Expect CV segment to do well in H2 of current fiscal: Subba Rao Amarthaluru, Ceat

In an interview with ET Now, Subba Rao Amarthaluru, CFO, Ceat Ltd, shares his business outlook. Excerpts:

ET Now: Your company has recently indicated the plan to sell 25% in speciality tyre business to raise about Rs 200 crore. Tell us which PE player is the deal happening with and who all are you in talks with right now?

Subba Rao Amarthaluru: There is purely speculative information as of now in the market. I would not be able to respond to this kind of speculative information.

ET Now: But are you completely denying that?

Subba Rao Amarthaluru: All I am saying is, I do not have any comments to offer on this. It is speculative information. Neither do I deny nor confirm.

ET Now: I believe you had indicated about the plans to sell that 25% stake. Is that true that the company had indicated it at least?

Subba Rao Amarthaluru: We never indicated.

ET Now: Let us talk about something that you were privy too. I believe you were at Madison Square garden. The response I am sure was very good. What augurs for Indian businesses as a result of the kind of policy initiatives that the PM is taking?

Subba Rao Amarthaluru: It takes time. The Prime Minister cannot make wonders overnight. Any kind of revival of the economy is going to take time. My view is that it is only in the next financial year that we will see the revival of the economy.

Some seeds would be sown during the process. Say, for the auto industry, for our tyre industry. I am not talking about the general manufacturing industry where there is a lot of buzz. There are lots of issues to resolve for the manufacturing industry to take deeper routes in this country.

Coming to the auto industry and ancillary industry, things are shaping better. The second half of the current financial year should be much better. The hope for commercial vehicle segment is also shaping much better. Things are looking better, the demand is just reviving for the commercial vehicles.

In the passenger vehicles, the revival has already happened and there is a significant OEM demand coming up for the tyres for passenger vehicles. In the second half of the current year, you will expect a significant revival for the commercial vehicle segment.

ET Now: What is the scope of margin expansions for CEAT right now given that demand and business environment per se are beginning to now look up?

Subba Rao Amarthaluru: The margin expansion depends on various factors. Raw material prices, both crude prices as well as rubber prices, are soft. They are likely to be softer in the coming months, but there are several other things that we need to consider -- the demand, the pricing action by the industry, various other factors we need to take into consideration, which I cannot make a guess today what would be the competitive forces that would work towards on various things.

Without knowing all these things, it would be very hazardous to give a guess on the margin expansion, but margins will be better. They are likely to be better in the current year than the earlier year.

ET Now: Your earlier answer indicated that while you cannot comment on margins, you did mention that volumes are likely to pick up over the course of the next six months, with the CV cycle revival looking like a possibility, which means that you are in a sweet spot as a company, volumes will grow, lower commodity prices would mean that margins should expand irrespective of the quantum that you cannot quantify right now. Am I to assume that the second half will be much better than the first half?

Subba Rao Amarthaluru: Yes, most likely. Unless something unexpected happens, the margins are likely to be better than the first half of the year.

ET Now: Is there a vision that you have about how much better can it be? I am not asking for a ballpark number, but a broad range of about what H2 can do over H1?

Subba Rao Amarthaluru: You are coming from different directions, but I am tied that I cannot answer those questions. If I give what kind of margins are going to be, it is forward looking information. Personally it becomes very hazardous to make a guess because we do not know various other forces.

Raw material is one thing that we can forecast, but you cannot forecast the price, how the competitive forces would behave in a marketplace and how other factors would behave. So without knowing all these factors, it becomes extremely difficult for anyone, not just for me, to forecast a margin in terms of quantum.

ET Now: Just on an incremental basis, how much do you expect that is going to come in from new markets business per se? How much improvement do you foresee in existing markets and how do you expect your exports to pan out if you could just give us a broad direction or what one can expect?

Subba Rao Amarthaluru: Yes, we are a little bit struggling in the export markets this year because of the very adverse and intense Chinese competition. Chinese products are available at much lower prices than they were available last year.

So, they are posing an intense competition in overseas markets. The margins have dropped a little bit in export markets, but there are countervailing forces. The raw material prices are a little softer as compared to last year. So the domestic demand is likely to look up.

With all these factors, there would be a little setback in the export markets, but the domestic market is likely to play better. The raw material prices are also helping. Overall, the profitability scenario and the margin scenario are expected to be better, but I cannot say which markets are going to contribute better. All that I can say is that the exports markets are disappointing as of now.