First question is from the line of Arjun Khanna from Kotak Mahindra Asset Management.

The first question is on the extended producer responsibility part of it. Sir, if you could help us understand why was it just taken this quarter given that it came or was notified since 2022, November? The second part of the question is, are we registered as a manufacturer and recycler or what registr ations have you taken? And in terms of the recycling, is the way of doing it ourselves and reducing this cost base of 1.4%?

You see this notification was issued in the year 2022, as you mentioned, around that period. For producers of tires to implement the recommendations of that particular notification. Some other conditions included having a portal registered dealer for recycling tires. So that infrastructure did not exist in '22 -'23. In fact, even the first 9 months of the current year, '23 -'24 also, the infrastructure was not fully in place. It is because of accounting prudence and to ensure that we follow the principles of conservatism, okay, we have made this provision. The company as well as the industry body has taken up with the government already to explore options or requested government to make it defective prospectively and also with some changes in modalities. So it's in the absence of clarity with respect to establishing the impact of it and also inadequate infrastructure, okay. It was decided in the previous year, not to provide for the same thing. And even in the current year also only towards the end of the year, and the government started insisting on fulfilling obligations. It was felt that it is better to reflect it in our financial books. In our books, we started providing from the beginning of the year based on our own internal estimates. When we came to a some kind of certainty with respect to the amount, we decided to provide in quarter 4, whatever was unprovided and also relating to the earlier year. The next question, we are not recyclers. So therefore, how we would like to fulfill the obligation is to buy certificates from recyclers who will buy those tires from the market and then recycle them and convert them into an another useful product, and we will buy those certificates from them. And the cost that we have shown in our financial statement is the cost of certificates that we would have to buy from these cycles. And we have not registered ourselves as a registered recyclers. Those who are in the business of recycling have registered themselves in the portal as the registered recyclers.

Sure. That's very helpful. So just as a supplementary question on this. In terms of EPR certified costs, have you seen an increasing trend? And are they available to the quantum that's required at this point in time?

No, it is not available. It all depends on what is the extent of obligation. And as we said, it is because of accounting prudence, we have made all the provisions, it is not available. It started some quantities started being available in the portal from quarter 4 of the last financial year, more in the later part of it. If someone were to theoretically arrive at the total obligations for this period of previous 2 years and what is required in the current year, a fraction of it is what is available at this point in time. And in terms of pricing plan, I think it's too early to say anything. It's just starting. I think we need more time to understand whether the prices will remain at current market level or will it increase or go down. So I think we need more time.

So just to understand the number that we have utilized for this quarter is essentially the current pricing in the market. Is that the right understanding?

No, we have not utilized. We didn't buy anything in the previous quarter.

No, no. I'm saying the quantum. Yes. So the quantum for the accounting provision is the current price of the EPR certificate may not be available in that volume, but we have used that price into the quantity of recycling that we are supposed to that 35%, 70%, etc.

No. We have considered the current prices. We also made some understanding because the quantum involved is large. So we made certain assumptions with respect to what is likely to be the pricing. And accordingly, we have estimated the liability.

Next question is from the line of Siddhartha Bera from Nomura.

Sir, again, just to clarify this point, we have provided INR40 crores in the current quarter. And the remaining INR30 crores has been provided in the first 3 quarters. Is it the right way to understand this?

Yes.

Okay. And second is, when you say that the quantum provision for the next year will be somewhere about 1.2% to 1.4% of domestic sales. Again, this can vary depending upon the pricing in the market? Or do you think this is largely decided and it won't chang e basically if you look at the full year?

No, it's an estimate, and it will change because the cost of certificate is what we are taking it as a cost. If the certificate cost comes down or goes up, it will have some variation. It is more an indicative number for somebody to understand the implicat ions of it. So needless to say , any movement in the prices will have some impact on the current estimate.

Got it, sir. And sir, my second question is volume...

Could you please return to the question for a follow-up question. Next question is from the line of Amarkant Gaur from Axis Capital.

My question was regarding the RM escalations that we have seen in the recent past. The natural rubber prices are up significantly when the crude may not be. So in your estimate, how much price increases will we have to undertake to mitigate those kind of impacts on RM? And how much have we taken? And any clarity you can give on the price that you have taken yet.

Yes. So coming to the price hike, we did mention that we took a very moderate/ very little price hike in quarter 4 itself in farm and PCR not across the category. In the month of April, by April end this year, in this quarter, we have taken a price hike of around 1.5% in replacement and we are in the process of converting our orders to the new pricing in international business that also will be around 1.5% to 2% as it settles down. OEM is indexed as you know. So OEM pricing is will know the index and calculate the pricing end of quarter 1. So that is the pricing situation. So the price hike is -- the raw material hike is 3% to 4%, then you need about 1.5%, 2% at least to mitigate. So with the lag, I think we will be able to mitigate as to the price hike requirement.

All right. I have follow-up questions, but I'll fall back in the queue.

Next question is from the line of Raghunandhan N. L.: from Nuvama Research. .

My question was again on EPR. Sir, can you please explain the computation because -- when I look at your last 2-3 years, 2 years of calculation, it comes to 1.5% of domestic sales in FY '23 for 35% 2 years ago and 1.4% for FY '24and for '25, you've given a range of 1.2% to 1.4%. One of your peer who also reported results today for them, the math works out to something like 0.8% to 0.9%. So as per the ETR document, it was showing that the calculation is based on weight into conversion factor into quantity. So how do we try and arrive at this number? How is the competition done?

Okay. See, this is applicable when you produce and sell tires within India, okay . So from that point of view, when you apply as a percentage on our total turnover, it may not be comparable with any other organization unless otherwise, the exports and domestic turnover percentage is in the same range or it's at similar levels, one. Number 2, I clarified the estimate of cost could vary from 1 organization to another organization. To my knowledge, still 31st of March, nobody would have incurred any cost of significance, okay. So everything that is getting reported is on an estimated basis. So only when you actually incur that cost, you will get to know the real cost and this liability people will discharge over a period of time. So from our point of view, when Arnab had indicated in his speech in terms of this number, he indicated as a percentage of domestic sales. If you were to convert the expected liability, what would that be based on that percentage. So you should at this poi nt in time, take more as an indicator and the number of percentage to marginally differ from one organization to another organization, while we don't have understanding how somebody else has done. I think it is on domestic sales. So on domestic sales, since it's not 100% at a certain percentage of our total sales, that is the way it would work out to. And it is also the note, it is around production, not on sales. Okay. If there's any difference between production and sales, that will also have some implications. What you have produced, if you have not sold, okay, you may provide based on production. But it may not exactly match with as a percentage of sales.

Just supplementing on EPR, would you need to use more recycled inputs as raw materials? Will this lead to increase in RM cost?

See, we already use some small percentage of recycled materials. And the product needs to be recycled, okay . It doesn't have to be incorporated in the tire manufacturer once again. Our endeavor is always as a responsible corporate, an endeavor is to see how to use greener material out to use a recycled material so that it has put less load on the ecosystem. So from that point of view, if there's an opportunity for us to use more, we will certainly use subject to our R&D and recipe permitting that. Okay. But however, our endeavor is to see how to create that ecosystem that will develop in terms of capability to recycle these tires. I think that is the direction in which industry as well as our site will work towards.

Got it, sir. I'll fall back in the queue.

Next question is from the line of Basudeb Banerjee from ICICI Securities. .

Just wanted to understand like with this year with strong margin and good business, working capital also supportive good free cash flow generation, debt reduction. So what is the utilization segment wise? And what is the planned CapEx for FY '25, including maintenance, growth CapEx as such?

So plant utilization is around 80% in most cases, barring TBR where utilization is very high. We have almost fully utilised our capacity and we are expecting fresh production from our Chennai expansion project of TBR in quarter 2, scaling up in quarter 3 and quarter 4. So TBR is an exception. Otherwise, it's closing to 80% in all cases. CapEx is around INR1,000 crores with about INR250 crores of maintenance CapEx and about INR750 crores of growth CapEx, primarily in Chennai TBR project, then our Ambernath expansion of agriculture radial project and also in Chennai PCR projects. These are the 3 main projects for the growth CapEx will be deployed.

The next question is from the line of Rishi Vora from Kotak Securities.

This quarter, our volumes grew by 5% and replacement segment also grew in that range. And you guided for a high single-digit, low double-digit growth in the coming quarters. So what are the key drivers for volume trajectory to improve from here on? Can you just highlight some of those that you are seeing on ground? .

Yes. So quarter 1 is a positive season for all kinds of tires because of the summer heat when tires are replaced where it is also high. So we expect strong volumes in TBR radials in replacement market that is. We expect strong volumes in passenger radials, which is also aided by the election season. And the rural and small towns are showing signs of recovery. We have had very strong growth in replacement in motorcycle and scooter in the past 3-4 months, we expect to continue in summer with a gaining market share in both passenger categories. In the OEMs the commercial category is muted because of elections and is expected to stay in that zone till about August, September, when we might see a recovery in truck tires OEMs. Two- wheeler is doing very well in the second half of last year and expect it to do very well this year. They are still below the pre-COVID level. So we expect good headroom there. And passengers may moderate a little OEMs. But still low single -digit growth is possible. In April, they grew by 1.5%. Globally, of course, in the international markets, we expect a small - - we expect the launch in the U.S. in the month of July or August quarter 2, that is strong growth expected in Middle East in Europe as well as Latin America. So that's the overall scenar io of demand outlook across the 3 segments.

Sir, any ballpark number which you'd like to share for full year in terms of overall volume guidance, it is high single digit for full year across segments like on a blended basis?

Yes, we would be targeting about a double -digit kind of volume growth, high single digit to double-digit kind of volume growth across segments. That's an average of segment.

Next question is from the line of Amyn Pirani from JPMorgan. .

Just going back to the E PR, and thanks for all the explanation till now. Just wanted to clarify. So I think there was a rule that for a year, the provision, which has to be made is for the prior year or 2 years prior production? Or is it like what provision you're making in FY '24, that INR70 crores is for FY '24 production and FY '25 will be FY '25 production?

See, obligation for FY22-23 is 35% of T minus 2, okay. An obligation for FY23-24 is 70% of T minus 2. So that is the obligation. If we have any unit company tire manufacturers come into existence during this interim period, then the obligation starts 2 years after that.

Okay. So for FY '25, you will be providing 100% of FY '23. Is that the correct way to think about it?

Yes. The base for that is T minus 2 production basis to arrive at the obligation.

Okay, okay. Understood. And just 1 follow -up on this. You mentioned you will try to mitigate it through mix, price and efficiency. So given that this is going to impact all the tire companies, at least the domestic business of all the tire companies almost equally, are you not expecting that there should be a pass -through at least on the OEM side, which is already on a formula basis? And even on the replacement side, because this is something which is an extra cost for everyone? Or do you think that there c ould be companies which would not pass it on and hence, there is some competitive activity on this basis also?

So on the OEMs, we have started engaging with the OEMs. And as you rightly said, it is an indexed formula for most of the OEMs. So we are hopeful of the outcome, but its basis a discussion with the OEMs and resolution on a one-to-one basis. In the replacement market, yes, it's a competitive situation. There could be competitive activity. But it is just like for the channel and for the customer its just like any raw material input cost increase. So they are not really concerned whether it's EPR or some at other cost increase. So the price hike will be just taken as if an input cost has gone up and based on the competitive activity, of course.

Understood.

Next question is from the line of Mumuksh Mandlesha from Anand Rathi.

Yes. Sir, I just wanted to understand on the market pricing environment in the market, sir? I mean you have taken a price hike in the end of April, particularly one large player is diverging in terms of price increases. So how do you see that kind of impact on the pricing for us?

The pricing, as I said, is not totally 100% dependent on competition as it used to be some 5 -7 years back. There is some degree of pricing in demand that is possible. There is some degree of net share movements also that are possible. But individual players decide on their relative strengths and take those calls. So it has played out over the last 7- 8 quarters, and it will play out in the future as well. The quantum of price hike one may decide to take in different categories may also be different, right. So we have taken the price hike basis our strength and where we believe that we can pass it on without any significant impact on our market share on our volumes. For example, in passenger car category, we took a minor price hike in quarter 4 and we gained market share in quarter 4. But it may not hold true for all categories for us, and likewise, for all the competitors.

Understood, sir. Just Kumar, sir, what would be the impact of Red Sea on the freight cost for this quarter, sir?

No. See, freight rates have moved up for largely to movements to Europe, okay . And the rate increase has been happening since beginning of quarter 4. So it's almost 300% increase is what has happened in freight rates. So it stays at that level now.

Next question is from the line of Jinesh Gandhi from Ambit Capital.

My question pertains to the current quarter performance where if I adjust for the EPR provisioning, EBITDA margins have improved almost 120 basis points is the third quarter despite stable RM basket and like the impact of freight cost. So is this entirely due to mix improvement or there is something else which is not getting the structure?

Okay. See, I think you're referring to the gross margin has improved by about close to about 100 basis points.

No, I'm referring to EBITDA margin. EBITDA margins have improved about 130 basis points if I adjust for the ETR provisionings.

If you adjust for ETR provisioning, so if you approximately, let's assume about 1% -1.2% kind of an impact of quarter 4. So if you added to the quarter 4 margin, it is not a 1% improvement. It is about 20 to 30 basis points improvement over the previous quarter. That's what it is. So that's largely attributable to better mix. I think as Arnab earlier mentioned, we grew strongly in replacement and exports. So that plays some role. And if you're referring to gross margin, gross margin, the way it is computed. It has some impact on account of if you hold a higher level of finished goods inventory. The way gross margin gets reported, it will tend to show a little higher because you just the closing value of finished goods, which is include non -material component. And therefore, it might appear as a higher improvement in gross margin, but at EBITDA level, it gets neutralised. So largely, I think if you add back, it's not a 1%, it is about 0.2 %-0.3% improvement over the previous quarter, quarter-on-quarter.

Okay. Okay. Got it. And second question pertain, given that there is such a strong outlook for demand, which we are looking at for FY '25 and we're already at 80% ex of TBR. Do we need to increase our CapEx investments to meet this growth and also meet our market share aspirations or we can manage to do this CapEx without looking at a large brownfield expansion?

As I mentioned, the CapEx utilization is higher for TBR. In TBR already, there's a big expansion underway at Chennai and we expect commercial production in quarter 2. So we are prepared for meeting the TBR demand and growing market share in TBR.

And for other segments?

Can you repeat, please? .

For other segments PCR and 2-wheelers and OTR?

For other segments, there is enough headroom to grow in the current capacity. And in PCR also, there is an expansion going on, looking at future demand of 2 to 3 years. So the current CapEx outlay of INR1,000 crores is sufficient to look after current demand as well as future demand in the medium term.

Next question is from the line of Swechha Jain from Whitestone Financial Advisors.

Just coming back to the EPR provision. What I want to understand is, going forward, -- every quarter, we will make a provision of 1.3% to 1.4% of the domestic sales. Have I got this correct, sir?

So, it is an indicator. because it has just started in the quarter that went by, we had not incurred anything. So from our point of view, it's more an indicator, it could be in that range. It depends on the cost of certificates. We will look forward to we hope government considers the request of the industry. So it was more as an indicator. I think we can keep fine -tuning in the coming quarters once you get a better hold on the certificate market and also we are assuming the need for recycling increases. There could be more players coming into the market. So these things all these things influence.

Ma'am we're not able to hear you clearly.

So it will be an accrual basis from here on. I think the rational for making the provision in quarter 4 we explained earlier. From here onwards, it's going to be part of our normal cost subject to -- we are able to get some benefit through the interactions with the government. I t hink it will get adjusted appropriate. We look forward to it. But if it doesn't come, it will continue on a quarterly basis.

Okay. Okay. And just a follow-up, if I can ask. Actually, I missed the volume numbers that you were giving during the commentary. Could you just repeat those, if possible.

The industry growth. Okay. So if you are talking of CEAT's growth numbers, volume, and we grew by about 6.5% on a full year basis, 5.3% on a quarterly basis. And this was distributed across the segments with very high growth in two-wheeler and passengers and somewhat lower single-digit growth in overall truck bus. Specialty also grew close to double digit. TBR grew in single digits. So that's the kind of growth rate for Q4 Y-o-Y.

Okay. So this is the replacement or replacement growth, right?

It is overall. Overall.

Okay. So would you also give volume growth in replacement and OEM separately?

On OEM, as I mentioned, we grew well in replacement and OEM was moderate in quarter 4 overall. So most of this growth came from replacement and single tires.

Next question is from the line of Nihar from Living Root Capital.

But most of my other questions have been answered. I just wanted to ask, would it be possible to provide the market share breakdown by product or by segment category?

Are you asking for a replacement?

So all of the segments, sir.

Approximately, as I mentioned in passenger, we are about 17 -odd percent in replacement. 2 - wheeler would be about 35% plus and truck bus radial will be still in single digits but approaching double digits and in OEM it is similar. The TBR will be higher at about mid-double digits, and passenger would be slightly lower than 17% and 2-wheeler will be around the same, slightly lower.

Next question is from the line of Kaushik Poddar from KB Capital Markets Private Limited .

This is Kauhik Poddar. I hope you can place me.

Okay. I'm speaking to you after for a long, long time. See, what is the stable margin you see? I mean, around 13%, 14% is the long -term margin you can -- we can take it at a long term, whatever the target or something? Or you can improve on it?

See, we don't give a guidance for future. We have been maintaining that we would like to maintain the EBITDA margin at in a tight narrow band because we invest when we can invest as we are investing in the IPL in quarter 4 and quarter 1 also we'll be inves ting heavily in the IPL and brand. And when there's a raw material hike, which we cannot mitigate, we manage the investment onto the next quarter. So basically, we are trying to manage in a tight band, the EBITDA margin. And when that happens, usually it goes up over a period of time, provi ded there is no inflation impact. So there are many things at play. There's a sharp inflation, very difficult to manage the margin at current level. So but our endeavor is to manage it in a tight band.

Okay. And my next question, which is that you said that as far as the passenger segment goes PCR, you are able to at least set the price. I mean which are the segments in which you are the price setters and the segments you are the price takers in other -- which other segments? .

There's no clear position that has evolved like that. In truck bus radial, where we are a single - digit market share player, we have price followers. That's for sure. In the other 2 segments, it depends on the situation and our need to gain market share. So sometimes we have been able to take independent calls on pricing in these 2 segments.

Okay. And see, as far as the market share goes since you have such a high share in the 2-wheeler segment, I mean, probably you are the highest. So don't you have a pricing power that much more there?

We do have pricing power relatively better than 2-wheelers segment. .

Next question is from the line of Aashin Modi from Equirus Securities. .

My question was in the IPL expense. Could you quantify its impact during the quarter? And what sort of impact could we have in the next quarter because of this [inaudible 0:54:02]

It is 2% to 2.4% roughly, it varies. So it fluctuates around that. It's to be more above 2% in these 2 quarters and then maybe moderate in the subsequent quarter.

One last question is regarding risk status reduced our debt significantly. So that INR460-odd crores this year. So how do we cede reduction in the next year or next couple of years.

No. See, this year, free cash flow generation has been very healthy. I think maybe highest. Going next year, I think it was indicated that our CapEx plan for next year is about INR1,000 crores, okay. And -- we would also like to normalize working capital, okay . So because at the end of the day, we have to meet the service levels across the geographies. So we managed to fund all our CapEx from internal accruals last year and still managed to bring our debt down. In the first half of the current year, we see some cash flow happening. In case of EPR, which we spoke about, that will be something , we've declared dividend just now that itself translates to INR120 crores of dividend. So we'll keep in mind, I think we will keep the debt within our range, okay, within rate. We are around INR1,600 crores of debt on a stand -alone basis. We'll keep within the range of INR200 crores, INR300 crores on the higher end. And we'll continue to work in terms of opportunities to bring the debt down as and when it happens. But just want to share with you that we are comfortable at current levels of leverage. So we all know over leverage is bad. But under leverage is not good also. So from that point of view, we'll try to manage. And the reason for keeping the CapEx, it's mor e a preparation for the following year and later on in terms of capacities is also because of the fact that the balance sheet is bringing. So we'll operate within this.

Next question is from the line of Amyn Pirani from JPMorgan.

I just had a clarification. So what is the TBR capacity right now? And how much are we increasing it by in the expansion that we're doing in Chennai?

So our factory -- existing capacity about 130,000 tires per month. It can be stressed a little bit - - and what we are putting up in Chennai is about 45,000 tires per month progressively.

Okay. So approximately 30% expansion on the TBR capacity?

Yes.

Okay. And this will be available for production in FY '26? Or this will start to become available during FY '25 itself?

Our intention is to commission the plant in quarter 2 of the year. Okay. Normally, it follows to the normal ramp-up route. So quarter 3 onwards it will start contributing to sales. .

Next question is from the line of Raghunandhan N. L. from Nuvama Research.

Sir, on the export outlook side, if you can give some more color in terms of how you see the testaments of double -digit growth, which markets, which products are likely to do well? And how do you see that target of 25% share getting achieved?

Yes, 25% is a saliency within CEAT, which is currently 19%. So as I have mentioned, the key focus is on agriculture radials, passenger radials and truck bus radials. So strong focus on passenger radial and agriculture radial, truck bus radial is coming up as maybe we can say 2.5 categories and geographies are Europe, U.S. and Latin America. So these are the 3 geographies that we'll focus on. Out of which U.S., we have agriculture radial, which is scaling up. Passenger radial and truck bus radial are yet to be launched. In all other geographies, we have created the market access by we have dis tribution network, product development is done. Product development is also done and tested for U.S. So this will be a focused market. And Middle East is also shaping up well, though I didn't mention about it earlier, but it may be the fourth area, but the first 3 are the focus areas.

Got it, sir. And H2 of FY '24 exports had grown in double digits, I think, 15% plus. So how would you see the double-digit growth getting sustained. Do you see any...

So the international business is always fraught with higher risk because of various geopolitical events over which we don't have any control. So should -- if there are no major aberrations, then we see headroom for growth being a value brand, which is our products are very well accepted and at the right price at which we make good money. It is EBITDA accretive for us. We see a lot of headroom for growth in all these 3 geographies, barring some unforeseen risks, which we have not accounted for. But those risks are always there.

Got it, sir. And Kumar, sir, can you quantify that you indicated 300% increase in freight cost on the Europe growth like would it be a 30 -40 basis point kind of a hit this quarter? Any quantification there? What was the impact this quarter? And also thoughts on pass -through of this higher freight costs with customers have customers responded positively, have you got acceptance for pass-through?

Okay. See, normally, there are 2 ways in which you price your product. One is FOB and another CIF. Okay. Whenever we have FOB contract, buyer takes the impact of freight as and when it happens. In case of CIF contract where we have given a price, including price and in the intervening period, so long as the price is applicable we may have to break up that freight. Okay. But when you renegotiate the prices at the next cycle, either you address the freight rates, and in the same price or are there some kind of an arrangement where the actual freight is appropriately adjusted in the pricing. So largely we pass through, okay . And the impact of that has already been taken in the previous quarter. We don't expect that to have any incremental impact on us in the coming quarters.

Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to management for closing comments. Over to you.

Thank you very much for attending the conference call of this year. We have had a good year, and we hope to see you again in 3 months' time. Thank you very much.

On behalf of CEAT Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.