RPG Group company CEAT has outlined a capital expenditure of INR 1,000 crore for the current fiscal even as it sees margin pressure continuing for another quarter due to consistent increase in the price of natural rubber, said managing director Arnab Banerjee.
India imports almost half of its requirement of natural rubber, the price of which is escalating due to an increase in freight rates.
“To offset the additional costs, we have already increased prices in the range of 1.5-2.5% in the replacement and international markets this month, and plan to take further hikes as another 5-6% escalation in natural rubber prices is imminent,” Banerjee told ET. The price hike in the domestic and international markets will be a staggered one and not taken in one shot, he said.
The steep increase in raw material costs dented the company’s margins in the June quarter by 300 basis points. Despite the price hike – which will reflect with a lag, in the September quarter for both the segments – replacement and for the tyres sold to the automakers, margins will be under pressure in the second quarter, too, he said.
Under the company’s capex plan, Banerjee said INR 250 crore will be spent on R&D, factories, moulds, IT, digital and efficiency improvements, while the remaining will go into increasing output of truck and bus radial tyres and adding downstream capacity for passenger car radials at the Chennai facility.
Some of it would also be deployed for enhancing output of specialty tyres at the Ambernath, Maharashtra, factory and some for de-bottlenecking at Halol, Gujarat. Natural rubber constitutes almost a third of tyre makers’ raw material basket in value terms.
