ceat ltd share price Management discussions

CEAT Limited, a leading player in the Indian tyre industry is the first tyre company globally to have been awarded with the ‘Lighthouse recognition for adoption of ‘Industry 4.0 techonologies at its Halol facility. CEAT introduced digitalisation methods throughout all of its factories to improve its operational efficiency. This was done by utilising cutting-edge technology including analytics, machine learning, virtual reality, and industrial IoT. Consequently, the Companys productivity, yield and energy efficiency has seen significant improvements. Going forward, the Company expects to have further Lighthouse recognitions across the facilities. Additionally, a new version 6.0 of the Dealer portal was introduced with multiple new features and new schemes enhancing the engagement channels.

At RPG Group, commitment to innovation and customer satisfaction while striving for excellence in deliverance of services and products with integrity and pride is pivotal. The Company is committed to offering customers the highest quality products to meet their constantly evolving needs. With its wide product range, CEAT caters to diverse customer segments, including OEMs and replacement markets. Living its purpose and ethos, the Company has been committed to making mobility safer and smarter with its world-class products marking its presence over 110 countries worldwide. The Company manufactures high-performance tyres for a broad range of vehicles, including 2/3 wheelers, Passenger and Utility vehicles, Commercial vehicles, and Off-Highway Vehicles. The Company operates six manufacturing plants located in Nashik, Mumbai, Ambernath, Nagpur (Maharashtra), Halol (Gujarat) and Chennai (Tamil Nadu). Additionally, the Company has state-of-the-art R&D centres in Halol, Gujarat and Frankfurt, Germany, dedicated to research and development of advanced tyre technologies.

Driven by its purpose and adoption of smart technologies to offer value proposition to its customers, CEAT is a well established brand in the tyre industry. The Companys extensive geographical presence, combined with its innovative products, has enabled it to maintain a strong competitive position in the market.

GLOBAL ECONOMY

The global GDP growth rate was 3.4% in CY 22. According to IMF predictions, global economy is expected to grow at 2.8% from CY 23 and 3.0% from CY 24. Across the globe, major central banks continued to raise interest rates to combat inflation. Russia-Ukraine conflict continues to affect economic activities at various levels globally. The global inflation is expected to fall from 8.7 percent in CY 22 to 7.0 percent in CY 23 and 4.3 percent in CY 24. Multiple geo-political issues with extreme weather conditions have disrupted the supply chains globally which contributed to food and energy crisis.

United States

The Federal Reserve is focused on achieving price stability by raising interest rates to combat inflation. The Federal Open Market Committee (‘FOMC) projects possibility of further interest rate hikes, hence, the federal funds rate would remain around 5–5.5% percent at the end of 2023. The US economy grew at 2.1% in CY 22 and is projected to slow down to 1.6% in CY 23 and to 1.1% in CY 24 as per the projections released by IMF. The increasing geo-political and geo-economic tensions between US and China may lead to potential disruptions in the manufacturing value chain. CEAT plans to enter the United States as a value player in PCR and TBR segments in CY 2024 and is building capabilities to cater to the market as the world looks for alternatives to China for sourcing tyres.

Europe

The European economy witnessed a rough patch in recent years; however, its growth outlook has improved recently due to lower energy prices, abating supply constraints and a strong labour market, by showing resilience in a challenging global context. According to IMF predictions, growth in Europe is predicted to reacRs. 0.8% in CY 23 before rising to 1.4% from CY 24. European nations used to import more than half of their energy requirements from Russia but due to the Russia-Ukraine conflict, the energy sourced from Russia has come down to approximately 15% for petroleum liquids and natural gas, which doubled the energy cost in the region in CY 22.

Emerging Markets and Developing Economies

Inflation will play a significant role in determining the outlook for emerging markets in 2023. Geo-political conflicts and supply chain disruptions continue to pose a challenge. The emerging economies in Africa, America and Europe have observed higher inflationary pressures as compared to Middle East and Asian economies where Central Banks were able to keep interest rates relatively low. Chinas reopening and relaxation on its zero-tolerance COVID-19 protocols could have implications for the global demand and commodity prices among other things. India will alone account for 15% of the global growth in 2023, continuing to be a "bright spot" in the global economy. India continues to do a great job of using the already-progressing digitalisation as a significant engine for mitigating the after-effects of the pandemic and generating opportunities for growth and employment.

Africa

Sub-Saharan Africas growth in FY 24 is projected to decrease to 3.6 percent. While some nations, especially those with economies that are not resource-intensive, may see minor growth increases, the regional average will be hindered by weak performance in important economies like South Africa. Unusually high levels of public debt and inflation with double-digit inflation being a problem in half of the countries. Because of this, household buying power has decreased, which has a negative impact on disadvantaged people and intensifies societal tensions.

LATAM

The year 2023 will be difficult for the LATAM region, despite encouraging signs of inflation and development. Due to rising interest rates and falling commodity prices, the rate of economic expansion is predicted to slow to 2%. The growth of employment and consumer spending is decreasing, and consumer and corporate confidence is dwindling. A slowdown in the regions trading partners, notably the US and the euro area, would also impede its growth. Despite coping with shocks from Russia-Ukraine conflict and increases in global interest rates in CY 22, Latin Americas economy has fared well, growing by 4%, with significant job recovery and a reviving service sector in the wake of the pandemics impact.

Outlook

With continuous collaboration of key stakeholders to ease the economic challenges, global economy could expect recovery and uptick in the second half of the year. Major economies across the globe are setting new targets to reduce emissions and adopting strategies for supply chain resilience. This will pave the way to mitigate the challenges and risks caused due to climate change, such as shifting to alternative energy sources thus creating a positive shift in managing energy and food crisis.

Global GDP Growth

	Estimate	Projections
Particulars	2022	2023	2024
World	3.4	2.8	3.0
Emerging Markets	4.0	3.9	4.2
Advanced Economies	2.6	1.8	2.2
Euro Area	3.5	0.8	1.4
US	2.1	1.6	1.1
Japan	1.1	1.3	1.0
UK	4.0	-0.3	1.0
China	3.0	5.2	4.5
India	6.8	5.9	6.3

Source: IMF, World Economic Outlook (Updated April 2023)

INDIAN ECONOMY

India witnessed a 6.8% growth in FY 23 which is significantly above the global average growth rate. The projected growth rate is 6.1% which is healthy despite slowdown in world economy. Indias strong growth is driven by factors such as digitisation, prudent fiscal policy, push for infrastructure development, stabilising commodity prices and resilient supply chain. In the Union Budget, the capital investments were raised steeply by 33% for the third consecutive year to H10 Lacs crore.

The Repo Rate has increased from 4.4% in May 2022 to 6.5% in April 2023 signalling the contractionary monetary policy stance to keep the inflation rate within the desired range. In the Monetary Policy Committee (‘MPC) meeting held in April 2023, the RBI kept the Repo Rate unchanged at 6.5%. Indias CPI and WPI inflation have eased out in towards the end of FY 23. The Index of Industrial Production (‘IIP) for manufacturing for FY 23 saw a growth of 10.94% on a Y-o-Y basis.

Outlook

Amidst the accentuating headwinds globally in the second half of FY 23, resilience was observed in the Indian economic activities. Rural demand will provide the backbone for improving economic activity as the government focuses on infrastructure development, revival in corporate investments and moderating commodity prices. According to the IMF, the Indian economy will contribute 15% of the global growth CY 23. CEAT anticipates good growth in the Indian market and overseas in the near future as a result of stabilisation of commodity prices and improved supply chains leading to stronger margins.

GLOBAL AUTOMOBILE INDUSTRY

The automotive industry is likely to face global headwinds in CY 23, due to the ongoing energy crisis, slower global demand and continued supply-chain problems.

Despite these challenges, it is expected that global new-vehicle sales will remain relatively flat in CY 23. While new-car sales are expected to rise by 0.9%, new Commercial Vehicle (‘CV) sales are projected to fall by 1.3%. Electric Vehicle (‘EV) space is expected to experience continuous growth as sales of EVs are projected to grow by 25% in CY 23, representing a bright spot in an otherwise challenging market. Consumer interest in EVs is rising, however, maintaining forward momentum for EVs will be different for different markets. The biggest obstacle to adoption globally continues to be cost, uncertainty over range and battery safety issues. Also, some governments are likely to restructure their incentive schemes for EVs, which may have an impact on demand for these vehicles.

Outlook

The automotive industry is undergoing a transformation to adapt to the emerging needs of the market, such as smart mobility and electric vehicles. This transformation involves unlocking more value from the core business and reinvesting additional cashflows into new business opportunities. The role of cloud and data is crucial in this transformation. With large tech players entering the auto value chain, original equipment manufacturers (‘OEMs) are pursuing multi-cloud strategies to create new digital services and accelerate speed to value. By leveraging cloud technology and data analytics, OEMs can develop new and innovative products and services that meet the evolving needs of customers.

In addition to developing new capabilities, manufacturers are investing in culture change. They are moving away from a slow-moving, conservative automotive culture to an agile, innovative and risk-taking one. This culture change is essential to enable rapid innovation and adapt to the changing needs of the market.

INDIAN AUTOMOBILE INDUSTRY

The Indian automobile sector is a key driver of the manufacturing industry and a major source of employment. In December 2022, India became the third-largest automobile market in the world, surpassing Japan and Germany in terms of sales. India is one the largest manufacturer of 2/3 Wheeler vehicles in the world. It is also ranked as the fourth-largest manufacturer of Passenger Cars. On a year-on-year basis, all segments, except for tractors, recorded positive growth in domestic sales. Moreover, supply constraints, which previously impeded production volumes in FY 22, began to ease, contributing to increased production numbers.

Passenger vehicle volumes are expected grow further during FY2023-24 on on the back of a healthy order book and ramp-up in production. However, prices for passenger vehicles are set to increase as companies prepare to conform to stricter emission norms which kick in from April 2023. This may put some pressure on the consumers.

Demand for two-wheelers has been sluggish due to weakness in the rural segment. However, a gradual recovery is expected. For Tractors, volumes are likely to be better on improving customer sentiments and finance availability. The volatile geopolitical scenario has impacted export tractors in Q4; however, the domestic market is expected to grow, in line with growth in agricultural sector.

ELECTRIC VEHICLES

India has been making steady progress in the adoption of Electric Vehicles (EVs) as part of its efforts to reduce greenhouse gas emissions and air pollution. There have been multiple interventions across Central and State Governments in this regard. As an example Tamil Nadu has announced its EV Policy CY 23, which aims to electrify public and commercial transport and promote the formation of EV cities. Furthermore, the Indian government aims to install a total of 46,397 public charging stations for EVs in nine major cities by 2030, representing a nine-fold jump from the current levels. This could provide a significant boost to the adoption of EVs, as range anxiety is one of the major concerns among potential buyers.

India has also set a roadmap to achieve 80% electrification of 2-wheelers by 2030, which could significantly reduce the countrys dependence on fossil fuels. The ownership cost savings of electric 2-wheelers ranging from 20-70% over petrol 2-wheelers have piqued the interest of the average buyer, while B2B players, such as food aggregators and last-mile delivery services, have already jumped on the opportunity. The emphasis on upgrading the highway network, installing public charging stations and attracting investments in the EV ecosystem could pave the way for a cleaner, greener and more sustainable transportation system in India. The Union Budget 2023 also has several provisions to promote Electric Vehicle (‘EV) industry in the country. One of the most significant announcements in the budget is the reduction in customs duty on lithium batteries from 21% to 13%. This move could significantly reduce the cost of manufacturing EVs in India, as lithium-ion batteries account for a significant portion of the total cost of EV. The government has also reduced the Goods and Services Tax (‘GST) on the sale of EVs from 12% to 5%, which is likely to make them more affordable for buyers. The reduction in customs duty could make it more feasible for manufacturers to produce EVs locally, which could also create more job opportunities in the sector.

PRODUCTION Production (Nos.)

Sr. No.	Particulars	FY 23	FY 22
1	Passenger Vehicles	45,78,639	36,50,698
2	Commercial vehicles	10,35,626	8,05,527
3	3-Wheelers	8,55,696	7,58,669
4	2-Wheelers	1,94,59,009	1,78,21,111
5	Tractor	10,71,310	9,61,100

Source: SIAM, Tractor and Mechanization Association TMA

DOMESTIC SALES Domestic Sales (Nos.)

Sr. No.	Particulars	FY 23	FY 22
1	Passenger	38,90,114.00	30,69,523.00
	Vehicles
2	Commercial	9,62,468.00	7,16,566.00
	vehicles
3	3-Wheelers	4,88,768.00	2,61,385.00
4	2-Wheelers	1,58,62,087.00	1,35,70,008.00
5	Tractor	945,311.00	8,42,226.00

Source: SIAM, Tractor and Mechanization Association TMA

GLOBAL TYRE INDUSTRY

1. Overall: China dominates the global tyre market, making up around 50% of the sector, followed by Europe, US, India and Japan. Indias tyre business has showed strong resilience and is anticipated to develop at 7-9% from 2020 to 2024 and overtake US to become the third-largest market worldwide.

2. EV and Sustainability: In this financial year, the shift in the tyre industry towards electrification was driven by new regulations and buyer incentives. Globally, many countries, corporations and carmakers have pledged to phase out internal combustion engines, as early as 2035. Electric vehicles (‘EVs) require tyres with advanced technological features to meet specific demands such as low rolling resistance for increased range, durability to bear heavy batteries and reduced rolling noise.

3. Circularity: Tyre companies have initiated adopting the Circular Economy approach, focusing on a sustainable life cycle for tyres through measures like recycling and proper end-of-life management. Manufacturers are emphasising on collecting waste tyres and converting them into secondary or alternative raw materials for other industrial applications.

4. Industry 4.0: The industry is also experiencing the effects of Industry 4.0, as digital transformation influences all aspects of corporate operations. Companies are adopting technologies like digital simulation, virtual reality, collaborative robotics, additive manufacturing, the Internet of Things (‘IoT), Artificial Intelligence (‘AI), data-driven management and data protection to enhance productivity, flexibility, responsiveness and personalised solutions. This transformation is reshaping traditional job roles, organisational structures and collaboration methods in the tyre industry.

INDIAN TYRE INDUSTRY

The tyre industry in India has the potential to become a global leader in Indian manufacturing, especially with the current search for alternatives to China due to geo-political tensions. The industry exemplifies the Make in India initiative, having achieved self-reliance and emerging as a major exporter of tyres to over 170 countries, including the US and Europe as evidenced by the rising demand for Indian-made tyres. India world-class radial tyre manufacturing facilities and any international vehicle manufacturers also started using India-made tyres for their high-end models. However, the industry needs greater support for raw material security, particularly for natural rubber, through reduced duties. With the right policies in place, the Tyre Industry can further enhance its exports and contribute significantly to Indias economic growth.

EXPORTS

Challenges to the global economy due to recessionary conditions, rising interest rates, political turmoil and slowing of external demand had its impact on the growth momentum of Indian tyre exports which witnessed a growth of 9% in FY 23. High base effect (50% growth in previous fiscal) also contributed to the muting of growth. In number terms, Passenger Car Radial (PCR) tyres accounted for the largest exported category from India followed by Farm/Agri tyres in FY 23.

IMPORTS

Tyre Imports in India went up by 15% in value terms in FY 23. The surge in imports was boosted by increase in import of Motorcycle and Industrial/ OTR tyres during the period. Over RS. 2100 crore worth of tyres were imported in the country during the period under review. WitRs. 47% share, Passenger Car Radials (PCR) accounted for the largest share in overall tyre import volumes in India. OTR/ Industrial tyres represented the second largest category in number terms.

RAW MATERIAL TRENDS Natural Rubber

The production of Natural Rubber in India has increased by 12.2% during the first three quarters of FY 23, compared to the same period in the previous year. Consumption of Natural Rubber has also increased by 9.5% during the same period in the previous year, with a 5% increase in the tyre sector and a 21.8% increase in the general rubber goods sector. The stock held with growers, traders, processors and consumers is estimated to be around 450,000 tons. On the other hand, Synthetic Rubber production has decreased by 5.8% for the first three quarters of FY 23 compared to the previous year.

Carbon Black

The prices of Carbon black price have started declining from Q3 FY 23 due to the decrease in crude oil prices, in addition to drop in premiums in the commodity market.

Outlook

The Tyre industry is expected to witness growth in sales in the FY 24, driven by increase in automobile sales, particularly Commercial Vehicles (‘CVs) and Passenger Vehicles (‘PVs). Positive rural sentiments, backed by the anticipation of regular monsoon, is expected to support two-wheeler sales as well. Tyre demand from the replacement market is expected to grow, owing to continued economic growth, improving industrial activity, steady agricultural output and the governments focus on infrastructure, mining and road construction.

BUSINESS REVIEW

CEAT has established a strong brand presence both in the domestic and global market by converting every obstacle into an opportunity. The Companys consolidated revenue from operations has grown by 20.84% Y-O-Y to H11,314 Crores. Over the years, the revenue contribution from its 2-Wheeler and Passenger Vehicles tyre segments has risen from 38% in FY 16 to 46% in FY 23. CEAT is committed to innovation and uses cutting-edge digital technologies to provide its customers with high quality products and services. It has implemented a multi-channel approach, ensuring that its tyres are readily available on e-commerce platforms and its own website, with options for online and home delivery. Moreover, CEAT has strengthened its relationship with original equipment manufacturer (‘OEM) customers. The Company is dedicated to conducting customer-focused research and development to deliver safer and smarter products.

CAPACITY EXPANSION

CEAT has undertaken several capacity expansion projects. The Company has increased the capacity of its plant in Chennai, to produce approximately 96 Lacs tyres per annum of Passenger Vehicle Radial Tyres when completed. The first phase in Nagpur has completed the first phase of expansion and is currently in phase two of expansion. Once fully completed, the 2-Wheeler Tyre capacity would be approximately 2.7 Crores tyres per annum. The Company has invested approximately RS. 500 Crores in FY 23 in capacity expansion projects, in Nagpur, Chennai and Ambernath. CEATs investment in these expansion projects will enable the company to meet its growth requirements.

INTERNATIONAL BUSINESS

With a presence in more than 110 countries, CEAT continues to be a major tyre exporter. Although there have been numerous challenges this year, including currency depreciation in many countries across the world, a lack of availability of foreign currencies, rising interest rates and the recession in Europe and the US, has resulted in a general reduction in demand. The most impacted regions were Africa, Europe, Nepal, and Sri Lanka. However, the fourth quarter of the year could witness some demand revival. The PCR segment in Europe and the TBR segment in Brazil saw continued growth for the Company.

CEAT has expanded its global footprint by engaging distributors in South Africa, Japan, Vietnam, Sudan, Romania and Russia. As part of Phase-1 of the go to market plan, a new product line in TBR and Passenger Light Truck tyre (‘PLT) is under development for the United States and by the end of Q2 of FY 23, TBR. By hiring individuals from Germany, the UK and Brazil, CEAT has bolstered its sales and service staff.

CEAT has introduced a first-of-its-kind digital platform that enables distributors to place orders online and be aware of the anticipated time of shipping of the containers. Customers can change the order amounts based on the minimum order quantity and load ability in real time.

TECHNOLOGY AND R&D

The Research and Development (‘R&D) of CEAT plays an indispensable role in the overall growth and development for delivering best in class products. CEAT has two research and development facilities situated in Halol India and Frankfurt Germany. CEAT has localised testing grounds with respect to R&D to cater to the market needs of Europe. To meet the mobility requirements such as introduction of EV, automation and smart mobility along with changing customer demands in the future, the Company has further augmented its efforts towards innovation, digitalisation and sustainability. The R&D team has a specialised pool of experts working on radical concepts for innovation in the design and manufacturing of the tyres enabled with digital technology, extended mobility, fuel-efficient and environmentally friendly tyre. CEAT has a five-year technological roadmap which focuses on the changing needs and requirements of the sector and the economy.

Quality Assurance System

The whole value chain, from raw material suppliers through production, sales and customer satisfaction, is covered by CEATs Quality Assurance (‘QA) programme. The goal of the QA function is to set up a system and procedure to ensure that customers requirements are satisfied, leading to improved customer service. Important quality indicators across business units and departments are communicated to management by the QA function. In order to boost system resilience, efficiency and effectiveness, decrease human error and make essential resources available for additional value-added operations across the chain, CEAT focuses on deploying digital systems employing AI and machine learning approaches. CEAT ensures customer satisfaction through a cross-functional Quality Council that oversees various aspects of quality assurance. This includes gaining an understanding of the customers stated and unstated needs to proactively develop products and services, reviewing systems and processes related to customer complaints to enable early detection and prevention of issues and ensuring functional alignment to achieve CEATs quality objectives. The Council provides strategic direction and facilitates horizontal deployment to enhance the efficiency of quality assurance. Rolling Resistance, Noise and Wet Grip are crucial performance factors that determine customer experience, hence CEAT is concentrating on them to improve the customer experience. CEAT is also among the first tyre manufacturers in

India to comply with and receive Indian BEE Energy Star label ratings, which help consumers make educated decisions. CEATs Quality Assurance approach also aims to proactively ensure quality control through various systems such as zero-defect workstation, Statistical Process Control (‘SPC) and Critical to-Quality (‘CTQ) audit systems. The companys QA infrastructure prepares them for OEM audits and approvals, which strengthens their market position. For manufacturing quality, CEAT focuses on consistent processes and product quality to meet customers needs. The company values customer feedback, which is incorporated into product and service enhancements. A unified ‘voice-of-the-customer" system has been developed to track customer concerns and generate automatic reports. The QA systems effectiveness is measured through customer satisfaction surveys conducted by external agencies.

ENVIRONMENT, OCCUPATIONAL HEALTH AND SAFETY

CEAT is dedicated to establishing a secure working environment for its workforce. The Company is resolute in its efforts to mitigate work-related accidents and illnesses. In pursuit of this objective, CEAT employs a proactive and methodical approach to recognise potential occupational health and safety hazards and risks. Additionally, with regard to environmental concerns, CEAT adheres to the principle of "prevention rather than control" of pollution and ensures compliance with all relevant environmental regulations.

Safety

CEAT has a policy of zero accidents and to benchmark its own systems, the Company has adopted the Five Star Occupational Health and Safety Management System of the British Safety Council (‘BSC). The Company uses the latest safety measures to eliminate risks at its worksites and all its manufacturing plants are ISO 45001:2018 certified. Extensive safety training is provided to all employees, including contractual employees, to ensure compliance with safety measures.

By regularly offering EHS training, CEAT focuses on promoting a secure work environment. New recruits must attend mandatory training sessions in addition to the monthly sessions offered to permanent and contract employees. During the reporting period, CEAT conducted work-related health and safety trainings on subjects such machine guarding, danger identification, environmental and related trainings. 10,173 man-days worth of health and safety trainings was conducted in total during FY 23.

Occupational Health

To achieve ‘zero occupational illness cases, CEAT engages in cross-functional efforts to reduce occupational health hazards. Occupational Health Centres are operated by professionals round-the-clock and ambulances and first aid facilities are provided at all CEAT plants. CEAT ensures periodic medical check-ups for all its employees, including contract employees. Employees may report harmful situations, unsafe behaviour and near-misses using the mobile app that CEAT developed. The Company uses the British Safety Councils (‘BSC) Five Star Occupational Health and Safety Management System. The ISO 45001:2018 standard has been certified for all manufacturing facilities. Additionally, the Company makes the necessary preparations to guarantee that the safety protocols are followed by providing the employees extensive training. At the beginning of each shift, Shift Assembly Meetings (‘SAM) are held to address and track health and safety concerns, such as harmful behaviours and situations.

Environment

CEAT is dedicated to creating value and promoting sustainable development. The Company has implemented processes that are designed to ensure this objective is fulfilled. The primary goal is to reduce carbon footprint by 50% by 2030. To achieve this target, CEAT has identified the following measures:

1. Use of green raw materials - This strategy involves using materials that are environmentally friendly and have a low impact on the environment. By using green raw materials, CEAT hopes to reduce the amount of waste generated and the pollution created during the production process.

2. Use of briquettes as fuel - Briquettes are compressed blocks of fuel that are made from waste materials such as sawdust, charcoal and paper. Using briquettes as fuel will help to reduce the amount of fossil fuels used in the production process and, as a result, reduce the carbon footprint of the company. In addition, the Company is using solar energy across its manufacturing facilities.

3. Network optimisation - By optimising its network, CEAT hopes to reduce the amount of energy used in transportation and logistics. This strategy involves finding more efficient ways to transport products and reducing the distance travelled.

4. Development of light-weight tyres - Light-weight tyres will reduce the amount of fuel needed to power vehicles and, as a result, reduce the carbon footprint of the company

5. Promotion of high recycling and recovery rates

By promoting high recycling and recovery rates, CEAT hopes to reduce the amount of waste generated and promote the reuse of materials.

6. Solar / renewable power - The Company is using solar power for all its manufacturing plants resulting in energy savings.

The Company is actively working to reduce the environmental impact of their operations while creating value for their stakeholders. For more information on CEATs sustainability initiatives, please refer to the Natural Capital section of their Annual Report.

HUMAN ASSETS

CEAT is focused on continuous learning and development, employee engagement and well-being, which fosters a culture of openness and transparency.

CEATs commitment to diversity and inclusion is demonstrated through its aspiration to create shared value with empowerment at its core. The Company has created an opportunity for transgender employees and people with disabilities which highlights the Companys dedication to diversity and inclusion. For a detailed explanation of the initiatives launched to improve human and workplace satisfaction, gender diversity, workforce learning and development, including up-skilling programs, please refer to the Human Capital section.

RISK MANAGEMENT

The risk management process implemented at CEAT entails an initial stage of risk identification, followed by a thorough assessment of their potential impact. The evaluation is carried out through an analysis of past trends and future projections, while also accounting for external perspectives to ensure comprehensive coverage of existing and emerging risks. Subsequently, appropriate measures are identified and implemented to mitigate these risks as required. The risks are regularly re-evaluated and monitored, with a focus on identifying and addressing emerging risks by including them in the risk management plan.

Risk management

The risk management process of CEAT comprises of several essential components that work together to ensure the Company is adequately prepared to manage the potential risks. These components include:

RISK AND THEIR MITIGATION - DETAIL RISK

Risks

1. Margin Impact due to raw materials Price Volatility and inability to increase the prices to off-set the RM price increase Profit margins can be impacted by the fluctuation of raw material prices, as well as the presence of low-cost domestic and international competitors who engage in aggressive pricing behaviour. Such factors may have an adverse effect on profitability.

2. Balance Sheet Ratios (unfavourable) impacting performance and Perception issues (Project Investments)

An increase in planned capital expenditure and investments has the potential to affect profit margins

3. Cyber Security Risk

4. Single Source / Single Geography Suppliers

5. Geopolitical disruption

The emergence of a big risk, due to factors such as a debt crisis, war, trust deficit in interstate relations and uncertainty leads to supply disruptions and an overall increase in prices, including crude. This risk in negatively impacting GDP growth and inflation, which could lead to a drop in demand and an increase in overall cost.

Mitigation

CEAT is implementing various measures to foster long-term association with suppliers and improve its margin profile. It is exploring a wider supplier base and strengthening relationships with existing suppliers. Its longstanding relationships with OEMs and the quality of its products have contributed to brand recognition. To differentiate itself from competitors, CEAT is expanding its channels, enhancing after-sales service and providing superior quality products with associated warranties. It is also focused on growing high-margin profitable segments, implementing price increases, developing capacity for new products and establishing a premium segment in new markets. CEAT is leveraging its deep domain knowledge, technology prowess, brand recall and reach to challenge both domestic and foreign players.

Investments are planned in a phased manner, taking into consideration market size and CEATs share of business, while sensitivity analysis is conducted regularly. The Company also continuously focused on the efficiencies and working capital to reduce the capital required for the same.

CEAT regularly assesses the risks of cyber-attacks to its system and takes preventive and detective measures to mitigate them. External IT consultants are involved to provide inputs for securing systems against cyber-attacks. A Business Continuity Plan (‘BCP) is developed and implemented for all IT platforms.

CEAT takes action to mitigate the risk of single source/single geography suppliers by developing alternatives. Additionally, the Company is working to develop alternate raw materials to mitigate this risk.

To mitigate the risk, proactive measures are being taken in the following areas:

1. Ensuring supply chain agility

2. Reviewing and taking action on balance sheet ratios

3. Developing long-term supply and demand plans

4. Expanding into new geographies and OEMs/sizes

Internal Control Systems and Their Adequacy

CEAT has a well-placed, suitable and adequate internal control environment, commensurate with the size, scale and complexity of its operations. This environment provides: Assurance on orderly and efficient conduct of operations.

Security of assets.

Prevention and detection of frauds and errors.

Accuracy and completeness of accounting records and timely preparation of reliable financial information. Automated controls built in SAP to ensure prevention. GRC has been implemented across CEAT to ensure compliance of Authority matrix in key areas.

First line

Management control: The line managers are directly responsible for ensuring the design and effective implementation of the internal control framework at CEAT. The line manager carries out day-to-day operations within the boundaries defined by the management through its various policies and procedures, including the following: Employee Code of Conduct Whistle Blower Policy Entity Level, Operating Level and IT General Controls Delegation of Authority Matrix Policies and Standard Operating Procedures

Second line

The second line of Management oversight of CEAT is achieved through the following: Executive Committee (‘ExCom) meeting chaired by the Managing Director Operating Committee (‘OpCom) meeting chaired by the Chief Operating Officer Operation Reviews (‘MOR) by respective functional / business managers

Third line

The third line consists of the Governing Board and the Audit Committee. This independent assurance and oversight of internal controls is achieved through the following governing bodies:

1. Board of Directors

2. Audit Committee of the Board of Directors: Their oversight activities mainly include: Reviewing financial reports and other financial information and communicating with the regulators Reviewing CEATs established systems and procedures for internal financial controls, governance and risk management Reviewing CEATs statutory and internal audit activities

3. Risk Management Committee: This Committee reviews the ‘Risk and mitigation plan on a periodic basis.

4. Sustainability & CSR Committee: This committee looks into ESG related risks and directs on mitigations including climate actions.

The above three lines of defense are further strengthened by independent audits such as Internal Audit, statutory audit, tax audit, cost audit and secretarial audit.

DISCUSSION ON FINANCIAL PERFORMANCE AND KEY FINANCIAL RATIOS

In accordance with the Listing Regulations, this report presents the key ratios that have undergone significant changes, with a notable shift of 25% or more in comparison to the preceding fiscal year. The identified ratios are Net Profit Margin, Return on Net Worth, Price Earnings Ratio and Return on Capital Employed. A comprehensive analysis of these ratios, along with a detailed explanation of the alterations observed in the return on net worth when contrasted with the immediately prior financial year, is included in the appended section on the discussion of financial performance.

CAUTIONARY STATEMENTS

It is noted that in accordance with relevant securities laws and regulations, certain of the comments in the Management Discussion and Analysis section may be regarded to be "forward-looking statements" with respect to CEATs objectives, plans, estimates and expectations. It is crucial to recognise that the actual results achieved may significantly deviate from the expressed or implied statements. CEATs operations are subject to various influential factors, including economic developments within the country, industry-specific demand and supply conditions, fluctuations in input prices, modifications in government regulations and tax laws, as well as additional considerations such as litigation and industrial relations.