CEAT Expansion: Going beyond boundaries

Phase I
In RPG House 2nd floor Conference Hall, Sales and Marketing Managers were ready with their proposals on how to increase market share and business growth. Many presentations were made but one proposal that could stand out from the rest and make a mark was the one which proposed that the accent should now be on international markets. The presentation threw light on the business opportunities in international markets and how company can increase its brand visibility and business abroad. With the same objective it was proposed that the management should now focus on emerging international markets where growth opportunities are exponential. CEAT is a leading manufacturer of automobile tyres in India and it is one of the most recognised brands in the country. The company has a strong presence in the Indian market with a market share of 12% and a 5-year CAGR of 20%. CEAT deals in cross-ply and radial technology in tyres and offers the widest range of tyres in the industry. The range of tyres covers virtually all user segments, which includes trucks, buses, LCV (Light Commercial Vehicles), SCV (Short Commercial Vehicles), three wheelers, two wheelers, passenger cars, utility vehicles, tractor & farm and specialty & industrial. The company produces over 12 million tyres annually and also exports a wide range of tyres to over 130 countries worldwide. With respect to market penetration in international market, CEAT is currently focusing on specific developing countries, one of which is Bangladesh. Bangladesh has become one of the prime focus markets for CEAT as it has immense growth opportunities. The opportunity is attractive due to lack of local manufacturers of tyres in Bangladesh, reasonable size and CAGR of 12% of local market and strong brand image for Indian tyres. Another contributing factor is the political parties, which are pro-business and friendly with India. Bangladesh is one of the N11 countries named by Goldman Sachs and is expected to have a growth rate of 6%-7% which has been consistent for the last 5 years. Main source of foreign exchange are garment exports and inward remittances of Bangladeshi workers abroad.

Bangladeshs traffic and infrastructure growth pose major challenges. Moreover the political scenario in the country has been challenging as well. In the month of June & July 2012, Bangladesh experienced a spate of riots. Some turmoil & riots are expected closer to next general elections in the early 2014. With significant political issues major infrastructure projects become strenuous as it is difficult to gain multilateral support. Some additional information about the country that is indispensible for the business is the Corporate Income tax rate which is 30.5%, bank interest rate which is 14%, customs duty rates which is 5% on raw materials, 12% on intermediate products and 25% on finished goods. The import duty rate is as follows: 12% on commercial vehicle tyres, 5% on farm tyres and 25% on other tyres. Due to lack of local producers, 95% of tyres in Bangladesh are imported; India contributes 48% of the total imports. The Auto industry in Bangladesh is expected to grow at 15% and the Tyre market is expected to grow from current Rs. 2012 crores to Rs. 2697 crores in 2016 with CAGR of approximately 12%. Truck & Bus tyres comprise of over 54% of the market size. In this segment radialization is progressing at a good pace especially in terms of long distance busses. The percentage of radialization in the segment of motorcycle, trucks and cars is 5%, 13% and 95% respectively. The market size of trucks is followed by LCVs with 25% of market share. Radialization is low in the LCV segment. The remaining market share is taken by other segments in which short commercial vehicles are growing exponentially. Michelin & Bridgestone are price leaders in the Bangladesh market. Among the Indian players, MRF is the price leader. Other Indian players are positioned 8%-10% below MRF. CEAT products reach end customers through intermediaries. Tyres are supplied to distributors, who in turn supply to dealers. Distributors hire their own sales staff to service dealers. Following is the Distribution model of Ceat.

Ceat
Tyres supplied to

Channel 1.1: Distributor

Channel 1.2: Distributor

Dealer 1.1.1

Dealer 1.1.2

Dealer 1.2.1

Dealer 1.2.2

Figure 1: Distribution Model of Ceat

With respect to focus in Bangladesh market, CEAT has made a major shift. It is now among the top priorities of the company. The CEAT team is all geared up to increase the current market share by manifolds. Deliverable 1 What should be the strategy for market penetration in Bangladesh to increase the market share? Annexure 1: Bangladesh Tyre Industry

Annexure 2: Competitors

Table 1: Vehicle growth rate Category Bus Truck LCV SCV 3 Wheeler 2 Wheeler CAGR 12% 15% 10% 10% 10% 15% Vehicle population 2012 44,800 98,900 1,21,000 1,10,000 2,31,000 2,30,000

Table 2: Replacement Cycle of Tyres Category Bus (Cross ply) Bus (Radial) Truck (Cross ply) Truck (Radial) LCV (Cross ply) SCV (Cross ply) 3 Wheeler (Cross ply) 2 Wheeler (Cross ply) Replacement period (months) 12 18 6 9 6 12 12 24

Table 3: Product Details Category Truck/Bus (Cross ply) Truck/Bus (radial) LCV (Cross ply) SCV (Cross ply) 3 Wheeler (Cross ply) 2Wheeler (Cross ply) BD (Bangladesh) Price per tyre in BD (INR) 10158.8 14946.6 5363.9 1669.1 999.1 1092.6 Gross Margin in BD (INR/Kg.) 65.8 55.0 85.4 87.0 89.1 53.1 Weight (kgs.) 46.4 66.7 22.2 5.9 3.4 3.3

Table 5: Statistical Snapshot 2009-2010 Area (sq. km in 000s) Population (mn) Population growth (%) Literacy Rate Poverty Level GDP Total (US$Bn) GDP Per Capita (US$) Total Exports (US$Bn) Total Imports(US$Bn) Total FDI(US$Bn) Forex Reserve(US$Bn) Savings Rate (% of GDP) Bangladesh 147.5 162.2 1.5 56% 36% 99.3 684 16.2 21.5 0.96 10.75 34% Sri Lanka 65.6 20.4 .79 92% 8% 37 1807 10.4 16.8 .69 10.75 23% India 3287.2 1155 1.3 63% 37% 1380 1192 201 327 35.6 314 35.7%