Forbes India
The Strait of Hormuz has been effectively closed for nearly two months now, tightening supply chains across sectors. Arnab Banerjee, managing director and chief executive officer of CEAT, sees demand softening as the conflict drags on, though that isn’t the company’s most pressing concern.The Mumbai-based tyre maker is offsetting lost demand from the Iran conflict by redirecting shipments to other markets such as Europe, the US and Latin America. “Our number one priority is that there should be no disruption to production,” Banerjee tells Forbes India. CEAT’s factories are currently running at a 90 percent capacity utilisation.The RPG Group company, which expects a 10 percent increase in raw material prices through April and May, has secured raw material supply till May. Beyond that, it is watching and waiting. If the West Asia war ends and supply chains normalise, the company does not want to be in a position where it’s holding expensive inventory. Decisions on covering June inventory will be made closer to the date. “The situation is very dynamic,” says Banerjee.To offset the shock, the company has announced a 2-3 percent price increase, effective March. Whether the remainder can be passed through also depends, in part, on what competitors do. “We will need to hike prices by about 5-6 percent more to cover that 10 percent hike in raw material. We will take that call soon,” he adds. These hikes are in the tyres sold in the aftermarket. CEAT earns 51 percent of its revenue from aftermarket sales, and 30 percent from sales to carmakers; 19 percent comes from exports.On the company’s sales to carmakers, Banerjee says: “Since original equipment tyre prices are indexed, certain quantum increase has happened on April 1. Further increases are expected through the quarter and into the second quarter.With the price increases and ongoing war uncertainty, Banerjee expects demand to shrink. “Before the war we were in a good place, expecting to enter Q1 on a very positive note. But now with price increases, it’s a wait-and-wait because trade would not like to stock up. We expect some moderation in Q1, keeping seasonality in the mind,” he says. CEAT reported revenue of over Rs15,000 crore in FY26, an increase of over 18 percent year-on-year (y-o-y). Net profit rose over 47 percent to Rs 697 crore.Tyres are a discretionary replacement purchase for most passenger vehicle owners and prone to be affected in times of uncertainty. The good thing, according to Banerjee, is the fundamentals have not changed and consumer sentiment remains upbeat, as of now. Passenger vehicle wholesales rose 27 percent y-o-y in April, shows industry data.Force majeureOne lever that CEAT has not yet pulled is force majeure on its existing international order book, thus declaring its inability to supply tyres. It will also allow the tyre-maker to reprice orders placed at pre-war rates. The company has applied freight surcharges on new orders and is passing on rate increases on fresh business, but existing shipments continue to move at old prices. “It may lead to some order cancellations. So we have not done it yet,” Banerjee says. “Currently we are reviewing our raw material visibility on a monthly basis to ensure we stick to our promised delivery timelines.” Notably, CEAT did not invoke force majeure during the Covid-19 pandemic either, when shipments stopped and orders dried up, rather than prices spiking.Exports account for 19 percent of CEAT’s revenue. The most immediate impact of the war is a complete halt in shipments to West Asia, which represents about 20 percent of the export turnover. “Sales to West Asia are zero at the moment. No shipments are going there. But there is no impact on the order book, as we have increased shipments to Europe, the US and Latin America. So as of now, visibility is good. And all of this is coming at no extra cost because we’re passing on every increase,” says Banerjee. However, this substitution cannot be maintained indefinitely if the conflict extends. “We’re just, in a way, preponing turnover. So, the war must end or there will be some impact.”Also Read: From production to disposal, and innovation, the lifecycle of a tyre needs a rethinkPremiumisation trendBeyond the near-term volatility, CEAT is upbeat on the rising aspiration of Indians, which is being reflected in bigger cars and long-distance driving. The fastest-growing segment in passenger tyres is rim sizes of 17-inch and above, which are meant for all categories of passenger vehicles. The two-wheeler segment is seeing a surge in cruiser bikes and adventure touring, categories that demand radial, premium rubber. Tyre sales via omnichannel have reached close to 10 percent in some months for passenger vehicles, against a global benchmark of 15 to 20 percent.To ride this wave, CEAT has launched several India-firsts: Run-flat tyres, high-speed (ZR-rated) variants, and a proprietary “calm tyre” with seamless ply technology and a foam insert that dramatically reduces cabin noise. “The Delhi market phenomenon is: If you place two products at Rs 20,000 and Rs 18,000, most people will pick the higher-priced one. They attribute quality to price. That premiumisation is very much there,” says Banerjee.With electric scooters now representing approximately 6.5 percent of two-wheeler sales in India, and electric cars at roughly 4 percent, CEAT has been building EV-specific tyre capability, which they already sell. The tyre requirements for EVs are different as batteries make them heavier than ICE vehicles. This weight, combined with torque, increases tyre wear and reduces life. The powertrain is silent, which means tyres need to be make less noise as well, and range anxiety means customers closely scrutinise rolling resistance (low rolling resistance helps increase range).Banerjee says CEAT has cracked the tyre-life problem gradually and is now working towards a single-tyre architecture that works equally well on both ICE and EV platforms, eliminating the need for separate product lines. It also simplifies dealer inventory and avoids the 10 percent production capacity loss that currently comes from longer curing cycles for dedicated EV tyres. “Margins are similar to ICE tyres, but the customer, like with sustainability everywhere, wants it but won’t pay extra for it,” he says.AI on the factory floorOn manufacturing, CEAT has been running a sustained AI and data integration programme since 2017, pairing domain expertise from tyre technologists with data science tools to surface problems that standard quality reviews miss. Banerjee offers a telling example: Two vendors were supplying raw material at different price points, with both passing quality checks. AI analysis revealed that the cheaper vendor’s material consumed measurably more energy during processing, making the total cost of engagement higher than the nominal price difference suggested.CEAT is betting big on off-highway and specialty tyres, anchored by the recent acquisition of Camso, a Canadian manufacturer of OHV rubber tracks and tyres. The integration is expected to be complete by the end of FY27. Exports, currently at about 19 percent of revenue, is expected to rise to 24 percent post-Camso and reach a third of total revenue within five years. Camso tyres will be sold in the EU, Namibia, Latin America, West Asia and Africa, and APAC, including India and East Asia.In domestic passenger vehicle tyres, CEAT has about 17 percent market share, third in a nine-player field. MRF is the market leader with a 30 percent share, while Apollo Tyres had a market share of around 20 percent in the passenger car radial tyre segment in FY24, according to data from Screener. CEAT is targeting the number one position but is pragmatic about the timeline. In truck and bus radials, it holds a low double-digit share and is aiming for a profitable number four position rather than a market share-at-all-costs strategy. CEAT aims to defend its leadership in the two-wheeler market and make it more margin-accretive through the 50,000-outlet distribution network it has equipped with FMCG-style, real-time, point-of-sale visibility.
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