Fifteen years ago, a wave of change swept through the corridors of CEAT’s artsy head office in Mumbai’s Worli, transforming the brand’s identity. The iconic rhino mascot—a faithful companion for nearly 50 years—and the company’s tagline “Born Tough” were retired. In came a simplistic logo and a new tagline, “Making Mobility Safer And Smarter Everyday”.
This marked a poignant departure from tradition, as CEAT—under the stewardship of RPG Enterprises Chairman Harsh Goenka—rolled into a new era. For the company’s new MD and CEO Arnab Banerjee, a veteran of more than two decades, the new identity underscores the company’s ability to keep its ears to the street. “During one of our focus group discussions, it came up that rhinos are going to be extinct soon. It was important to listen to what our customers were saying and how we wanted to relook at ourselves in order to stay relevant,” he says.
What separates it from the competition, Banerjee says, is that CEAT has always seen itself as a business-to-consumer (B2C) company, even though a major chunk of its business is business-to-business (B2B), catering primarily to two- and four-wheeler original equipment manufacturers (OEMs), and truck and bus fleet firms. So it has placed a premium on brand connection. Take CEAT’s association with cricket, for example. It’s a source of nostalgia for fans from the ’90s, who fondly remember the CEAT Cricket Ratings. And RPG Enterprises’ flagship company has seamlessly woven itself into the lives of fans of a more recent vintage as the sponsor of the Indian Premier League’s ‘Strategic Timeout’.
On the business side, too, CEAT has been agile in anticipating customer demand, moving swiftly into a gap it saw in the electric two-wheeler market. That’s in addition to its dominance in the two- and three-wheeler tyre market. Besides, in FY23, its net profit more than doubled after a big fall the previous year. The company’s shares, too, have delivered smart returns of 51.1 per cent in the year to January 10, 2024.
CEAT isn’t showing any signs of slowing as it looks to consolidate its dominance, especially in the two-wheeler tyre market, which market research firm TechSci Research expects to grow to $3.94 billion by FY27 from $2.11 billion in FY21, at a CAGR of 10.53 per cent. This is a huge opportunity for market leader CEAT, which has the lion’s share of 33 per cent in the segment, according to industry estimates, as it targets a top line of Rs 17,000 crore in the next three years.
The electric bet
For Anant Goenka, Vice Chairman of RPG Group, keeping pace with technology is one of the biggest challenges, but it also represents one of the biggest opportunities. “Whether it’s looking at AI (artificial intelligence)-based applications or reskilling people, my leadership style is more about giving people a lot of freedom and keeping pace with the values of our organisation, which for CEAT is making mobility safer,” he says.
Goenka, who made way for Banerjee after holding the MD’s position for more than 12 years, now broadly looks at capital allocation, investment, strategy, and organisation culture. He says creating the right tyre for India’s EV market will be a priority. “Our R&D facility in Frankfurt keeps us abreast of the latest technology in Europe and trends that will become big. Sustainability is another broad trend. Recycling tyres will also become important,” he adds.
Banerjee emphasises CEAT’s robust presence in the two-wheeler market as proof of its ability to make things click. He aims to increase market share to 37-40 per cent in the two- and three-wheeler space by FY26. “We’ve been looking at the EV market for the last five to six years. The requirements here are very different; EV tyres have to carry heavier batteries and withstand initial torque, the pattern and grip have to be stronger because the battery is heavy. It should be noiseless as EVs are generally very silent vehicles with no moving parts making the tyre noise more evident. There is range anxiety that has to be reduced by prolonging battery life with low rolling resistance,” he says.
CEAT was an early mover in the EV space, as it rode on the start-up trend. “In the two-wheeler category, we saw a number of start-ups like Ampere, Ather, Okinawa, Ola, etc., crop up and immediately created a new role for that in the organisation. We were very agile in connecting with these start-ups and creating tyres as per their requirements. We were the first to focus on two-wheeler EVs,” he explains. The firm says it has already secured a commanding 40 per cent share in this space.
In the non-EV space, the company has successfully gained market share in the two-wheeler segment, benefitting from a surge in replacement demand over the past four to five months, domestic brokerage Motilal Oswal said in a recent report. “The management has identified the [two-wheelers], passenger car, and OTR (truck/off-road) tyre segments as strategic focus areas, given their ability to boost margin and to lower CEAT’s dependence on the truck segment,” the brokerage said. Revenue contribution from its focus areas has increased significantly over the years—to 62 per cent in FY23 from 20 per cent in FY10—it said. It pegs the company’s revenue potential at Rs 14,000 crore.
The sum of its efforts is visible in CEAT’s top line. It recorded gross sales of Rs 11,314 crore in FY23, per ACE Equity, largely driven by price and volume growth. Its profits, meanwhile, have fluctuated. From Rs 252 crore in FY19, profits almost doubled to Rs 432 crore in FY21. But the very next year, there was a huge decline to Rs 71 crore, and then a recovery to Rs 186 crore in FY23.
Banerjee points to external factors. “More than 50 per cent of raw material is crude derivatives, and in 2022 there was a sharp inflation in all commodities across the globe. In addition, due to global supply chain disruption post Covid-19, the freight costs rose sharply. While we had partly passed on the increase in input prices to our customers, this happened with a lag.”
He says in FY21 CEAT was the first to resume operations and captured additional market share. “This, combined with softer commodity prices, helped us report good profitability in FY21. The commodity prices have now stabilised, and we do not expect any sharp movements in the short to medium term,” he says.
With India setting a road map for achieving 80 per cent electrification of two-wheelers by 2030, experts say CEAT is ideally placed to benefit.
Cashing in on premiumisation
There are opportunities elsewhere, too. There has been a discernible shift in the Indian automotive industry, both in two- and four-wheelers, towards premiumisation. Studies indicate a shift in preference towards higher-end models with advanced features, superior technology, and better performance. Goenka, for one, can’t wait to cash in on this. “We have to move where the market is moving, and premiumisation is a clear trend… and we need to develop products for that market. It’s all about looking at these megatrends and being at the forefront,” he says.
Banerjee, too, likes to keep an eye out for such trends. “Premiumisation will obviously lead to higher margins and higher realisations, but it’s also a growing customer preference, and we need to be there. SUVs and EVs are expected to lead to significant market share growth for us. Our value proposition is safety, product quality, control, and manageability in four-wheelers,” he says.
He says CEAT will have an advantage as non-commute use of bikes is expected to increase in the future. “The customer is going through a lot of lifestyle changes. Travel and cruising use cases for bikes will increase. We have to travel with the consumer.”
Need for speed
Banerjee likes to describe himself as restless and agile. Now that he’s at the helm, he wants the firm to display those traits. “As a company, we’re not as agile as a start-up. Traditional companies tend to be slow and bureaucratic. There’s a lot we can learn from start-ups; we have to be 10x more agile than we are today...Start-ups can also learn business processes and not burn money they shouldn’t have from legacy companies,” he says.
Another front in CEAT’s quest is exports. “It’s a top priority for us to grow globally. We want to [see] about 25 per cent of our revenue coming in from international sales in three years. Over the last five to six years, we’ve seen a shift in the growth of specialty tyres, like off-highway tyres, of which 80-90 per cent are sold globally. In Europe, CEAT is an erstwhile Italian brand. Therefore, it’s well-known there and that legacy is helping us expand in international markets like Europe and the US,” Goenka explains.
CEAT, short for Cavi Elettrici e Affini Torino, was established in 1924 in Turin, Italy. It was later sold to tyre manufacturer Pirelli, which also bought the rights to the CEAT brand name. In 1982, it moved to the RPG stable and was renamed CEAT.
CEAT aims to double its international turnover in the next two to three years, increasing the contribution of its international business from the current 19 per cent to 25 per cent by FY27.
A reason for optimism is the still low global share of Indian manufacturers. The global tyre market is dominated by China, which makes up around 50 per cent of the sector. India’s tyre business has been resilient and is expected to grow by 7-9 per cent between 2020 and 2024 and overtake the US to become the third-largest market. This could be thanks to countries’ search for alternatives to China.
But even as foreign roads beckon, CEAT is bracing for competition from local rivals—like MRF and TVS Tyres—to intensify. According to financial services firm Prabhudas Lilladher, competitive intensity is increasing, but the company has successfully retained its pole position in the two-wheeler segment. “Raw material cost is expected to increase, but it would mitigate the impact through product mix and pricing action in non-truck portfolio if needed. Though the demand environment has been stable, CEAT’s focus on the export market should help volumes and margins,” Himanshu Singh, Reseach Analyst at Prabhudas Lilladher, says.
Banerjee is more than aware of these challenges. “Competing is all about continuity, candour, and self criticism. I’m not interested in knowing what I’m doing right, but where I can improve… if there is anything others are doing better, I am open to adopting practices that can prove to be more effective” he says.
Bold move
Though it has so much on its plate, the company is still on the lookout for ways to be at the cutting edge of technology. CEAT’s acquisition of online tyre retail platform Tyresnmore is an example of this desire. Goenka says this gives CEAT access to immense data and helps reinforce its identity as a consumer-facing brand. “The platform is under no pressure to sell tyres just from CEAT. It helps us understand what’s working in the market and why our customers are switching.”
Tyresnmore reported revenue of Rs 14.25 crore, a growth of 40 per cent over the previous year’s revenue of Rs 10.21 crore, and a net loss of Rs 6.56 crore in FY23. For Banerjee, it works as an in-house VC set-up. “Customers today want choice and Tyresnmore provides them the freedom to choose from a range of brands. We’re one of the vendors on the platform, we have no targets to sell CEAT; it’s a pure-play consumer start-up.”
Banerjee says all of the firm’s recent bets are underpinned by one aim: consolidating CEAT’s leadership position. “Our speed and mastery of technology will give us a lead of a couple of years, which we will sustain continuously, thus giving us a dynamic advantage,” he says.
CEAT continues to be on a roll.
@PLidhoo