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Saturday, July 3, 2010

Ceat to Expand Capacity by Investing 630 Crores

Ceat, the tyre manufacturing company of the Rs 16,000-crore RPG Group, will double the capacity of the radial unit it has set up in Halol, Gujarat, with an additional investment of Rs 630 crore.

The Mumbai-based company, which is also the fourth largest tyre making company by tonnage in India, will start the operations at the greenfield facility in Halol, where it has already invested Rs 620 crore, by October 1.

"The company's board will meet shortly to approve increasing the capacity of the Halol facility to about 300 tonnes per day from 130 tonnes per day, which will be its initial capacity. An investment of about Rs 630 crore will be required for this", said a senior company executive.

The board will also finalise the ways to fund the expansion plans. The raised funds will also be invested on research and development (R&D) activities, added the executive.

This plant in Gujarat, a substantial production of which will cater to the export market, was earlier supposed to be operational in May this year but due to unspecified internal reasons, the launch plans got delayed by nearly five months.

Ceat's additional capacity will be coming up at a time when automotive manufacturers, especially commercial vehicle (CV) makers such as Ashok Leyland, Mahindra & Mahindra and Tata Motors, are complaining of lack in tyre supply within the industry.

According to sources, the company will eventually ramp up the Halol capacity four times, which could take its total capacity to 600 tonnes per day, depending on the demand.

Plans are afoot to increase the capacity three-fold to 450 tonnes per day in the next three to four years that would require an investment of around Rs 1,500 crore, which includes the investment in the second phase of expansion.

The plant can make 4 million tyres per annum in Phase I, a considerable portion of which will be radials for heavy truck, bus, light truck and passenger cars. This will be ramped up to 12 million tyres per year over the years. About 25-40 per cent of the total production from the Halol plant is marked for the export market.

The company is also expanding its Nashik unit by about 35 tonnes per day, which constitutes 10 per cent of its total capacity. This expansion is expected to be finished by this month.

The Indian tyre market is rapidly changing its focus towards radials from cross ply tyres earlier. Although radials are expensive than cross ply tyres, they are known to be providing better performance such as delivering higher fuel efficiency and better road grip. Radials also last longer than other normal tyres.

The country is 90 per cent radialised in the passenger car segment but the CV segment, such as that of trucks and buses, is only 15-20 per cent radialised. This is primarily because of the lack of interest of tyre makers for the CV industry and reluctance of CV owners to switch to radials due to marginally higher prices.

However, about five to seven per cent of tyre consumers are switching to radials every year. Over the next four years, the domestic tyre market for CVs is expected to be 30-40 per cent radialised, say tyre manufacturers.