen sharply over the past few weeks, the company's Chief Financial Officer Kumar Subbiah told Informist in an interview. "When we were planning our price increase at the start of Q2 (Jul-Sept), we thought commodity prices would normalise by Q3 (Oct-Dec)," Subbiah said. Prices of crude have since inched up over $95 per barrel while rubber prices have hit a 20-year high.

CEAT had initially pencilled in a cost inflation of 8% for the December quarter followed by potential easing of commodity prices in the March quarter. Yet, the stalemate in the war in West Asia means commodity costs have not eased. "We were expecting some softening in natural rubber prices. International rubber prices have shot up by about $200 in the last three weeks," Subbiah said. CEAT's gross margin had moderated sharply to around 33.9% in the June quarter from 39.7% a quarter ago due to "unfavourable" raw material costs and depreciation of the rupee against the dollar.

CEAT implemented multiple price hikes across its three segments--replacement market, direct supplies to original equipment manufacturers, and international operations. So far in the September quarter, it has raised prices of tyres sold directly to automakers by 10-11% and to the replacement segment by 1.5-1.8%, and is planning to hike prices of products sold overseas by 3%. In the June quarter, it had hiked prices by 5.5% in the replacement segment, 3% in the original equipment manufacturer segment, and 5% for international orders.

"We are not able to pass on the full incidence of raw material costs within a short period of time, it takes 3-6 months whenever the raw material cost increase is significant," Subbiah said. CEAT is currently only trying to recover the increase in raw material costs in rupee-per-kilogram terms. The company is raising tyre prices just enough to cover the exact additional cash amount it spends to buy raw materials, which is expected to affect margins over the next few quarters.

"The kind of price increase that we have taken in the last five months, I don't think we have taken this quantum any time in the last 10-15 years. So, therefore, it is difficult to add another 40% to it to get to the cost margin of 40%," Subbiah said.

The war in West Asia has affected shipments of goods by sending freight rates and transit times soaring. In North America and Latin America, freight rates zoomed 2-3 times in July. "We have been facing shipping issues from March... even if you don't have one material out of 100 materials, you cannot produce," Subbiah said. Pre-empting the demand, the company at the end of the financial year 2025-26 (Apr-Mar) had decided to cover its inventory till the end of May. "We did face some challenges, because the transit time went up for movement from Southeast Asia to India. The complete movement from the Middle East (West Asia) to India got paralysed at that point in time," he said.

CEAT earns a little more than half its revenues from the replacement market with supplies to automakers accounting for roughly 30% and exports for the rest. Within these segments, the company makes tyres for trucks and buses, two- and three-wheelers, passenger cars and utility vehicles, off-highway tyres, and for other smaller transport trucks and speciality vehicles.

CAPEX, DEBT

CEAT is on track to spend INR 13 billion-INR 14 billion in FY27 as planned. Yet, the company will invest only in select segments as demand isn't high in all segments, Subbiah said. "We aren't investing in bias (cross-ply) capacity on commercial truck and bus. These are the ones where we are not expanding capacities because there is a shift happening from truck and bus bias tyres to truck and bus radial tyres," he said.

CEAT is in the midst of expanding its plant in Nagpur in Maharashtra, which was first announced roughly a year ago. Here, it makes 80,000 tyres a day and plans to increase this capacity to 100,000 tyres by the June quarter of FY28. The company is also expanding its passenger car tyre facility with plans to reach a capacity of 30,000 tyres a day by the March quarter and 40,000 a day in FY28.

In July, the company's board had approved a plan to increase capacity by 53,000 tyres per day from 80,000 tyres per day currently for the two-wheeler tyre segment by FY31 at a cost of INR 12.05 billion. The company plans to fund its capital expenditure plans through a mix of internal funds and debt. CEAT will expand the capacity in two phases but is yet to finalise the location.

"We would have preferred to put up a plant in Nagpur but we couldn't because land is a constraint. We want to get a location near the markets in terms of ability to serve other locations," Subbiah said, adding that the company's preference is a brownfield expansion.

Higher costs, a dividend payout of INR 1.40 billion, and employee bonuses have affected earnings so far and could lead to leverage inching up in the September quarter. "In Q1, Q2, and Q3 you might see some increase in debt levels. We are not generating the kind of cash required from capex point of view," Subbiah said. CEAT's debt has increased to around INR 32 billion from INR 20 billion last year following its acquisition of Camso's off-highway construction equipment bias tyre and rubber track business from global tyre leader Michelin.

Subbiah expects CEAT's debt-to-equity to be less than 0.7 times. However, the company's debt-to-EBITDA, which Subbiah said is a better metric to track the current situation, could rise close to 2 times going forward from 1.7 times right now. Subbiah expects debt-to-EBITDA to remain under 2 times and come down to 1.5 times once the margin returns to preferred levels. "Three years back, we used to say that we don't want to cross 3 times. So we have moved and we look forward to a better quarter, second half (of FY27)," Subbiah said.

SEGMENTS

The Mumbai-based company is facing resistance from buyers of truck and bus radial tyres to price hikes, given that these consumers tend to be cost-conscious. Tyres form roughly 30% of the operating cost of trucks, next only to fuel. "Resistance from them could mean a temporary blip in demand, pre-buying stocks before price increase, buying tyres from other sources who have not yet taken a price increase, or whose price increase effective date is a week later," Subbiah said. The September quarter tends to be a touch weaker than the June quarter for truck and bus radial tyre demand. Subbiah said this resistance is only temporary.

The company has seen the highest volume growth in the two-wheeler tyre market, followed by passenger car tyres, and truck and bus radial tyres. "We have seen pricing growth across categories in the last 4-5 months because raw material prices have gone up everywhere," he said.

CEAT examines "price benefit" across tyre segments by calculating their capital investment per tonne of tyres or asset turnover ratio, overall return on capital employed, and structural gross margins. "Two-wheeler (tyres) come higher in order of ROCE (return on capital employed) and capital investment per tonne," Subbiah said. CEAT is primarily focusing on passenger car tyres because they have a better margin, yet they call for a lot of marketing expenditure.

FOCUS AREAS

The tyre-maker does not want to be a market leader in the truck and bus radial segment, Subbiah said. "We had a market share of 4-5% (in the truck and bus radial tyres) three years back, we are in double digits now, closer to 10%," he said. CEAT is "okay" if its share goes up to 12-14%.

CEAT wants to move up the ladder in the passenger car tyre segment. "I think we could be among top three based on the number of tyres (sold). We have to move up among top two types in passenger car (tyres)," Subbiah said. The company has already chalked out a plan to gain this share, and that is by focusing on tyres for premium cars.

Five years ago, the company was a preferred option only in entry-level cars, which typically had 12- or 13-inch tyres. Back then, premium tyres meant 14 inch and above. "In the last 5-7 years, we have made very good progress in terms of getting our tyres approved by original equipment manufacturers," Subbiah said. Multiple awards, certifications, and upgradation of factory helped. "For example, if Maruti (Suzuki) were to float an RFQ (request for proposal),  out of 10, we would be present at least in eight today," he said.

The company plans to focus on supplying tyres for premium cars as a margin-boosting lever by directly supplying to carmakers. CEAT is working towards getting at least half of its fresh orders from carmakers for these premium tyres. Currently, premium tyres comprise 15% of the passenger car tyre market.

In the two-wheeler tyre market, CEAT is second only to Chennai-based MRF Ltd. "Two-wheeler is one area where capacity utilisation is high," Subbiah said, adding that it remains the most important category purely from the standpoint of market position.

For the June quarter, CEAT had reported a net profit of INR 980 million on revenue of INR 41.63 billion. At 1036 IST, its shares traded at INR 3,298.60 on the National Stock Exchange, down 0.4% from Tuesday.  End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Rajeev Pai

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