CEAT Ltd
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Ladies and gentlemen, good day, and welcome to the Q4 FY '22 Post Results Conference Call of CEAT Limited hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Basudeb from ICICI Securities. Thank you, and over to you, sir.
Thanks, and very good morning to all the participants. So we are thankful to CEAT management for allowing us to host the Q4 FY '22 post result con call. We have with us the management represented by Mr. Anant Goenka, Managing Director; and Mr. Kumar Subbiah, Chief Financial Officer of CEAT.
So over to you, Anant, sir, for your initial comments.
Thank you, Basudeb. Good morning, everyone. A very warm welcome to CEAT's quarter 4 conference call, and thank you all for your time. I'm Anant Goenka and we have with us CFO, Subbiah Kumar on the call with us. I hope all of you are all well, and it's good to see that things are finally getting better from devices perspective. As usual, we will start with some brief remarks from me and Kumar, after which we'll be happy to take some questions.
With respect to our quarter 4 financial FY '22 financial performance. On the demand side, the quarter started on a weak note in the midst of COVID wave 3. However, the waves have subsided without a major setback on the health or economic front and normalcy started to return from February onwards. In the replacement market, the truck radial and utility vehicle segments started to see good traction, while volumes in 2-wheelers continue to remain soft, largely because of weakness in the rural market and impact of COVID wave 3 that we experienced in January. Overall, replacement volumes were flattish on a quarter-on-quarter basis and declined at about 10% level over last year, which was on a very high base.
We saw good momentum in OEM driven by truck and bus and PC/UV registering a growth of about 12% in quarter 3 and about a moderate 3% decline over last year. Exports have been doing well for us and continue to show robust growth. Volumes increased by approximately 8% over quarter 3 and about 30% on a year-on-year basis. In terms of total volumes, we saw a growth of about 4% over quarter 3 and a minor drop of about 1.5% versus quarter 4 last year. While overall, the demand scenario looks stable now, raw material inflation has continued to hurt the bottom line. The rubber stabilized during the quarter. However, crude prices shot up and have remained at elevated levels of $100 per barrel plus due to the ongoing geopolitical situation.
Crude derivatives are a significant portion of our raw material basket. RM basket cost increased over about 3% versus a guidance of about 1.5% to 2% as a result of these unexpected changes. The impact of crude prices may be more pronounced in the next quarter. As things stand today, we expect the raw material basket to inflate further by about 3% to 4% over quarter 4 levels. Due to higher inflation and relatively lower price increase, our gross margin contracted by about 0.6% over quarter 3 levels. We exercised strict cost control measures and continue to reduce our operating expenses, further aided by higher volumes.
Our EBITDA margin for the quarter stood by about 7.2%, an increase of 1.7% versus quarter 3. We ended the quarter with a stand-alone PAT of about INR 13 crores versus a loss in the previous quarter. For the entire year FY '22, we saw a healthy volume growth of about 9% despite a volatile and challenging macroeconomic environment. Replacement volumes declined by about 5% on account of COVID waves 2 and 3 and weak crude oil sentiments. At an annual level, farm and commercial categories were weak on a high base, while PC/UV saw a good momentum.
OEM volumes grew by about 18% on a year-on-year basis due to strong recovery in truck and bus. OEM demand in passenger segments also was healthy. Exports showed a stellar performance with about 50% volume growth increased versus last year. Exports will remain a key growth pillar for us in the medium term. We have been working on channel expansion in Europe over the last few years, which has started to give good results. We have presence in the PCR and OHT segments and are shortly launching our truck radial tires followed by 2-wheeler tires. Europe has contributed a significant share in our export growth this year, and we expect the momentum to continue. We are also gearing up for introducing TBR and PCR in North America market in the coming quarters.
With respect to our CapEx plans, we continue to rationalize as we had highlighted in the quarter 3 call. For FY '22, the project CapEx stood at INR 690 crores approximately versus an initial guidance of INR 800 crores to INR 1,000 crores. We are looking at a CapEx of about INR 750 crores for FY '23. Priority will be in the off-highway tire capacity addition and other debottlenecking and process improvement projects. OHT for us is growing well, and we are confident of utilizing additional capacity coming up in quarter 2 FY '23.
Our association with OEMs continue to improve. Recently, Yezdi Adventure by Jawa and Volkswagen Virtus we launched on CEAT tires. We are working with all the major 2-wheeler in the OEMs and keep a close watch on various CV developments. In line with our vision for safer and smarter mobility, we launched tires with color tread wear indicator. This is the first of its kind product in India, wherein customers will easily be able to identify when is the right time to change their tires. We have also enhanced our 4-wheeler range, PCR 4-wheeler range in the India market and have launched SportDrive and SportDrive SUV tires for premium sedans and SUVs like BMW, Audi, Mercedes, et cetera.
On the marketing side, we roped in Karthik Sivakumar for the SecuraDrive campaign in Tamil Nadu market. We remain -- continue to be remaining strategic timeout partners for the current IPL season. Puncture Safe digital campaign continue to win accolades. This quarter, a campaign won ETBrandEquity brand disruption awards.
Moving on to ESG. We are happy to highlight CEAT has been ranked #1 in the rubber industry in India in terms of ESG risk framework by ESG risk AI. We continue to make progress in this journey. It is very, very important for us, and we've achieved about a 29% reduction in water consumption on a per metric tonne basis during FY '22 versus the previous year. We are taking up more renewable power projects, which will increase renewable power as a power source for plants to about 40% levels. Our diversity hirings have also increased significantly to about 33% of new hirings for FY '22.
Going forward, we expect the demand environment for the auto and tire industry to continue to improve as the economy recovers from the impact of the pandemic and with normalcy getting restored back. Meanwhile, we remain focused on navigating the cost headwinds while ensuring to capture the growth momentum and emerging opportunities. Besides, we will continue to stagger price increase, depending on the market conditions with the aim to return to optimal margins over the next few quarters. As we overcome these short-term challenges, we are committed to remain nimble-footed to capitalize on the opportunity to grow profitably as the demand improves.
The organization has invested consistently in brand and capacities, in markets and product development to create the path to secure leadership positions in PCR and 2-wheeler while tapping into the high-margin global OHT demand and strengthening our international footprint. We remain focused on managing costs, maintaining liquidity and containing debt levels efficiently with an endeavor to consistently improve our return ratios to optimal levels.
With this, I'd like to now hand over the call to Kumar.
Thank you, Anant. Good morning, ladies and gentlemen. Thank you for joining our Q4 FY '22 earnings call. I'll share some further financial data points with you all post which we can enter Q&A session. First, revenue or consolidated net revenue for the quarter stood at INR 2,592 crores, a sequential growth of about 7%, which was largely driven by volume and year-on-year growth of about 13%, which is driven by price realization improvement. Our full year consolidated revenue stood at INR 9,636 crores, growth over 23% over the previous financial year.
Coming to gross margins. Raw material costs continue to rise and impact our gross margins, which stood at 33.5%, a sequential decline of about 46 basis points. Our blended RM cost went up by about 3% versus quarter 3. We managed to take about 2% price increase during the quarter at different points in times in the replacement market. The increases were largely in commercial and farm categories. We also took price increases in exports and in OEM segments. However, the increases that we took during the quarter was not sufficient to cover our RM inflation. So our gross margin declined by about 46 basis points, as I mentioned.
Raw material scenario looked like stabilizing in January. However, with the geopolitical developments, we are once again seeing increases across inputs, especially those linked with crude and the steel. As per our current situation, we expect our blended raw material costs to go up by about 3% to 4% in quarter 1 versus quarter 4, which means that we still need to take more price increases in the coming quarters and hope that the market situation is conducive you for the same.
Coming to debt. CapEx and working capital. Despite cost challenges, we are able to bring down our consolidated debt by about INR 164 crores in quarter 4 versus quarter 3. On account of improvement in our working capital management, our consolidated debt as of 31st March stood at INR 2,097 crores, and our debt-to-EBITDA stood healthy at 2.83 and debt equity at 0.64. Our project CapEx was about INR 133 crores in quarter 4 and about INR 694 crores for the full year. And the total CapEx, including our maintenance CapEx for the quarter was about INR 209 crores and on full year basis about INR 953 crores.
Our project CapEx spend outlook, as Anant mentioned, for the next year, it's approximately about INR 750 crores. Thus, we will also spend maintenance CapEx of about INR 150 crore to INR 175 crores. And that includes some investments to increase our renewable power too. We are keeping a close watch on our debt levels. We are still within our internal threshold. We'll try to further optimize on working capital in the coming quarters and prioritize our CapEx, the areas of profit improvement and growth.
Coming to operational expenses. We exercised tight controls in our operating costs during the quarter, leading to reduction in our operating expenses by about INR 10 crores over the previous quarter despite higher revenue and volumes. And we also maintained our employee cost in quarter 4 at quarter 3 levels. Our consolidated EBITDA stood at INR 195 crores with a margin of 7.5%, an improvement of 160 basis points over the previous quarter. Our depreciation in quarter 4 was at similar levels as that of quarter 3. In fact, in case of increase in rates of 40 basis points will flow in the coming quarters, and we expect the increase in repo rate impact to be lower in quarter 1.
Now we can open the floor for Q&A. Over to you.
[Operator Instructions] The first question is from the line of Ashutosh Tiwari from Equirus Securities.
Can you please repeat the volume growth numbers in the replacement or even total in the quarter?
The volume growth numbers, overall, was it about negative 1% on a year-on-year basis. Just a second. Category-wise, we saw positive growth in replacement. Can I just get back to you on that?
Yes. I think there was 10% decline in replacement you mentioned, and…
Just a second. I'm just opening the notes. Yes. So we had a growth of about 12 -- you want year-on-year or quarter 3?
Y-o-Y, year-over-year.
Y-o-Y, 12% growth. Exports -- 1 minute. This is over. Quarter 3. Kumar, would you have the numbers at all?
Yes, Anant. On year-on-year basis -- okay. As Anant mentioned, volume growth was flat. Okay. And replacement and declined and OEM margin declined. Exports grew by about 29%. On value terms, replacement was flat. OEM was about 16.5% and exports were about 54%.
I think you mentioned that the replacement declined by 10% Y-o-Y, and there was a strong growth in OEM and exports. Is this correct?
Yes. Yes. Yes.
So is the decline of 10...
Yes.
Is the decline of 10% Y-o-Y in the replacement spend, can you provide some color segment-wise? And again, quarter-on-quarter segment wise, how things are panning out?
Yes. We will not be able to provide segment-wise data. But overall, as we shared that last year base effect was very high. We had a very strong end last 2 quarters or 3 quarters of the last year. And whereas this year, we had COVID wave 3 in a way coming in, which resulted in a relatively weak January. And then March onwards, things started picking up.
So I mean, are we seeing growth Y-o-Y say from March, April on? Any color on that in replacement in different segment, 2-wheelers, CVs and on? March, April particularly?
Yes. So March, April, of course, things are -- April, May, June onwards, things will be very strong because of low base effect. We had COVID wave 2 impact. So year-on-year growth for this quarter will be very, very strong. Maybe 30%, 40% plus kind of growth levels in part mix of inflation and low base effect. But markets are looking quite relatively better. I'd say that CV clearly is picking up. Farm also is looking positive, which has had a very difficult, I'd say, year -- in the last year in terms of domestic farm demand.
Chip shortage issues seem to be reducing over the months for the passenger vehicle segment. And 2-Wheeler, I mean, with wedding season coming in, colleges opening up a little bit, some amount of low base effect. We expect it to come up. We are not seeing that yet in the market. But I think CV and farm are the leaders for growth followed by PC/UV and then 2-wheeler. OEM and international business continue to do well going forward into the say quarter 1 quarter 2.
And lastly, you maintained 3% to 4% increase in RM expected in 1Q. What kind of price increase you have taken in this quarter so far as still or maybe if you have taken something in March month?
Yes. So say, for the total of quarter 4, we took about a couple of percentage points in the commercial vehicle segment and the balance was just under 1 kind of percentage point in the rest of the quarter. But in April, we've taken about over 2, 2.5 percentage points in the commercial vehicle, about a couple of percentage points in passenger car, and some more in some of the small commercial vehicle another couple of percentage points. And going on to May also, we are looking at about 2% price increase in certain categories, possibly commercial vehicles and 2-wheeler segments.
Okay. But we are not taking...
May, have not happened yet, but May -- we are looking at this for, say, the next -- in the next couple of weeks.
Okay. But nothing so far in 2-wheeler over March, April?
No. No. 2-wheeler has not seen any price increase.
The next question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services.
Continuing the -- on question of price hikes. So what was the blended price had taken in fourth quarter? And was it -- was there any price hike in 2-wheelers in fourth quarter?
Blended price hike in quarter 4. It was -- so between price and mix, we saw realization growing by about 3-ish percentage point.
Okay. But any price hikes in 2-wheeler category?
No, nothing on 2-wheeler.
Okay. Okay. And then even like we are quite conservative in taking price hikes in 2-wheelers just because of demand being weak or you are seeing competitive pressure?
I think competitive pressure as well. So we feel that our price gap with competition is quite high. We are the highest price in the market. We are nearly 3 to 4 percentage points higher. Single handedly, taking such a -- beyond this, we feel that it can impact volume. So we've tried to take and now maybe in the month of May, again, we will look at taking some price increases. As I said, we are looking at about 2 percentage points. And then we'll see what happens to demand after that.
Sure. And with respect to -- if I look at the broader P&L and the cost inflation which we have seen, so what kind of price increases we need to take on fourth quarter base to cover entire cost inflation?
Right. So as I -- we said that we are looking at about a 3% to 4% price increase in -- I mean raw material price increase in quarter 1 over quarter 4. And I shared about -- we are looking at a couple of percentage points price increase in the month of May. I think maybe another percentage would certainly helps, I think to maintain similar margins between now and June. See, May price increase means it's not going to fully take into effect. It will, as I said, about -- we took about 2% price increase -- 2% to 2.5% price increase in about, say, half our segments, which is commercial vehicle, a little bit in PCR. And 2-wheeler, we had not taken anything. OEM replacement, there has been continuous price increases that -- sorry, OEM exports, there has been continuous price increases. I'd say maybe about a couple percentage points in further from what we are planning in the month of May to maintain margins.
So the -- seeing maintenance of margins over fourth quarter, which itself is quite subdued vis-a-vis on long-term targets. So [indiscernible]
That's right. That's right. Because if you look at the way crude has went up in quarter 4 was quite high. In quarter 3, we were looking at crude at about $85, $90, $95. Now it went up to over $100, $110, and all that is now going to take -- I mean, all the purchases that we did see in February, March will start coming in May, June, July kind of periods. So we are expecting a relatively higher raw material forecast. Hopefully, after this, it will stabilize.
Got it. Got it. Secondly, a question on the Sri Lanka, given that we have a reasonable operation in there and we being the only manufacturer there. What is the impact that you're seeing of the ongoing economic crisis to our business there?
Yes. It's very unfortunate what is happening in Sri Lanka. There are challenges to the business. We've had enough raw material, say, inventory in Sri Lanka to help us guide through, say, until April things have continued to be okay, whether it is from a margin front or whether it is from running our factories and so on. But going on into May, June, certainly, there can be an impact because there's no fuel in the country or literally very little fuel. Our people are not able to even come to office on a regular basis because of no fuel in their tanks. Distribution is becoming a challenge. Running our factories can become a challenge if there is no fuel and to power up the boilers and so on.
So those are the kind of challenges we see. And there can be a demand impact of about 20%, 25% in the near term at least, I'd say maybe from May, June onwards. But more than anything, it is more of a human crisis where there's a huge inflation. People's costs have gone up by 50%, 60%. And they are having a various personal challenges, protests, et cetera had gone up. So it's a difficult situation in Sri Lanka. In terms of direct impact to us, as a share of our business, it's barely about 10% or less than maybe 70% of our revenues. So to that extent, it is not a major impact that will come in. Kumar, anything you would like to add?
Yes. Currency, I think importing raw materials for them and making payments to them is still a challenge. So -- and therefore, supply security of raw material is paramount for them. Other than that, Anant, that -- everything else is covered.
Sure. And one last question to Kumar on other expenses in this quarter. So we have seen a reasonable moderation in absolute other expenses despite increase in revenues. So any one-offs there? Or what is driving this sharp control on other expenses?
See. In case of other expenses, it's largely through controls or cost control. There is no specific one-off in other expenses as far as quarter 4 is concerned. In the previous quarter versus last quarter 4, because we had IPL in quarter 3 end which was not there in quarter 4. So there is some impact -- favorable impact in quarter 4 versus quarter 3. Other than that, there is no major one-off. Some of the initiatives that we took to bring down our -- bring efficiencies and energy costs, bring improvements in our wastages, et cetera, I think the performance was better in quarter 4. But no major one-offs in quarter 4. It's just IPL-related advertisement.
The next question is from the line of [ Disha ] from [ Anvil ] Capital.
One [ question. ] That in terms of PCR, what is the outlook? And one more thing, you mentioned that replacement market is down 10% year-on-year but the volumes are up 13%. So it is -- the value is up 13%. So it is all led by price growth, right?
Yes, yes. No, I think it's the other way around, right? Volumes are down, but revenues are up relatively.
So it's all led by price, know?
That's right. That's right.
Right. And quarter on quarter, can you throw some light on OEM replacement demand?
Anant, I just want to clarify a question. See, little less than 10% decline was in replacement, but at overall level, year-on-year and quarter 4, volume was flat. So it is not minus 10% in volume and plus 10% in revenue at the total level.
No, I'm late [ still can't ]...
So let me clarify. At the total level, volume was minor 1% decline at the total level. It's only in replacement where there was a decline. And minus 1% in volume, about plus 10% in revenue growth, that's the way you got to read it.
Okay. Okay. So the OEM and exports did better year-on-year and as they come back higher?
Yes. Yes. Yes.
Okay. And the same thing on quarter-on-quarter?
So quarter-on-quarter, replacement was flattish, maybe just down by 1% because of COVID wave 1. But -- and whereas OEM exports saw relatively better growth, 10% plus. And overall, we were about 4% higher.
Okay. And sir, going forward since we are investing so much in CapEx. So at the end of '23, our gross block would be how much? And how much sales can we achieve from the investments we are putting in when it is using in full capacity?
Yes. Kumar, would you like to share the gross block? Do you have that?
Yes. Yes. See, approximately our total assets in our books is about -- as of 31st March 2022, okay, it's about INR 6,500 crores, approximately. Okay. This includes capital work in progress, assets in -- so that is the level at which the total fixed assets are. Okay. And as we had indicated, we will have a CapEx of about INR 750 crores on projects and another INR 150 crores INR 190 crores. So therefore, gross block will go up to that extent.
Yes. So sir, it's around INR 7,400 crores of gross blocks?
Correct. Correct.
When the demand -- since the demand is picking up, sir, what can we -- what sales can we achieve from the current gross block? Sir, I want to know that -- the another [ full year ], that's it.
Okay. Yes. Broadly, I'll tell you what happened in last year. Then maybe Anant would be able to respond to other one. See, gross block moved up by about INR 900 crores in the current -- the year that went by. Okay, which is nothing but the total CapEx that we incurred in FY '22. Revenue moved up by about a little over INR 1,800 crores in the current year, FY '22.
Sir, 2x around?
Yes, approximately in the year went by. Next year, as we indicated, the gross block would go up by INR 900 crores. Okay. And revenue, would you like to respond, Anant? Or shall I respond?
Yes, sure. So approximately on the revenue front, we are today, our run rate is at about INR 10,000 crores. We are doing about INR 2,500 crores per quarter or INR 2,400 crores per quarter. Now clearly, we can see an increased potential of about 20% beyond where we are at an approximate level. We are adding OHT capacity. PCR and PBR, we have additional capacity. If you include TBB, which is unlikely to see much growth, then there is further potential even beyond that, but I would -- let's assume TBB will continue to decline or stay at similar, I mean, at that similar level.
Okay. And sir, on the additional CapEx, the incremental ROCs would be operative, right? Like since we are investing in OHT and more with the high margins, and we are investing in PCR.
Absolutely.
The incremental ROCs would be better than...
Yes, yes, of course.
Okay. So our fixed asset turnover ratio is around 2x overall in PC?
So incremental will be a little bit on the lower side. But we have some amounts that goes through outsourcing. So at an overall level, therefore, it is higher if you look at the base.
The next question is from the line of Nishit Jalan from Axis Capital.
I have 2 questions. Firstly, on exports, we are seeing very, very good traction and similar feedback we are getting from some of your peers also. So just wanted to understand, China used to be really big in terms of exports to global markets, U.S. and Europe. Are we gaining share from China? Or was it happening? Because global demand is not growing at this pace that everybody can grow at such kind of a percentage numbers. Obviously, we are very small in the overall context. But just wanted to understand where is the game coming for us in the global markets?
Yes. No, absolutely, you are right. So people are looking for a China plus one strategy. There has been -- duties that has been imposed on Chinese tires, I mean, as early as 3, 4 years ago by the U.S., and that has some impact. There's strong demand for TBR in the U.S., even though we don't supply TBR yet to the U.S., a very small quantity. And in the EU, we have been strategically looking at that market over the last, say, 4 or 5 years. We've developed the entire range of tires. So there say, for example, in the passenger car segment, you need to have an entire range of van tires, all season tires, winter tires, SUV, premium SUV.
So there's a very large range of tires that we've been developing over this time, and that presents us with a very good opportunity for growth there. Also, historically, for CEAT, it is well known or relatively a known brand in Europe because of our past history of the Italian region. Between Spain, Italy, it is well known. So we've also entered Germany, Poland and other markets over the course of the last, say, 6 months. So with that, EU has been strong. In the next 2, 3 months, we expect to launch our truck radial tires in Europe that can present a good opportunity.
And over the next year, we are developing tires for the U.S., which is passenger car and truck radials. That will, again, be a very large market, which has huge growth potential, but that will come on stream, say, at least 10 to 12 months after from now. And on the OHT side, there surprisingly has been a shortage of OHT tire say, in the last year, 1.5 years' time. And as a result, we've been able to capitalize on that too quite well with our Ambernath plant coming up, doing some debottlenecking in our Bhandup factory for bias farm tires. So these are the few actions that we've taken on exports.
Sir, just a follow-up. The antidumping duty you talked about is only for the truck tires, right? Neither Europe nor U.S. has imposed antidumping duty on passenger vehicles. And our exports like you also highlighted is mostly passenger vehicles. So are we actually gaining? Or basically what is the reason why China exports are kind of coming down and we are going up? Because on the pricing front, nothing has changed. And the related question is, how are we positioning ourselves for what is our pricing in markets such as Europe? Are we pricing -- are we benchmarking to the Chinese imports which are coming in Europe? Or we are pricing compared to the other Indian brands or other maybe Indian [ group ] brands which are there?
Yes. So in terms of product quality, we are benchmarking with the best. So we are benchmarking with the leading MNCs. In terms of pricing, we are certainly -- there are various levels of pricing, where we talk about the ultra-premium and then you have the premium and budget brands, et cetera. So within this, we are pricing at a much more premium level than Chinese tires. But I think it is more our strategic entry. And I see Europe and U.S. looking at the China plus one strategy as relationships have been souring over time. Again, antidumping duties have been imposed.
I believe it is across all tires, but I can get back to you on that too. All means PCR and TBR tires, but let me just validate that once again. So people are moving away from China. There is a shortage of truck radial tires fairly in the U.S. And Europe, as I said, it is our strategic entry that we are looking at, and we positioned it very well that we offer great value to the customer because of pricing, which is, I'd say, at the kind of budget level, but offering a great value product.
Yes. Just my second question is on off-highway. You highlighted also part of it. Just wanted to understand, now we have started to see a reward for the effort that we have put in in the last many years. So just wanted to understand what is our capacity now? How much are we taking it ahead? And where are you in terms of number of SKUs because I think that is very important over here? And are we reasonably well present in both Europe and U.S. now? Or it's largely again a Europe solely as of now, and U.S. is something which will play out over the next few years?
Right. So we are looking at -- we've expanded our radial capacity in Ambernath to -- so this is farm radial capacity to -- from 50 tonnes to about 80 tonnes. That 80 tonnes will come on stream sometime by July, August, after which we will be taking it up to about 100, 105 tonnes per day, both agricultural, radial tires. In addition to that, we have bias tires capacity of about 50, 60 tonnes, which includes OTR tires as well as farm bias tires. So that has always been there and then we are looking at another about 20 tonnes of debottlenecking in our bias factory. So with that, our approximate capacity can go up to close to about 200 tonnes per day between bias and radial tires in the course of about, say, a year's time, 1.25 year from now.
In terms of range, we have been continuously adding to our range of tires. We cater to maybe about 80%, 85% of the total demand on the agri side that is there. On number of SKUs, I can get back to you on the agri side. I'm not very sure of the number of SKUs that we have. But product development and as you said, you are absolutely right in terms of range that we are looking at. I think overall, we'll be having about 750 plus SKUs in off-highway tires.
And then regarding our presence in Europe and U.S., we are largely in Europe or also...
We are looking at both markets in terms of equal importance. Internally -- so we started in EU about 5 years ago or 4 years ago, and that's been growing very well. In U.S., we had an exclusive arrangement with one of our distributors there, which is what hampered our growth, say, in the first 2, 3 years' time. That came to an end about 1.5 years ago. And now we can look at strong growth in the U.S. going forward as we increase our distribution network.
Sure. Just one small follow-up there. Again, we have a couple of examples from India who have established very strong presence on off-highway, right, Balkrishna and Alliance Tires. So just wanted to understand how is our pricing are compared to the brands of these 2 companies? Alliance has obviously become Yokohama now. But let's say with BKT, just wanted to understand because this business could be very, very profitable if you are able to scale it up and if you are able to get the right pricing. So just wanted to understand where are we in that journey of moving up in terms of pricing.
Right. What I understand is our pricing is about maybe 3%, 4% or at most about 5% below BKT. I think Alliance is also at similar price levels.
The next question is from the line of Siddhartha Bera from Nomura.
On the export side, just to finish of this part, so would it possible to highlight what will be the share? So we have highlighted that for the year it's about 20%. So for the quarter, will it be similar in terms of mix? And any in targets you do have about how much you want to achieve probably in the next 1, 2 years?
I think your voice is not clear. Could you repeat once again?
Okay. Sorry. So what I was saying is that our export mix was about 20% for the year. So first is on for the quarter, will it be a similar number? And do we have any targets of about how much you want to take it in the next couple of years?
Yes. Exports, I think as a percentage would be about similar levels. It would have gone up from about 18%, 19% to now 20%, 21% kind of levels. So it has gone up in -- during the year. Over, I'd say, a year ago, it was at about closer to 15% kind of level. So there's been a clear shift in export as a percentage. Going forward, we think that with replacement and OEM markets also looking a little bit more optimistic. And this year was also a year where replacement was impacted with the various COVID waves. We think at least in the next year, maybe exports will remain at similar kind of levels. We see similar growth levels in -- across categories.
Okay. Because sir, replacement, I think you indicated that it has not picked up yet meaningfully. If you leave apart the current quarter which has a base impact, after that, I think maybe a single digit growth we can look at the replacement side. But -- so you are saying that exports will also have a similar growth collectively?
No. No. What I'm saying is in last year, our export was about 15%, 16%. That has moved to about 20%, 21%. And as a result of base effect of this year, replacement has had a relatively weaker year, which will see high growth going forward. High growth relatively because of a low base effect, right. We had wave 2, we had wave 3, which was affected and exports relatively did not get affected. So replacement on a relatively lower base should see higher growth in the coming year. As I said in quarter 1 itself, we are looking at nearly 20%, 25% type of growth levels could happen. So overall, we are looking at good growth on the replacement side. And I would guess that at a percentage level, exports would be maybe 22%, 23% kind of percentage of sales.
Okay. Okay. Yes. And on this price hike sort of clarification. So you said that about 2% price hike you are looking in May. And even after that, you will need a 2% price hike to maintain the margins at the 4Q level. Is it correct?
Yes. Yes. About 1% to 2%.
Okay. And lastly, sir, on the exports margin side, how to understand this business. Will it be sort of meaningfully higher than what you have for the overall margins? Or if you can help us understand how to understand this part.
Yes. Export margins has become higher than replacement margins. I'd say, historically, they have been at similar levels, but now they have increased because the competitiveness in the domestic market has been higher than the international market sense. So we've been able to take price increases more easily in the international markets than domestic. It would be export followed by replacement followed by OEM in terms of say, the 3 markets we show.
Okay. So fair to say it is in a double-digits range easily?
I can -- I won't have that detail. It could be varying as well. So at an EBITDA level, yes, double digit.
Okay. Got it. And last is, sir, on the standalone gross debt, can you please then highlight the numbers?
Sorry, standalone?
Standalone gross and net debt, if you highlight?
Kumar, would you like to take that? Gross and net debt standalone.
Yes. If I see, gross debt was INR 2,097 crores. Okay. And gross debt would be INR 30 crores more than -- so about INR 2,127 crores and the net is about INR 2,097 crores at consolidated level.
And sir, the standalone level, if you have it?
Standalone, another INR 20 crores difference both sides, not much of a difference between the 2.
The next question is from the line of Amyn Pirani from JPMorgan.
Most of my questions have been answered, but just wanted to go back on your revenue mix. So if I look on a full year basis, obviously, replacement has come down substantially and truck and bus has also come down. Given that truck and bus had a very strong OEM year, so on a full year basis, you are suggesting that replacement came down quite sharply. And would that be disproportionate on the buyers' side? If you can help us give some color on that?
Yes. So replacement did come down sharply on the buyers' side, but OEM -- just to clarify, OEM saw a sharp increase only in the last quarter, particularly. So OEM, if you look at commercial vehicles, even in quarter 2 was relatively weak. And we expect CV growth to be strong going forward. So we have -- I'd say, relatively to all the markets, we are quite optimistic about revival of CV segments in OEM, which we have seen in quarter 4 and going forward. From the replacement side also, there is a relatively better revival on the CV side.
International, I'd say largely across the board, there is, I'd say, equal kind of performance of crop categories with PC/UV doing a little bit better for us. In terms of the mix going forward, I would say I don't see a major shift in the mix versus quarter 4. It could be a couple of percentage points here and there. But as I said, I think it would be not a major shift in terms of revenue mix. Kumar, anything that you would like to add also there?
No, Anant. You have covered it well. Yes, obviously, our -- yes, traction on OEM truck and bus actually started only late in the year. So therefore, growth in the OEM side first 9 months didn't have any impact on us. But otherwise, it's covered broadly.
Okay. But it would be fair to say that given the activity levels are now improving, the truck and bus replacement should hopefully have a much better quarter and much better year going forward?
Yes. Yes.
Okay. And secondly, obviously, you have talked at length about the inflation that you are seeing on the raw materials side. And obviously, that is a concern. But just wanted your thoughts on the inflation on other costs and how we should think about it. And particularly, are you seeing any impact from the current ongoing commentary around power shortage, power crisis in terms of both availability as well as in terms of pricing going forward?
On the -- I think the power front, first, the power, we are not facing any serious -- any issue in terms of availability of power at this point. As I said, we moved a lot of our power to even renewable power that is helping us bring down our power cost. So nothing to add here. I'll let Kumar take this if he has any other points. Your second question was on inflation. Is it outside of raw material?
Yes. Yes.
Inflationary impact, power -- I mean, as I said, the power prices have gone up a little bit for -- I mean, sorry, not power, but fuel prices have gone up. That is the indirect impact that is happening on, say, supply chain cost and running of factory cost to a certain extent. But besides that, no other inflation. I mean, for us, it is manpower cost, which is relatively inflating at a similar rate as the past. And the balance is electricity, power, fuel-related costs. So those that are crude impacted is getting affected. And then, of course, as I said, distribution supply chain. Kumar, would you like to say anything on the power front?
Yes. No. On the power side, as of now, we have not witnessed any increase in the tariff by the electricity boards. So therefore, availability of power is an issue at the country level, but we have not yet witnessed anything, any impact on availability of power. But as Anant mentioned that, we are moving very quickly in terms of looking at alternative sources of power for plants. Almost all our plants now have reasonable percentage of power source through solar or wind at this point in time. So that will bring down the impact of any inflation that may come, okay?
Obviously, as Anant also mentioned, our distribution cost is moving up because the diesel prices have shot up since beginning of April by about more than INR 10 per liter which is about 10% kind of an impact. So that will have some impact. And some [ boiler ] other alternate fuel. Okay. So coal prices have moved up. So therefore, utility cost, particularly steam costs are going up. So that impact would be there on the cost of manufacturing and the cost of distribution.
The next question is from the line of Sachin Kasera from Svan Investment.
Can you highlight how do we see the net debt at the end of FY '23? Because you mentioned that this is also the CapEx, including maintenance would be roughly around INR 850 crores to INR 900 crores. So the way we have calibrated the CapEx as per the outlook. Will we need to calibrate the CapEx if things don't improve and the margins may be under pressure? Or will it be comfortable in terms of a further increase in debt-to-EBITDA level? And secondly, from a 24% and 20% from a 3-year perspective, what type of CapEx and debt reduction we are looking at? And finally, Anant, you mentioned that the focus is on return on capital and improvement return ratios. So from a little medium term, say, again 3-year perspective, can you tell us what your aspirations are on that one?
Okay. So your first question on end of year debt. I would say that we are hoping -- so most of our CapEx that we are planning is balance CapEx of our plants that we had already set up. So this is for our passenger car, nearly INR 250 crores. Some debottlenecking is about INR 50 crores, INR 60 crores. OHT is the new plant that we are really -- I mean, new brownfield expansion that we are looking, that's about INR 200 crores. So it is largely balanced CapEx and not much new CapEx of the INR 75 crores that we are doing. We do expect a challenging, say, another, say, 3, 4 months. But we hope that things get better in terms of our ability to take prices up.
We continue to work on our cost measures. And as you can see, debt levels have come down even in a challenging environment of the last few months that we've seen. So this focus will largely continue. And we are very conscious of trying to maintain our debt-to-EBITDA levels under 3x. So endeavors will be completely on that front. Now with respect to 3-year debt, again, our metrics will be to continuously keep it below, and we are very conscious of ROC. So to that extent, we will only invest in plants and investments that are strong, maybe over 15% kind of levels of ROC. And based on that, we will be taking any further CapEx decisions. At this point, we have sufficient headroom across the board in terms of capacity. So we will take a call for further CapEx only once we have enough demand coming in and returns considerably improve.
Can you comment a little bit on your 2- to 3-year aspiration on return on capital return ratios?
Yes. As I said, around the 15% range is what we would like to have.
Surely. And just one thing on this exports. Is it like a one-off opportunity which will last for 3, 4, 5 quarters? Or you do think this is a more structural opportunity and -- for more like a 3 to 5 year perspective?
No, this is a long-term opportunity that is there because we are going very -- it's not a sudden demand that we have seen in the international business. I think this is something that we have been building also for some time. And the sudden -- I mean, one of the structural shifts is the China plus one. And our assumption is that, say, U.S.-China relations are not going to get mended, it is more of a technology war that we are seeing rather than any other kind of fairing of relations that are happening. And as a result, U.S. is imposing these kind of challenges -- these kinds of restrictions with respect to trade picture with China.
And as a result, India is emerging as a potential opportunity for supplies into these developing countries -- developed countries. So I think it's a longest-term opportunity that is clearly there. And the way we are working with distributors, developing an entire range of tires, which is not excess tires that are getting supplied to a let -- to an opportunistic market. But the way we are looking at it is developing tires once you are there with the channel, with distributors, with final retailers, it is very -- generally, you are quite well embedded, and it's difficult to kind of get displaced unless there are major external structural shifts.
Sir, [indiscernible] is 20% 21% of exports in next 2 to 3 years would be much higher?
I think over the next 2 to 3 years, exports will be fast growing. We are putting in that focus. And I think it can go up to 25% levels also over time.
Sure. And one thing on this CV radials. Everybody has lot of capacity and then the margins that segment has come down. But now what has happened is that you also mentioned that we are looking at delivering the CapEx on the radial side in the CV. Even the industry players are talking of that, plus the need of all the statements from the CV OEM, the financial, we are all hitting at a very strong growth. So is it fair to say that maybe the margins in the CV radials are more or less struck out? And with no major [indiscernible] capacity coming in as the demand condition grow, next 4 to 8 quarters, the margins in CV radials should see an improvement?
Yes, I think so. I think things should certainly get better on the CV radial side. And as -- there's been a strong demand uptick with OEMs. And I think with various elements from the government side in terms of looking at introducing scrappage policy, ensuring old vehicles also don't run on the road. With all of that, I think CV demand will be good. And I had shared in the last call as well, there has been various initiatives taken in the past, which has caused demand to be down, whether it is increasing safety norms, whether it is increasing efficiency because of GST or increasing loading norms. The CV industry has seen a much slower growth in the last, say, 7, 8 years' time. And as a result, I think this is now time that the CV cycle has bottomed out and since will get better going forward.
The next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund.
Sir, I had 3 questions. I'll just quickly read them off. Is the 2-wheeler segment, a segment under pressure in terms of overall margins? And is it because of a extra surplus capacity that needs to be absorbed? Or is it just demand and when demand bounce back, it will return to normal? That's question number 1. The second part is in terms of your -- Mr. Kumar had said that because of IPL-related in Q3, there was higher expenses. So would it mean that this quarter you would have higher expense because of IPL? The third question, I missed the thing about the CapEx. So to be clear, you are going to do INR 900 crores of CapEx this year. And after that, you will wait and watch and see how the plans go. And given that your operational cash flows have been in the INR 700 crores to INR 800 crores a year, broadly, we would say that much of this CapEx would be finance pay internal [indiscernible], so would that be true?
Okay. So on the first question on 2-wheelers, I would say, it's a mix of demand/supply. I'd say, a mix of everything to a certain extent. That 2-wheelers has been -- demand has been low. As a result, there is excess capacity in the market, and that has put pressure on margins. It's largely the competitive pressure that has caused margins with 2-wheelers to come down because that's the segment that have been lowest price increases.
On the IPL, yes, we do expect to incur additional costs in this current quarter. And to that extent, expenses can go up. We are putting efforts to make sure that the expenses in other areas are brought down. But yes, we would see higher expenses in this quarter as a result of IPL. And CapEx, you shared, yes, we are looking at about INR 900 crore of CapEx on funding. Kumar, would you like to elaborate that how much will it be from debt, and how much in terms of crudes?
Okay. See, it depends on the total cash profit that we make, okay. Our overall threshold, then which we try to operate is debt-to-EBITDA is 3. So that's the overall guideline. So based on this, we try to manage our CapEx and other aspects also. So assuming that there is no working capital incremental impact in going into the next year, okay. And if we have to extrapolate what we -- what happened last year, last year, our EBITDA was about INR 730 crores. And if we net off the interest portion, which is about close to INR 200 crores. And then adjust for dividend, that is the net cash profit that we have made in the last year and balance amount was kind of a debt.
So it depends on what is going to be our cash profit, but we can only confirm to you that we expect the margins, hopefully, should improve in the later part of the year. You have commodity costs, raw material costs stop going up from a point in time. So -- and the balance would be debt. So the total debt would most likely be in line with about the norm of 3. So that's the way you would like to -- we don't want to give a number as far as what the debt would be or how much would be the accruals, how much would be internal accruals and how much would be our debt. In general, whenever we raise a new proposal, CapEx proposal, we assume 2/3 of it would be debt and 1/3 of it would be accrual. But going into this next year, maybe the share of internal accruals will be at least half of it and balance half of it could be debt. That's a broad high-level estimate.
Fair enough, sir. Sir, my last question was on the CapEx itself. So after this year's major CapEx, then you are going to pause, see what the growth situation is like [indiscernible] CapEx, right?
No. In the current year, it's more of -- a lot of the CapEx we have already incurred, it's more a cash flow that is going to happen. Particularly the downstream equipment where the equipment, we have already received it, but we have to make that payment, except in case of specialty where it's going to be additional capacity that we are creating. Beyond that, any additional CapEx would entirely depend on our medium-term and long-term view on demand and supply.
The next question is from the line of Sonal Gupta from L&T Mutual Fund.
Sir, could you just, one, talk about on a full year basis, what was the share of PBR revenues for you?
Approximately -- 1 minute. It'd be approximately 15%, 17%, but just could be effective. Kumar, if you have it, you can please share as well. I'm just trying to get this out.
It's approximately about 18%.
And like you mentioned in one of the answer to one of the questions, the TBB volumes on a full year basis would have declined year-on-year. Would...
Yes, yes, yes.
Okay. And just last question. I mean, like just from a strategic standpoint, right, like you are mentioning that you're developing products for the U.S. market and you plan to enter the U.S. market. But I mean given the scale that we have in exports and like you are already making a foray into European markets, I mean, don't you see that -- I mean, that's anyway a very large opportunity. So I'm just trying to understand, I mean, why get into U.S.? And especially, I mean, if there is a competitive market as well as the -- I mean, the freight cost of supplying to U.S. from India would be fair -- much higher than going to Europe. So just trying to understand the rationale here and what sort of model do you plan to follow? I mean it's primarily distributor-driven or how do you want to do it?
Yes, it will be largely distributor-driven, but we are finding that the margins in both Europe and U.S. market are strong. As I said, international market margins are now better than replacement, and we expect that to continue to be strong as people sell -- people look at a China plus one kind of model. And with margins being strong out there, we feel that it's an attractive market despite the freight costs that are there. Our cost of manufacturing is much lower than international players who have set factories in the U.S. and we are finding that it's an attractive new market for us to enter.
Right. No, I was basically coming from the fact that -- I mean, I understand that -- I mean, agreed the U.S. is also an attractive market, but given that, aren't you spreading yourself too thin by trying to go get into both Europe and U.S.?
No. I think the main thing is that for us, it adds to our margin, which is margin accretive in a way. And therefore, for truck radial segment, we feel that it clearly makes sense. The additional costs of supplying into the U.S. is relatively low. It is mainly product development costs that are there, testing costs that are there. And if we are able to utilize our capacities better, earn higher margins, we think that this is a good opportunity to look at for selling into.
The next question is from the line of Ashutosh Tiwari from Equirus Securities.
So I think earlier we used to talk about marketing expenses and selling portions when we around, say, 2% to 3% range. But compared to pre-COVID, then we probably you should do INR 1,800 crores to -- INR 800 crores to INR 1,700 crores per quarter. Now we are at INR 2,500 crores. So is there any rating in terms of cutting down that expense in terms of percentage? Are you still maintaining that percentage range?
No, we would like to continue to maintain that percentage in the longer term. In the short term here and there, we may take calls to cut it if there is some set on margins, but that will be very little shift that we would be doing. If you look, even media prices have inflated to a certain extent. So we feel that we would continue to invest in marketing strategically. So as a percentage of change long-term -- percentage of sales long term, there will be no change.
Okay. And we mentioned that, obviously, OHT tires global, there were some shortage over last 1 to 1.5 years. Is that still continues in, say, in recent months or recent quarters?
Yes.
Okay, okay. And lastly, on the capacity side on TBR, where we are currently? And how to go to the end of '23? PCR, TBR both. And [indiscernible] right now.
So on both, we are at about 75% to 80% utilized today. We expect to be nearly fully utilized by the end of this year. So, say, in about 12 to 14 months' time from now, we should be fully utilized.
That would be on the current capacity utilization. Whatever is going to come by March, that is extra?
No, there is hardly any new capacity that will be coming in, maybe marginal on the TBR side. But on PCR, we'd set up whatever we had to. It's only the payments that are due. So we are not -- we have very little few presses here and there may be coming, but I'm talking about 20,000 tires of Chennai, additional per day, PCR, that what I'm talking about as the base. So we do about 20,000 tires in Baroda capacity and about 20,000 in Chennai. So that's out of 40,000 tires. We should be quite well utilized going forward in about 12 months' time.
Okay. And TBR, where we are currently?
TBR will be manufacturing about 140,000 tires. We will be utilized at about over a 100,000 tires already. Maybe about 110, 115 today. So if CV market picks up and as we enter some of these new countries, we would be at about maybe about 130,000, 140,000 tires per month at the end of the year.
So in that case, you have to incur some CapEx next year as well for TBR, right?
So we will take a call at that point of time on how -- we had earlier plans on capital investments in TBRs, which we have delayed. But as the time comes, we will take a call whether we need to further do investments because the last year itself has been challenging, whether it is from a demand perspective as well as cash flow perspective. So let's wait and watch. Things are so volatile. Now the decision-making time itself has come down. We can't plan 2 years in.
Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments.
Thank you for organizing this call, and thank you, everyone, for your time and interest in CEAT. Look forward to catching up with you next quarter. Thank you.
Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.