CEAT Tyres aims to make deeper inroads into smaller towns and cities

CEAT Tyres is looking to double the number of standalone retail outlets in the next two years as it seeks to ride on the burgeoning demand for personal mobility in smaller towns and cities, the company's top official said.

As part of the plan, the RPG Group firm will open 100 CEAT Shoppes – mostly in small towns and cities, over the next two years. The expansion, the biggest in the company's history, will take the total number of outlets to 600 from the current 300, said Arnab Banerjee, chief operating officer, CEAT Tyres.

“There is a strong preference for personal vehicles both in smaller and bigger towns – whether it’s a second hand car and two-wheeler or a brand new one. This secular trend across the country has boosted demand for tyres,” said Banerjee.

These new format stores which will be more compact and contemporary as compared to the large format stores in major metros will come in towns that have a population of less than 500,000. These exclusive stores will be more than just a sales channel. These will not just be exclusive outlets but an experience channel. “We will be doing a pre and post purchase analysis by documenting the service experience of customers who walk into these stores. This will help in establishing a one to one connect with the customers,” explained Banerjee. The move will also help in notching up the revenue coming from the exclusive channels, he added. CEAT will invest Rs 30-35 crore in setting up these outlets, other expenses including marketing and communication will be borne by the franchisee partner.

Meanwhile, touching upon the overall business, Banerjee said the tyre maker has been operating at over 90 per cent capacity. The demand is holding up for both passenger vehicles and two-wheelers from automakers and the replacement market is also pretty strong. “We expect capacity utilisation to remain at an elevated level despite the ongoing ramp up. We are entering a high growth phase,” said Banerjee alluding to the June quarter which is typically a high demand quarter for tyres.

CEAT’s expansion plans are also being driven by the trend of people holding on to their existing vehicles for longer. This, in turn, has been fueling demand for tyres in the replacement market, which has already reached the pre-Covid phase in volume terms. The implementation of anti-dumping duties has curbed imports and worked to the advantage of domestic tyre manufacturers, pointed out Banerjee. The replacement market accounts for 65-70 per cent of the company’s revenue mix.

Even when India’s auto market had hit the slow lane last year owing to the pandemic, the tyre industry was insulated due to its reliance on the more stable replacement market. Even when sales to original equipment manufacturers declined 16.3 per cent year on year in FY20, in line with the decline in auto industry volumes, the replacement market sales declined by a modest 2.6 per cent over the same period, according to India Ratings Research.