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

Dealer 1.1.1

Dealer 1.1.2

Channel 1.2: Distributor

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

CAGR

Bus

12%

Vehicle population
2012
44,800

Truck

15%

98,900

LCV

10%

1,21,000

SCV

10%

1,10,000

3 Wheeler

10%

2,31,000

2 Wheeler

15%

23,00,000

Table 2: Replacement Cycle of Tyres

Category

Replacement period (months)

Bus (Cross ply)

12

Bus (Radial)

18

Truck (Cross ply)

Truck (Radial)

LCV (Cross ply)

SCV (Cross ply)

12

3 Wheeler (Cross ply)

12

2 Wheeler (Cross ply)

24

Table 3: Product Details

Category

Price per tyre in BD

(INR)

Gross Margin in BD
(INR/Kg.)

Weight
(kgs.)

Truck/Bus (Cross ply)

10158.8

65.8

46.4

Truck/Bus (radial)

14946.6

55.0

66.7

LCV (Cross ply)

5363.9

85.4

22.2

SCV (Cross ply)

1669.1

87.0

5.9

3 Wheeler (Cross ply)

999.1

89.1

3.4

2Wheeler (Cross ply)

BD (Bangladesh)

1092.6

53.1

3.3

Table 4: Statistical Snapshot

2009-2010

Bangladesh

Sri Lanka

India

Area (sq. km in 000s)

147.5

65.6

3287.2

Population (mn)

162.2

20.4

1155

Population growth (%)

1.5

.79

1.3

Literacy Rate

56%

92%

63%

Poverty Level

36%

8%

37%

GDP Total (US$Bn)

99.3

37

1380

GDP Per Capita (US$)

684

1807

1192

Total Exports (US$Bn)

16.2

10.4

201

Total Imports(US$Bn)

21.5

16.8

327

Total FDI(US$Bn)

0.96

.69

35.6

Forex Reserve(US$Bn)

10.75

10.75

314

Savings Rate (% of GDP)

34%

23%

35.7%

Phase II
CEAT Kelani Holdings (Pvt) Ltd is a CEAT India Ltd and Kelani Tyres PLC joint venture which is
the largest tyre manufacturer in Sri Lanka with 50% of market share. After the grand success
in Sri Lanka, CEAT is now ready to set up its next international plant in Bangladesh.
As Bangladesh market looks very lucrative CEAT management has decided to invest 67
million USD in setting up a tyre manufacturing plant in Bangladesh. It is expected that no
other tyre company will be investing in plants in Bangladesh any time sooner. CEAT plans to
put a capacity of 65 TPD (tonnes per day) in Phase I (2 yrs from now) and a total of 110 TPD
in Phase II (3 yrs from now).
Plant set up will pose a few challenges pertaining to availability of power. Scarcity of good
talent for managerial roles can be experienced due to small size of talent pool in market.
However labour market conditions are favourable both in terms of quality and quantity.
Socio-political environment in Bangladesh remains conducive to business. Another catch
point is the developing road network in Bangladesh which will enable easy material
movement.
The continuous economic growth and the impressive gains in several social indicators over
the past decade point to the enormous potential of Bangladesh. Nevertheless considering
the prevalent conditions in Bangladesh getting government approvals and liaison will be
monitored closely. Permission will be required from the Bangladesh BOI (Board of
Investment) for setting up the business. CEAT will have to perform activities as set forth by
BOI. Compliance with foreign exchange regulations of the government of Bangladesh is a
must for successful association.

Deliverable 2:
With the change in customer habits, infrastructure, socio-economic factors, inflation and
technology, change in market trend and demand become inevitable.
Keeping the above statement in mind, propose:

What kind of business model should CEAT adopt? Why? What should be the debt
equity ratio?
What kind of products should CEAT manufacture at the new plant in Bangladesh?
What should be the product mix? What kind of tyre technology should CEAT focus
on?
What should be our pricing strategy given the local manufacturing advantage and
import duty norms? Why?

Annexure 1: Business Environment