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Ladies and gentlemen, thank you for patiently waiting. You have been connected for this year's CEAT Limited Earnings Call. The call will begin shortly we request all participants to please stay connected. Thank you. Ladies and gentlemen, good day, and welcome to CEAT Limited 3Q FY '23 Earnings Conference Call hosted by Equirus Securities. As a reminder [Operator Instrctions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Ashutosh Tiwari from Equirus Securities. Thank you, and over to you, sir.
Thanks, Aman. Good evening, everyone. On behalf of Equirus Securities, I would like to welcome you all on the CEAT Limited Third Quarter FY '23 Conference Call. From the management side, we have Mr. Anant Goenka, Managing Director, CFO, Mr. Kumar Subbiah and members of IR team. First of all, I would like to thank the management for giving us the opportunity to host this confrence. Without further ado, I would like to hand over the call to Mr. Goenka for opening remarks.
Thank you, Ashutosh. Good evening, everyone, and a very warm welcome to CEAT Quarter 3 FY '23 Earnings Call. I'm Anant Goenka and I have with me our CFO, Kumar Subbiah on the call with us. We wish you a very happy, healthy and prosperous 23. And as usual, we will start with brief remarks from myself and Kumar, post which we will take up Q&A. Quarter 3 is generally a weak a seasonally weak quarter for us, particularly in passenger segments on the domestic side. We saw a similar trend this time as well. Volumes for quarter 3 were lower by about 6.5% on a quarter-on-quarter basis. October, the effective month was particularly low, November onwards, volumes have been improving and demand should gain some more momentum as we progress into quarter 4. On a year-over-year basis, OEM has been the fastest-growing segment coming from a low base. Exports have been adversely impacted by macroeconomic segments across geographies. However, we believe demand will improve going forward. Some of our recent launches have seen a good response. The Forex situation is also stabilizing in many of our export destinations and channel destocking has played out and the order book is improving going forward. We are confident in the medium to long-term potential of our international business and continue to invest disproportionately on product as well as market expansion. As the macro headwinds have subsided, we are hopeful of achieving sustained growth in this vertical. In terms of demand outlook, the domestic situation seems to be steady. Inflation has moderated key high-frequency indicators are stable. Government spending is expected to increase on the back of oil tax collections, rural sentiments are also expected to improve with better rabi output. Growth will moderate, but we do not see any major downside risk in the near term. On the export side, apart from the ongoing geopolitical situation, recession will also play out in the age economies. However, given our positioning in international markets and target segments like agriculture, the impact should be limited. With respect to margin outlook, margin performance and cost outlook, the raw material situation has been benign as expected. Crude inched up during the quarter, but is hovering around $80 to $90 per barrel. Rubber softened a bit further however, domestic availability was a challenge as producers were holding inventory. Our commodity basket costs reduced by about 4% versus quarter 2, slightly better than what we had guided. As a result of beneficial RM and lag effect of earlier price increases, our gross margin expanded by 219 basis points. Some of this gain was offset by lower volumes and increase in employee costs due to increments. Hence, our stand-alone EBITDA margin expanded by about 160 basis points over quarter 2 to reach 8.7%. Basis, our current purchases and pipeline, we expect raw material basket to further decline by about 2% to 3% in quarter 4. We are monitoring the situation closely. Near-term, global economic outlook will keep a check on commodity prices, however, and with China coming back post COVID impact will be a key variable to watch out for. With respect to CapEx, we are sticking to the FY '23 CapEx guidance of about INR 750 plus maintenance CapEx. Since we have largely completed all our announced CapEx in PCR, TBR, [indicernible] our CapEx requirement for FY '24 will reduce. We are fine tuning our working however, as per initial estimates, we'll be spending about INR 500 INR 550 as growth CapEx in FY '24. Major part of this will be towards the off-highway expansion that we had announced last quarter and some balance portion of Chendai TCR. We will get back with a refile number in our quarter 4 call. The off-highway CapEx was about INR 195 is expected to be completed by December 2024, and we are hopeful of global macroeconomic situation stabilizing by then. We would have also expanded our reach and product range, which will further help achieve optimal utilization in a nestle time frame. We launched our SUV platform, cross-drive AP with aggressive altering pattern. So we are also proud to be front-runners on energy efficiency. So far, 38 of our products have received BCE 5-star rate and to supplement that, we launched a media campaign along with our brand ambassador [indiscernible] to spread awareness about the energy efficiency of our tariffs. From the manufacturing side, we are proud to be the first tire company in the world to get Lighthouse Certification from the World Economic Forum for our Halol plant. This certificate is given to a select group of companies around the world who have been seen substantial efficiency of quality improvement using Industry 4.0 technologies such as IoT, sustainable production, Artificial Intelligence, data science, et cetera. We have been on this journey since the last few years and undertook multiple digital transformation projects, and we have started meeting various benefits such as higher productivity, lower wastage, lower energy consumption and higher use of green materials in our Halol plant. We will be implementing this in other plants as well. On ESG, we continue to make remarkable progress Apart from the 5-star ratings I mentioned earlier, we have also reduced our water consumption per tonne of production by about 25% year-on-year. Other initiatives like ultimate transport, renewable power, tire weight, on resistance continue to make good headway. Overall, as the quarter saw further margin recovery, we expect this to continue into quarter 4 as well. As gross margin normalizes, we will be able to demonstrate meaningful gains from operating leverage, premiumization, digitalization and cost optimization initiatives going forward. Lower CapEx and hopefully, better margins will further strengthen our balance sheet, cash flows and return profile in the coming years. With this, I hand over the call to Kumar.
Thank you, Anant. Good evening, ladies and gentlemen, and thank you for joining us for our quarter 3 FY '23 Earnings Call. I'll share some further financial data points with you post which we can enter the Q&A session. With respect to revenue, our consolidated net revenue for the quarter stood at INR 227 year-on-year growth of about 13%, contributed by both a mix of both price and volumes. In the first 9 months, our consolidated revenue stood at INR 8,440 a growth of about 24.7% over the first 9 months of the last year. Coming to gross margin. Our gross margin for the quarter expanded by about 200 basis points over quarter 2, largely driven by lower raw material costs. Our vendor raw material cost declined by around 4% over quarter 2. The expansion of gross margin is a main contributor for the improvement in EBITDA margin to the tune of about 120 basis points in quarter 3 versus quarter 2. And the drop in raw material cost was largely contributed, as Anant mentioned due to drop in the prices of crude derivatives as well as natural rubber. Now coming to our CapEx, our total CapEx outflow during the quarter at a consolidated level was about INR 218. That includes both projects as well as protein maintenance CapEx. Our total CapEx outflow stood at INR 679 in the first 9 months of the year, which is largely in line with our full year CapEx plan of about INR 900. Coming to working capital. During the quarter, we took multiple initiatives to bring down our overall inventory to the tune of about INR 290 that helped in augmenting our operational cash flow, improving the quality of working capital and also reducing the dependence of debt to fund our CapEx. Our overall consolidated debt increased by about INR 38 during the quarter, and our debt level at a consolidated basis stood at INR 2,341 as of end December. Operational expenses part. Our employee costs increased by about 10% quarter-on-quarter due to impact of annual increments and also some new wage settlement in one of our factories, while other expenses declined due to lower volumes and efficiency improvement measures. Overall, our operating expenses were lower by about 5% quarter-on-quarter, partly due to lower scale of operations and balance due to tight cost control exercise during the quarter. An update on Srilanka continues to see challenges while volumes saw some improvement due to inflation and a change in income tax, both for corporate and individuals from 18% to 30% effective 1st October 2022, contributed adversely to the tune of about INR 6 in PAT. Depreciation was at similar levels for the last quarter. Our interest expenses went up by about 14% during the quarter, largely due to increase in interest rates and a slightly higher level of average debt during the quarter. I would like to give you an update on ongoing case with Competition Commission of India. Earlier this year, we had achieved an order from Competition Commission imposing a penalty on some of the Indian tire companies where the penalty on CEAT was about INR 252. We filed an appeal against the order before NCLT. NCLT in its order dated 1st December has demanded that the order back to Competition Commission of India for reconsideration and NCLT is also absorbed errors in the CCA order, leading to possibly wrong conclusions. We are happy to inform you during the quarter, credit rating agency care rating carried out risk assessment, and they have reaffirmed WA long-term rating and ever A1+ for short term with the outlook maintained at stable. Overall, our stand-alone EBITDA stood at INR 237 with a margin of 8.73%, an expansion of 160 basis points over the previous quarter and 323 basis points improvement over the same quarter of last year. Our consolidated profit after tax for the quarter stood at INR 41.04 which compares well with INR 5.8 reported by quarter 2. We can now open the floor for Q&A. Thank you.
[Operator Instructions]. Ladies and gentlemen, we will wait for a moment for the questions [indiscernible]. First question is from the line of Siddhartha Bera from Nomura.
So my first question is on the volume. So if you look at in the current quarter, can you please elaborate a bit more on how has been the growth on the overall basis compared to last year's same quarter and if you can break it up into other segments also?
Right. So in terms of overall growth, volumes have grown in single digits, low single digits. Value has grown at strong double-digit levels because of inflation. Most of this growth has come from high growth in OEM. Replacement has generally been flattish and exports have seen some amount of negative growth in volume terms on a year-on-year basis. So largely, what we are seeing is 2-wheeler market in OEM is clearly seeing some amount of stress and pressure at this point, particularly on the motorcycle side. Rural markets are still to come back to normalcy. And for us, motorcycle is an important segment, which has seen some relatively some stretch. With respect to truck and bus segment has seen very strong growth on the OEM side because last year itself was a very low base. PCUV has generally seen good growth on a year-on-year basis on a quarter-on-quarter basis. Also, there has been just about marginal growth led by UV segment. So we are seeing the higher categories doing relatively better. The base categories kind of not performing as well because of large high inflation impact on, say, 2-wheeler, motorcycles and kind of low-value vehicles.
Sir, on the replacement side, possible to elaborate on the growth across TBR and especially for the replacement segment.
So in value terms or volume terms?
In volume terms sorry.
So on a year-on-year basis, replacement, as I said, has been flattish. TBR has been flattish, but I mean, sorry, truck and bus overall has been flattish, but off-highway tire segment has grown very well, 30% type growth levels. Two-wheeler has seen some negative growth, as I shared, and PCUV has just seen single-digit kind of growth because of where more of that growth has come from UV in double digits, whereas passenger car has been flattish on a year-on-year volume basis.
Understood. So far I mean, now the point is in January, if you [indiscernible] segments, demand cogent impacted. So under this backdrop, how do you expect the growth to behave in the coming quarters? Do you expect some improvement from the current levels or what are you picking up in terms of undergrounding in terms of outlook?
No, we are seeing we are quite we are optimistic about demand. There will not be a sharp uptick or anything, but there should be steady growth. I'd say early part of January has seen some challenge on the CV side with north and parts of East slowing down because of extreme climate conditions, but I think from Feb onwards things should bounce back. I think with the good rabi crop rural demand also should get better and the inflationary impact at some point 2-wheeler also, I feel has relatively bottomed out. We can see the results of other 2-wheeler players where really demand has come down over the last few years' time. So I don't see too much of a drop. On the EV side, we are relatively strong and we've established a very strong market share with presence in over 70% models. And as 2-wheeler EV picks up, we will be in a much better position to gain in the market as well. I think PCUV demand on the OEM side will be go in quarter 4 with multiple models, having a sharp I mean very high rating rate in that sense. And our acceptance in OEMs is consistently going up across all categories, particularly in UV segment, commercial segment, these were a little bit weak for us, but I think things are getting much better as we see. Surprisingly, on the export side, there's a lot of concern on recession, but I think we also expect export to have bottomed out in quarter 4 and things should see a little bit of steady growth in quarter 4 versus even quarter 3. It's a little bit of a farming good demand season as well, good so off-highway tire will also see slightly better growth. And the geopolitical issues, currency fluctuation, while they remain in few clusters, it has got better in certain areas. Brazil is holding up well. So I'm a little bit more optimistic in quarter 4 versus quarter 1.
Understood, sir. My second question is on the pricing side. So was there any price increase in the current quarter or the coming month in current Q4 or any price changes given the in the core.
There were some small price increases under 1% on average across the board. Truck so on the buyer side, about 1.5% price increase. UV, there was an increase of about 1.5% so overall, small price increases, but we expect this to now kind of stabilize with inflationary pressure also coming down.
Understood. But sir, on the commodity side, which you have said that you said 2% to 3% further improvement in Q4, doing this will be largely led by lower commodity realizations which you are rating. But given that demand remains, we do think there would be a requirement, especially to support demand by sort of some discounts or incentives?
No, I don't think so. I think we still have some catching up to do to reach double-digit margin. Unless there is some competitive action that happens, we may have to respond. But at this point, I don't see any decision or a view on taking price drops or discounting at this point.
Understood, sir. Thanks alot and congratulations.
The next question is from the line of Ajay [indiscernioble].
So congratulations on a set of numbers. My question is regarding the debt level. So currently, it's turned around INR 2,300 to INR 2,400 debt level on consolidated. So what would be the implement schedule in coming 2, 3 years?
Kumar, would you like to take that?
Okay. Now INR 2,300 has a combination of both long term and short term. And from a long-term point of view, in terms of repayment would be to a tune of about INR 300 next year, okay, but that does not mean it would translate to relative drop in debt level because we still have undrawn limits in the overall sanction to CapEx. So we don't have any pressure in terms of no cash flow with respect to repayment of long-term debt, and we mostly look at our total debt. And in the event there is any obligation with respect to repayment of long-term debt in one of the long-term debt instruments we also have undrawn long-term debt, which you would exercise.
Okay. My question is regarding like the overall industry has gone through a significant CapEx in last 4, 5 years. So do we see any oversupply in the industry in coming years?
No, I don't think so. I think everyone who has taken capacity increases in their own respective segments. For us, we have overinvested in the passenger side where we want to gain market share, whereas on truck, we have been fairly conservative. We have also gone strong on the OHT segment. On 2-wheeler, we have hardly done any investment where market has seen negative growth. And as I've shared in my last call as well, the market itself has seen a fair amount of contraction, particularly in the passenger side in the last 3, 4 years. So if you look at the longer term 1, 2, 3 years hence, we feel that the overall sector has to bounce back, and we are ready for that release.
Okay. Thank you. That's it from my side.
Next question is from the line of Gaurav Khandelwal from Yellow Jersey Investment Advisors.
My question is in line of CapEx only. So I just noted out that your CapEx is in the segment plan.
The question please use the handset the audio is not pretty clear
Now it's clear.
Yes, better now.
So my question is the CapEx for CEAT, like we had a talk on industry-wise, but for CEAT which are the primary segments that you are looking.
Right. So for us, the primary segments, from a CapEx perspective, that is pending is some of the downstream assessment of passenger car in Chennai. And off-highway tires we had announced in the last quarter about just about INR 400. So these are the 2 CapEx's that would be large. And then largely, it is the latter half of the balance CapEx that is left of all the other categories, but largely, these are the 2 categories that will come in, in the next year.
The next question is from the line of Chirag Shah from Nuvama.
I just wanted to understand your comments on commodities what happened in the quarter and how are you looking at ahead from next quarter perspective also and slightly from next year perspective also.
Kumar, would you like to take that?
Yes. Okay. Chirag, in the last quarter, overall raw material costs came down by about 4%. And in the beginning of the call, we indicated that we expect in quarter 4 raw material cost to go down during a 2% to 3% over quarter 3. So that is the outlook that we have as far as quarter 4 is concerned. Okay. And beyond quarter 4, it entirely depends on what happens to crude and other materials. So the immediate-term outlook is this.
So this what we saw last quarter in the Q4, is more driven by rubber or more driven by crude derivatives?
No it is a combination of both, both crude as well as natural rubber.
Okay. Second question was, historically, we have seen that with a lag, industry tends to pass on the benefits, okay? We always hope that we would be able to retain it. But so is there a change that you foresee this time that there is more clarity as compared to the past in the industry and how do you look at your margin as well as profitability in general?
Right. So if you look at, say, the last 10-year cycle, there was a drop in raw material prices that happened from 200, say, 10, 11 to 2015, '16 or '17 or so. At that time, I think the industry was able to maintain prices and it's cost margins to go up. I think it's difficult to give an answer what will happen going forward. But there's been a fair amount of CapEx that has been at least from CSI, and we will aim towards double-digit margin in the long term.
Okay. And one housekeeping question, if I can ask, what was the volume growth for the quarter?
Volume growth was on a year-on-year basis, just a second. I think it was about year-on-year basis, overall, was at about, just give me a second. It was about low single digits.
Low single digit. So it will be sub 5%, right?
Yes.
Okay. And last question is on the off-highway tires. If you can just share some updates in terms of ramp-up, in terms of SKUs and in terms of market given the way the so-called macro headwinds are playing out.
Right. So we are still seeing good growth in the off-highway tire segment. I'd say that from a seasonality perspective, this is a weak season, but quarter 4 should be better. Replacement picked up well in terms of growth from quarter 2 to quarter 3. Exports have seen some amount of headwinds at this point of time. But we are quite optimistic about quarter 4 onwards. So we will see better growth in quarter 4. US is doing well. The demand slowdown there is less than EU. And from Feb onwards, we clearly expect things to get better because we are continuously expanding our range. We have about close to 700 SKUs across the board, which covers more than 80% of the products that are needed. So we continue to remain optimistic on the off-highway tires. There has been some slowdown in the international business, but not far and the overall recessionary impact that you're hearing of in Europe, Agricultural segment gets much less affected.
Thank you. Thank you all of you for having us.
The next question is from the line of Ashutosh Tiwari from Equirus.
Firstly, on this working capital, Kumar, you mentioned that inventory has come down roughly INR 290 in this quarter versus second quarter?
Yes, true. It's right.
So what is the reduction in the payable as well because debt has still increased marginally quarter-on-quarter.
Yes. There was an equivalent amount of reduction in payables also. So therefore, our networking capital level, the working capital is very similar to as of end September. But the quality of working capital improved. Generally, when you reduce inventory, the impact on payable comes with a lag of 2 and 3 months. What you pay in quarter 3 is that actually what you reside in quarter 2. largely okay, similarly reduction initiative that we took in quarter 3, the benefit of that in terms of payables will happen in quarter 4. Okay. Another thing is approximately at a stand-alone basis, the debt moved up by about INR 50 and against INR 218 of CapEx. So Balan INR 168 came from our own internal accruals in terms of funding our CapEx.
Yes. And working we how should one look at in this quarter, like say, where it will inch up in fourth quarter or is it really broadly stable.
See quarter 4 generally tends to be we will have a higher level of activities. So in quarter 3, normally, the scale of operating is lower than the rest of the year. So you can afford to bring your inventory down there will be a reduction in overall receivables. In quarter 4, we will have a little more receivables. We'll have to operate at a higher level of inventory because of higher demand in March and April. So we expect increase in working capital, particularly the current asset side in quarter 4. And maybe there will be increase in current liabilities also. We will offset part of the increase in current assets. So we will overall we'll operate at a higher level of working capital, excluding payables.
Okay. And next year, we guided or INR 550 of growth CapEx and then plus maintains. And considering better margin is it fair to assume that debt probably is now near the peak at current levels?
No. I think INR 550 million, there will be some routine CapEx and maintenance CapEx that we have. It depends on that, it is possible to maintain the debt should the margins remain at a double-digit level. So I think it depends on the margin. So it's better to wait get into the next year and then provide some kind of an outlook with respect to debt. But as of now, we are getting into a year where we'll be spending less CapEx compared to the current year. So it should have a positive impact on debt, whether it will translate to any drop in debt, our margin increase in that would entirely depend on operating cash flow, where the strong increase to margin. So looks may not be very significantly in Mexico. Okay.
And can you show lower utilization currently in PCR and TBR segments [indiscernible].
In case of TBR, we are our operating currently, our utilization level in the quarter was about 80% to 85% level. PCR is also at a similar level.
Okay. And is there a possibility we want to like capacities both in TBR or you probably are at full right now.
Now TBR currently our capacity utilization is less than 100% only because of the debottlenecking exercise that we carried out last year. So whereby the capacity of TBR at Halol factory went up from 110,000 tires to around 130,000 tires. That is the main contributor, okay and so that work has already happened. In case of PCR, we have enough capacity between our Halol factory and Chinese factory. So there are no immediate plan to debottleneck PCR capacity considering that we already have adequate capacities to meet the demand.
Okay. And just softness in exports, while you also mentioned that OP still is doing well roast doing well. So is the floor was soft in leasing times like last quarter?
We are seeing a slowdown across the board. If you look at quarter-on-quarter numbers, including off-way tire, but we are overall optimistic that maybe this quarter may have bottomed out in terms of exports. That's what we wanted to say.
And how is the pricing environment in the export markets Has been positive. [indiscernible]
Right now with demand slow down, maybe we don't see any increase in prices happening, but it's been similar to replacement market in terms of price shifts.
And lastly, based on this 2-wheeler replacement, how is that going right on India?
2-wheeler replacement is largely flattish at this time or still seeing some slowness. Scooter is doing a little bit better, but motorcycle is quite slow at this point of time. So it's overall, that's the one market which has seen negative growth actually, I would say, across yes.
Element as well. Replacement. Yes.
The next question is from the line of Mitul Shah from Reliance Securities. [Operator Instructions] Mr. Shah.
Good evening, sir, and thank you for giving opportunity. Sir, first, on the raw material basket, sir, if you can give the prices during the quarter are prices [indiscernible].
Kumar over.
Yes, sir. And just one overall Ferex at the consolidated level, raw material bulk cost came down by about 4% in quarter 3 versus quarter 2. And this is after factoring in the adverse impact of currency, okay and so the net debt is about 4%. And our outlook for the next quarter 4, is that anywhere between 2% and 3% kind of a drop, we are expecting in quarter 4 versus quarter 3.
Yes, but you highlighted earlier, sir, my question is on per kg basis, if you can give some absolute numbers, robust than any other items, whatever you can share?
See, the natural rubber prices in the beginning of quarter 3 was in the range of INR 165 to INR 170 per kg, okay. And in the local market and the international market was about 160 to 165 range. And towards the end of the quarter, that 165 became 140 to 145. And the international market came down to 140 to 140 there also, it's more or less the same that range in which the beginning to end of the year beginning to end of the quarter movement was. In case of all other raw materials, synthetic rubber derivatives the decline was very slow and happened every month percentage or to and in terms of that reflecting in the final product prices, it took about 1 to 1.5 months kind of a lag was formed. So there also, like, for example, synthetic rubber prices moved down from, say, $2,000 level to $1,800, $1,850 in the international market. I'm saying starting to end, average would be a little lower. And similarly, capital fabric price is also at a similar level drop we saw from beginning to end of the year, the end of the quarter.
Okay, sir. Second question to Anant, sir. Regarding the replacement demand, even after more than now a year or 1.5 year base has been low, still why it's taking so much time based time for revival demand across the segments, it remains very slow, is it related to anything to affordability or any change in the replacement cycle or with a better quality replacement is getting elongated?
Right. So I think largely, it is inflation, that is a maximum impact, whether it is across the board, there is a fair amount of cartoon the in consumer at this point of time, led by rural demand, which we can see in 2-wheeler motorcycle demand impact that we've seen in OEM as well as and therefore, I would say it also comes down to the replacement segment or is an indicator. I say that has been the biggest shift or impact in terms of demand.
Among the hose segments, which segment do you think will revive first in replacement.
I think the least impacted segment has been the truck bus segment. It has already gone through some amount of slowdown in the last few years. Also, we are seeing this I mean, in the last, say, 6 months, the chip shortage has gone away. So that has resulted in good OEM supplies also into the market. I'd say going forward, I'm optimistic about PCUV particularly UV demand getting strong. And I would say the other would be two-wheeler over time should also pick up because base effect will be quite low at this point of time. I'd say going forward, the base itself will result in higher growth.
Sir, lastly on export side, which geographies do you think will give growth going forward right now to subdued for maybe for a quarter or so, will remain like this. And within export markets also, which segment do you think will be adding growth going forward.
Right. So for us, Brazil has stayed strong at this point of time and continues to look optimistic. The other 2 geographies where we have invested in our U.S. and Europe. For us, these are going to be to continuously growing markets. I would say Europe may continue to stay slow for maybe another quarter, but things should get better after that because we have enough new tires and new ranges that we have launched for both these markets. So these are the 3 geographies that we are more optimistic about.
And within this segment wise, any outlook?
This is largely passenger segment and truck Radio segment, both truck is on a very low base, so we will see good growth. But passenger segment is an area where we've done larger investments in terms of coming out with the range, testing those tires and then launching them in these respective markets.
Thanks and best of luck.
The next question is from the line of Sumit from ASK.
So just wanted to check one thing, which is more on exports. While we remain pretty positive on that area, is it for 8 or that's for market as a whole? And because we ran the base is small for us. So that is driving growth for us or it's market improvement that we have set.
I can tell you for us, I don't have enough input on specifically the market, but I would say for us, we are seeing some amount of seasonal impact, mainly off-highway tire is a very important part of our demand and we are seeing that by Feb, March demand they need to fill up their warehouses by quarter 1. So they place orders by quarter 4. So as a result of that, and our various SKU increases that we've done, we are quite optimistic. So I'd say it's more for CS. I don't have a response on how others will get affected.
Sure [indiscernible] Thanks a lot.
The next question is from the line of Rishi Vora from Kotak Securities.
First thing on the commodity basket. So if I assume that the commodity or current commodity prices stay at this level, do you expect any more benefit to come through in first quarter as well or fourth quarter is where we get the complete benefit of current RM basket?
Yes, Kumar.
Yes, you see the benefit of quarter 4, which we indicated 2% and 3% rather it considers all of the commodity drugs that we have witnessed till December. In fact, in the last 3, 4 to 6 10, we are seeing some increase in the prices of commodities. International natural label prices have moved up in the range of $80 to $100. Okay. Crude is also now operating at $85 to $90 kind of a range, more than $2 $88. So if the commodity prices stay where they are as of today, okay, then we don't see an incremental positive impact in quarter 1 over quarter 4 unless some changes happen in terms of derivative spread are some drop in any one of the commodities otherwise, we are not seeing that.
Understood. My second question was on replacement segment demand. My understanding was that after the first wave of Covid and even second, we had seen a very strong rebound in replacement segment demand at least on the consumer like on 2-wheeler and PCR segment. So my sense is base would be pretty good, right? Like last 2, 3 years, we would have seen some growth in the replacement segment for these 2 segments, is my assessment correct or is there something I'm missing out?
Yes. So I think the base effect would have only come in quarter 1 on quarter 1 growth of last year. From quarter 2 of FY '22 things resume to normal growth. So on a year-on-year basis, you will see a decent growth or seen on YTD basis, but on a year-on-year basis, for quarter 3 or, say, year-on-year quarter 2 may not be as much as what you will see because if I recollect right, quarter 1 of FY '22 was when the second wave and that overall demand impact happened.
Right. So net debt still over the last 3 years, replacement segment demand would have grown by mid- to high single digit in PCR and segment, right?
Yes, yes.
And this year, like on CY basis, what would be kind of the replacement demand, like replacement segment growth for the industry?
For YCB?
Yes. Yes. CY basis or you 99?
It would be positive growth. I can get back to you, but without when Kumar, anything you'd like to share here, but somewhere between 5% and 10% volume growth?
Okay. Across blended.
I don't have the data here, but I can get back to you on that.
Understood.
[indiscernible] a rough estimate without the data in front of me so and get back to you.
And what would be your like what would be your estimate for the replacement segment demand growth going into next year, like you expect it to be mid- to high single-digit kind of a growth or given the price increases taken by all the players you expect to be a little weaker.
So I think that the price increase is happening. So at a value level, you will see some growth because that impact will come into next year as well to a certain extent. But at a volume level, I mean I would just take an estimate of a GDP type number. Your estimate that the market growth, if we are able to gain market share, then certainly a little bit better than that.
Understood. And sir, last question on the quarterly performance. So first stand-alone, I see other expenses declining by 8%. So it's just that in this quarter stands towards advertisement is on the lower side, and it should come back in the subsequent quarters.
Kumar, would you like to add a little.
See, largely, the drop in adverse marketing expenses in quarter 3, we maintained at quarter 2 levels. There's no major drop Normally, our marketing cost goes up during IPL period goes up a little bit. The large drop in prices in quarter 3, other costs was because of lower level of activities, okay. So we mentioned that we have reduced our inventory, okay. So we brought down our finance goods inventory, which means that our production was less than sales, okay and our distribution cost was lower. And operating expenses and factories are lower because they produce less. So it's largely relating to the level of activities, but marketing expenses at absolute levels stayed at the previous quarter level.
Understood.
The next question is from the line of Vishal from Swan.
I missed the initial part of the discussion. I just wanted to know what was the CapEx for the company during the first 9 months? And what is the expectation for FY '23?
I can answer that. CapEx for the year, we are looking at about INR 750 CapEx, as we have said for the year. We've done nearly 3/4 of that is what we've done. This is largely growth CapEx.
Okay. Growth plus maintenance CapEx, what is the expectation for FY '23?
About INR 900 Kumar, right?
Yes, it is 900. And growth plus maintenance CapEx in the first 3 quarters, 9 months also, approximately about INR 680, 75% of the INR 900. So we are tracking in line with our full production.
Okay. And what is the expectation for the same growth and maintenance CapEx for FY '24?
The growth CapEx would be about INR 500 to INR 550 next year. Maintenance would be about INR 150 to, INR 200 kind of range
Okay. And in FY '24, the growth CapEx would be mainly towards TBR segment, as you said that TBR debottlenecks is already being exhausted by you and it is approximately around 80%, 85% utilization level. So are we revisiting that idea of getting into TBR CapEx.
So the growth CapEx for next year will be the balance of PCR as well as the off-highway tire investment that we announced in last quarter of about INR 400 is what we announced, and some amount of that will come into next year. And then there'll be a few other largely balancing factors in other categories.
The next question is from the line of Saket Kapoor from Kapoor and Company.
Sir, just referring tpo this.
Sir, it's not audible. Can I as you speak up again.
Yes. Now you can hear me.
Yes. Sir, the environment ministry came with this draft notification for extended producer for waste tires for regulation. And there was a notice in the month of January. So what is the update on the same, sir? And how are players like you preparing to get this on ground? Any updates that you would like to share
Right. So there was a notification that was issued in July, but largely, to comply with it, it requires a full ecosystem to be in place, the registered producers, recyclers, tire collection, so I think here that implementation is not fully complete. So here, we are working with the Atma body is working with the central production control board, MOEF, et cetera, to figure out the whole execution plan. But we will, of course, fully comply with the requirements. We want to be leading in terms of short-term sustainability. But I'd say that there are certain tactical elements that are still to be ailed out, after which we will get some more clarity. We're already using recycled materials in part of our product recipe and all of that. So we still need to understand the net impact and once we get some more clarity, we can share the same with you.
Okay. So as you just mentioned that the ecosystem is not prepared for the sense how to locate the tires and who to manage. But the way the notification was as is the entire responsibility was put on the producers. I mean the company whose tire it is the responsibility being borne by the company to get it recycled. So as of now, sir, the liquidities are still to be worked out. That is what the latest on it or are we continuing the process as per the notification?
You know, let's say, for example, there has to be a portal in place where there will be certain registered recyclers. Now all of that is still work in progress because even if you're recycling, are you doing it from the right person? Are they registered? Do they have the various licenses that are there. So that clarity and that is still work in progress.
But it is going to be the order of the day going ahead. That is what.
Yes, we feel so yes. There can be a delay in terms of time line, there can be changes in rules in terms of the percentages that the responsibility will be for tire for the industry every year. I believe it goes up every year on a certain basis. So those changes may happen based on the implementation speed and execution capabilities.
Correct, sir. And on the demand side, as you mentioned in the proposal, as you have seen other players, the core players also in the tire segment, they are also guiding for landing of demand going ahead. So could you throw some more understanding that are you witnessing taping of demand, especially from the replacement market and the factors that are leading to the same, sir?
No, I've already given a fair amount of insight into replacement demand. I think you could just have a look at the transcript later on. Thank you.
Ladies and gentlemen, that would be our last question for today. I now hand the conference back to the management for their closing remarks. Thank you, and over to you.
Thank you, everyone, for your continued interest in ET and coming in a little late in the evening for the call. Look forward to catching up next quarter once again. All the best to you, and thank you very much for your time.
Thank you very much. Ladies and gentlemen, on behalf of Equirus Securities, that concludes today's call. Thank you all for joining us, and you may now disconnect your lines.