CEAT Ltd Management Discussions

Hundred Years of CEAT

Cavi Elettrici e Affini Torino, the Company which was founded by Virginio Bruni Tedeschi in 1924, initially, produced electrical and telephone cables. At the onset of World War II, it entered into the rubber industry, producing gas masks. Near the end of the war, in 1945, it started producing tyres. In 1958, CEAT Tyres of India was founded as a collaboration between the Tedeshchi family and the Tatas. In the same year, the first plant in India was commissioned at Mumbai and a couple of years later, first tyre produced in India rolled out of the factory. RPG group acquired CEAT Tyres of India in 1981. In the 80s and 90s CEAT was involved in other businesses as well such as glass fibre, electronics, and tyre cords. The Company also partnered with global tyre majors like Yokohama and Goodyear. In 1992, the Company entered Sri Lanka through a joint venture and today is the market leader in the country.

CEAT, the 100-year-old brand is synonymous with safety. The Companys purpose statement itself is ‘Making Mobility Safer & Smarter. Every Day. Safety also includes a safer planet, and the Company aims to halve its carbon footprint by 2030.

During the reporting year, the Company has been awarded the Deming Grand Prize which is considered to be one of the highest achievements in TQM (Total Quality Management) worldwide. In doing so, it has become the first tyre Company in India and one of only 33 companies globally to receive the prestigious award. Previously, CEAT was the first tyre Company outside of Japan to win the Deming Prize in 2017. The Company received Lighthouse recognition from the World Economic Forum (WEF) for adoption of ‘Industry 4.0 technologies for its Halol facility in the previous reporting period and is developing capabilities to have further lighthouse recognitions across all the facilities.

The Company is passionate about offering value and safety to its customers. Its extensive geographical presence, combined with innovative products, has enabled it to maintain a strong competitive position in the market.

Global Economy

For most part of 2023, the global growth was weighed by a host of factors, including ongoing geo-political tensions, the Red Sea crisis, adverse weather conditions and tight financial conditions. The global economy has been resilient despite these challenges. The global GDP growth rate was 3.2% in CY 23. According to IMF predictions, global economic growth would stay at 3.2% CY 24 as well as CY 25. The Central Banks globally have kept the rates elevated in order to fight inflation. The global headline inflation is expected to moderate to 5.9% in CY 24 and further reduce to 4.5% in CY 25.

The United States Federal Reserve is focused on achieving price stability, generating maximum employment and targeting moderate log-term interest rates. The unemployment has remained low and the inflation has eased over the past years but remains elevated. The Federal Open Market Committee (‘FOMC) targets the federal funds rate around 5.25–5.5%. The US economy grew at 2.5% in CY 23 and is projected to grow to 2.7% in CY 24 and slow down to 1.9% in CY 25 as per the estimates and projections released by IMF. The increasing geo-political and geo-economic tensions between US and China may lead to potential supply chain disruptions across countries. The Company has presence in the United States market in the Agri-Radial category and plans to launch the PCUV and TBR tyres of FY 25 and is building capabilities to cater to the market as the world looks for alternatives for sourcing tyres.

Source: IMF, World Economic Outlook, Jan 2024

The European economy entered 2024 on a weaker footing than expected. The economy avoided a technical recession in the second half of CY 23 and the economic prospects for CY 24 have improved. The energy prices have remained moderate and despite the mild upward pressure from the higher shipping costs due to the trade disruption in Red Sea, the underlying inflation has continued on a steady downward path. According to IMF predictions, Europe grew at 0.4% in CY 23 and is predicted to grow by 0.8% in CY 24 before accelerating 1.5% in CY 25.

Source: European Commission, IMF World Economic Outlook

Emerging Markets and Developing Economies

The emerging markets have become more integrated with the global economy and and have fared better than their developed economy peers. India is poised to remain the global growth driver in the foreseeable future.

The countries in the Sub-Saharan Africa continue to face a sluggish growth, higher inflation, high borrowing costs and a cost-of-living crisis. In many countries, the double-digit rate of inflation persists, borrowing costs remain elevated and political instability remains a concern. The IMF predicts, the Sub-Saharan African region to grow at ‘3.8% in CY 24 and ‘4% in CY 25. 2023 has been a difficult year for the countries in this region however, they may expect a rebound owing to growth in non-resource intensive countries.

Source: IMF: Regional Economic Outlook: Sub-Saharan Africa

The LATAM region has seen a growth of 2.3% in CY 23. The growth in this region has softened due to the weakening external environment and tighter policies to combat inflation. The region has witnessed monetary tightening since 2021. Further withdrawal of fiscal stimulus and the reversal of external price pressures have resulted in a downward trajectory in inflation. The growth in the LATAM region is expected to slow down to 2% in CY 24 and rise to 2.5% in CY 25.

Source: IMF: Regional Economic Outlook – LATAM

Global GDP Growth

	Estimate	Projections
Particulars	2023	2024	32025
World	3.2	3.2	3.2
Emerging Markets	4.3	4.2	4.2
Advanced Economies	1.6	1.7	1.8
Euro Area	0.4	0.8	1.5
US	2.5	2.7	1.9
Japan	1.9	0.9	1.0
UK	0.1	0.5	1.5
China	5.2	4.6	4.1
India	7.8	6.8	6.5

Indian Economy

Despite the significant global headwinds, the Indian economy has been resilient and remained one of the fastest growing major economy in FY 24. The domestic economy was healthy due to positive consumer sentiments and robust investment demand. In the Monetary Policy Committee (MPC) meeting held in April 2024, the RBI kept the Repo Rate unchanged at 6.5% for the 7^th consecutive time. The headline inflation eased out from its peak in the month of December to 5.1% in January and February 2024. The cumulative growth rate in Index of Industrial Production (IIP) for manufacturing in FY 24 stood at 5.5% as compared to 4.7% in FY 23.

Global Automobile Industry

In the reporting year, automobile sector witnessed turbulence in the global economy due to commodity inflation, geo-political conflicts led supply chain disruptions and evolving regulatory requirements in the advanced and emerging economies. Despite these challenges, the industry has witnessed substantial growth as compared to the previous year, driven by an increase in demand, availability of semi-conductors and growing adoption electrification in mobility. The industry has identified key priorities such as resilient and sustainable auto-value chain and smart mobility integration. The trends in the automotive industry indicate a shift in consumer preference towards SUVs and EVs. India has emerged as one of the preferred destinations for manufacturing as the world continues to look to diversify supply chains.

Indian Automobile Industry

The Indian automobile sector is one of the key drivers of the Indian manufacturing industry and a major source of employment. Similar to global trends, the Indian automobile industry is also witnessing a shift in consumer preference towards hybrid and electric vehicles and vehicles as well as vehicles in the premium segments such as SUVs. In FY 24, most of the vehicle segments have performed well. Medium & Heavy Commercial Vehicles (M&HCVs) benefitted from a growing economic and infrastructure development while Passenger Vehicles segment grew with shifting consumer demand towards SUVs. Two and three wheeler segment is getting back on a growth path as well aided by availability of newer models and a positive demand sentiment. Tractor segment however witnessed a decline in terms of production volumes.

Source : Indian Automotive Industry FY 2023-24

Electrification

As part of its efforts to reduce the greenhouse gas emissions and air pollution, India has been making steady progress in the adoption of electric vehicles (EVs). 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 automobiles industry has also seen a shift in demand for electric vehicles in the recent years. Uttar Pradesh has witnessed the highest penetration of EVs followed by Maharashtra in India. The 2-Wheeler and 3-Wheeler segment together account for more than 90% of EV sales in India. In order to cater to the burgeoning demand for EVs, the Company has launched new tyre platforms across categories such as: EnergyDrive (Passenger Car), EnergyRide (Two-Wheeler) and WinEnergy (Truck Radial).

Source: ATMA Reports (Electric Mobility: Monthly radar)

Union Budget on Electrification

The 2024 Union Budget encourages the EV by extending support to manufacturing and charging infrastructure. The Budget facilitated adoption of e-buses for public transport networks through the payment security mechanism. It was also stated before the Budget that blending of compressed biogas into compressed natural gas for transport and piped natural gas will become mandatory. In order to support the domestic production of futuristic vehicle technologies, the government has increased the budget allocation for the production-linked incentive (PLI) scheme.

Premiumisation

The Indian automotive industry has seen a shift in consumer preference. Consumers are moving towards premiumisation in the 2-wheeler and 4-wheeler segments. Trends indicate a shift in preference towards the higher-end models that have advanced features, superior technology, and better performance.

The Company has also recognised the shift in the consumer mindset with the growing interest in travel and discovery. In response to this, the Company has enhanced its product offerings to enter the super sport, sport biking and adventure segment for 2-wheelers and is establishing a strong foothold in the luxury and SUV segment for 4-wheelers. CEAT has crafted a range of high-performance tyres including Y-rated tyres for speed and all terrain tyres that are designed to provide consumers with ultimate control and confidence on every journey.

The SportDrive and CrossDrive range of tyres cater to the requirements of the PCUV segment. CEATs SportDrive and SportDrive SUV are ultra-high performance range of tyres designed for luxury sedans and SUVs with the Indian roads and conditions in mind. Its asymmetric tread pattern with MRC Technology offers superior cornering stability and precise steering control at high speeds while the advanced tread technology helps in lowering noise levels, thus, leading to a comfortable driving experience. The tyre uses dual silica compound to ensure excellent grip on the road in both wet and dry conditions.

CrossDrive AT premium SUV tyres are a premium offering in the all-terrain tyre segment. Its purpose-built for off-road enthusiasts with cutting-edge 3D sipe technology and robust shoulder design that helps the tyre adapt to all-terrain applications. The tyres new carbon black tread compounds offer better grip as well as improved fuel efficiency and have been extensively tested on the state-of-the-art auto testing track ‘NATRAX in Indore and mild off-roading near Indore. CrossDrive AT tyres have been specifically designed for usage across all 4X2 and 4X4 type of SUVs. CEAT has also partnered with OEMs to provide CrossDrive for their specialised all-terrain vehicles.

In FY 24, CEAT launched the premium range of steel radial tyres, Sportrad and Crossrad, specially crafted to unleash the full potential of high-performance motorcycles and are meticulously designed for the performance segment of motorcycles. The series includes tyres for entry-level sport, super sport, sport touring and adventure biking. These tyres feature a steel-belted radial construction, providing superior handling at high speeds.

The Sportrad series is designed for high speed and cornering and is equipped with enhanced cornering stability, and a perfect balance of stiffness. It is incorporated with advanced features like slick shoulders for extreme lean angles, an optimised groove design for superior wet grip and cornering stability, and a maximised slick area at the crown for stability at speeds up to 270 kmph.

The Crossrad series provide high grip on multi-terrain. The platform features an asymmetrical block tread design and transversal grooves placed along the circumference of the tyre which combine to provide superior grip in gravel/mud and other off-road terrains. Additionally, the interconnected shoulder blocks offer a wider contact area for an enhanced cornering grip.

Internationalisation

The growth of the automobile and tyre industries is being significantly impacted by internationalisation. To meet rising demand and broaden the customer base, major automakers are expanding into new regions. Leading companies in the industry are encouraging localisation, responsible sourcing and building more robust and resilient supply chains by diversifying suppliers. The industry is adopting best practices to ensure compliance with international quality, safety, and environmental standards to meet diverse regulatory requirements of the global markets. There is a focus on establishing research and development centres in strategic locations worldwide to foster innovation and tailor products to the regional needs.

During FY 24, CEAT witnessed an increase in demand and recorded an increase in sales in Middle East, Latin American and European countries. The Company has developed products, deployed manpower to cater to the US market and plans to cater to the PCUV and TBR segments in addition to its existing Agri-Radial business. The Company intends to increase its global market penetration and increase share of exports to about one-fourth of its total revenues. For more details, refer to the International Business section.

Digitisation

The digitalisation of the automotive sector is driving tremendous advancements in terms of efficiency and customer experience. Vehicles are now equipped with internet access and real-time data sharing capabilities for better navigation and remote diagnostics. AI and ML technologies are being deployed for safer and more efficient transportation. The industry is using advanced driver assistance system that utilises AI, sensors and cameras to assist with speed, parking, collision avoidance and lane-keeping. The automobile sector is adopting Industry 4.0 technologies such as IoT and robotics for smarter and efficient business operations. In addition to this, the sector is implementing the blockchain technology for supply chain and vendor management. Leading automobile companies are expanding online sales and virtual reality showrooms to offer personalised customer experiences.

Advanced automation and digitisation is at the core focus of CEAT. Improved technologies and tools are being used across the manufacturing facilities which has led to cost savings and enhanced productivity and has also enabled the Company to cater to the market demand by increasing the production capacity. CEAT was awarded the title of Smart Manufacturing Automotive Company at the CNBC-TV18 ZetwerkSmartManufacturingSummit2024,recognisingtheCompanys dedication to driving technological innovation and advancing digitisation excellence in the automotive manufacturing sector.

Production

Automobile Production (Nos.) FY 23-24

Sr. No. Particulars	FY 24	FY 23
1 Passenger Vehicles	49,01,844	45,87,116
2 Commercial vehicles	10,66,429	10,35,626
3 3-Wheelers	9,92,936	8,55,696
4 2-Wheelers	2,14,68,527	1,94,59,009
5 Quadricycle	5,006	2,897
6 Tractor	9,47,143	10,71,310

Source: SIAM, Tractor and Mechanisation Association TMA

Domestic Sales

Automobile Domestic Sales (Nos.) FY 23-24

Sr. No. Particulars	FY 24	FY 23
1 Passenger Vehicles	42,18,746	3,890,114.00
2 Commercial vehicles	9,67,878	962,468.00
3 3-Wheelers	6,91,749	488,768.00
4 2-Wheelers	1,79,74,365	15,862,087.00
5 Quadricycle	725	725.00
6 Tractor	8,67,237	945,311.00

Global Tyre Industry

The global tyre industry is significantly dominated by China followed by the Europe, USA, India and Japan. There is a continuous shift towards electrification which has received backing from the nations all around the world. The car manufacturers have pledged to phase out the internal combustion engine as early as 2035.

Sustainability in the tyre industry

The automotive component sector including tyre sector is at the forefront of introducing the best sustainability practices by highlighting its commitment towards mitigation of emerging risks due to the climate change and supply chain disruptions. The leading sector companies are adopting a roadmap with commitment to emission reduction, water stewardship and circular economy with a focus on evolving regulatory landscape. The tyre industry is focusing on various sustainability aspects across the key stages of the product lifecycle from raw material sourcing, manufacturing to the end-of-life management of tyres. The industry is also focusing on low-rolling resistance with enhanced fuel efficiency and low-noise tyres. Customer centricity and safety is at the core of the sustainability strategy in the industry. The industry is upskilling its workforce to cater to the needs of evolving customer expectations and changing regulations across the globe. In addition, the tyre-industry is reducing its waste by adopting resource efficient processes and technologies. CEAT is now a member of ‘Global Platform for Sustainable Natural Rubber (GPSNR) to reduce material sourcing from deforestation or forest degraded regions, with a target of 100% EUDR compliance by December 2024. For more information, refer to Natural Capital and Social and Relationship Capital.

Indian Tyre Industry

As international markets press for stricter environmental regulations, the Indian tyre sector will witness transition to more non-carbon/greener materials for tyres. Investments in research and development by the tyre Companies are being deployed to cater to this requirement. The industry is also focusing on creating the ability of tyres to capture data and transmit it on a real-time basis. The global search for alternatives to Chinese manufacturers has led to a rise in the contributions made by the Indian tyre sector. The US is the largest market for Indian tyres accounting for nearly 25% of the total tyre exports from India.

Imports and Exports

Indias tyre exports were impacted sharply by falling demand in view of slowdown in advanced economies, geopolitical uncertainties and inflationary pressures especially in the first half of FY 24. However, the tyre industry made significant recovery in the second half of

FY 24 and the total exports nearly matched previous years exports amounting to approx _ 23,000 crores.

The tyre Imports in India went up by approximately 19% in FY 24. Tyres over _ 2500 crore were imported during the period benefitting from low rates of duty under Free Trade Agreements (FTAs) signed by the country.

Raw material trends

Rubber

The Natural Rubber (NR) prices continue to rise owing to shortage of supplies, increased demand and delayed imports. The Red Sea crisis also impacted the import of both Synthetic and Natural Rubber which has led to a marginal increase in the freight rates. India has been importing over 5 lakh tonnes annually over the past few years to meet the demand in the Indian Market. The NR production in India was 8.5 lakhs tonnes which increased over the reporting year. The consumption of Natural Rubber has increased by about 6% to 9 lakh tonnes during the same period. The escalation in the prices of Natural Rubber is expected to continue globally in the short term. As of December 2023, Thailand and Indonesia were the largest producers of Natural Rubber. There are no new capacities added for Synthetic Rubber whereas the consumption has increased by about 5%.

Carbon Black and Silica

As sustainability becomes the key focus area within the tyre industry, it is witnessing a shift from the use of carbon black towards recovered carbon black and silica which are sustainable raw materials used in the tyre production process.

Business Review

CEAT ended FY 24 on a positive note and witnessed recovery in volumes in the second half of the year in replacement and international markets with significant improvement in the margins on full year basis. The growth was largely attributable to share gain in passenger categories both in 2-Wheeler and 4-Wheeler segment and substantial expansion in export markets.

Capacity Expansion

The Company is expanding its Truck Bus Radial tyre capacity with the addition of 1,500 tyre per day at its Chennai plant. CEAT has expanded its manufacturing capabilities owing to the growing demand. The Company is ramping up its production capabilities, which is evident through its recurring as well as new CAPEX spent for the year. In addition, the Company has expanded capacities for off-highway tyres as well as passenger car tyres in the reporting year.

International Business

CEAT continues to be one of the major tyre exporters with a footprint across 110+ countries. In FY 24, export sales have grown considerably across the segments and geographies despite subdued demand due to continued inflation in Europe, currency volatility and geopolitical conflicts.

CEAT witnessed an increase in demand and recorded an increase in sales in Middle East, Brazil, Latin American, South-East Asian markets and European countries. The demand has come back to normalcy in SAARC countries and the Company not only gained lost volume but, also increased its share of business. The Company continued its focus on catering to the PCR demand in Europe. The quality and performance has been endorsed by customers globally and the Company is inching towards gaining momentum. The Companys all season tyres ranked 14^th amongst global players in the independent test carried out by Auto Bild, a German Magazine on various performance metrics. This is a true reflection of CEATs commitment and determination to provide high quality tyres to its customers globally.

The Company has developed product capabilities and deployed manpower to cater to the US market and is already catering to the market with the launch of the Agri-Radial category. CEAT plans to further cater to the PCUV and TBR segments in the US market. CEAT is well-poised to continue its growth in the international business in FY 25.

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. 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.

Figure 1: Core technology focus

For a detailed explanation of the R&D initiatives, please refer to the Intellectual Capital section.

Quality Assurance System

Quality Assurance (QA) at CEAT spans the entire value chain, ensuring excellence from raw material procurement to customer satisfaction, leveraging digital tools to meet diverse customer needs efficiently. The QAs function is to strengthen the assurance system and process to ensure heightened customer service by meeting their stated and unstated requirements. The management is made aware of the critical quality indicators across the business units and functions, by the QA function. The cross-functional Quality Council takes in a horizontal view of critical customer requirements and ensures maintenance of quality for customers in the following ways:

1) To have an outside-in view of the stated and unstated customer needs and provide strategic direction to proactively develop products and services.

2) To review the adequacy of systems and processes related to critical and major customer complaints and further enhance its efficiency for early detection and prevention of causal factors along with facilitating horizontal deployment of solutions.

3) To ensure functional alignment across the organisation with an intent to achieve the stated objectives of CEAT Quality Assurance. CEATs QA employs rigorous measures like zero-defect workstations, Statistical Process Control (SPC), and Critical-to-Quality (CTQ) audits, ensuring high-quality standards. It also facilitates engagements with OEMs. The QA function prepares the organisation for OEM audits and approvals and interactions with all OEM customers pertaining to current and future projects.

The quality of a tyre is described in terms of its construction, reliability, its suitability for a specific purpose and the degree to which it satisfies customers needs. Consistent product quality along with continued R&D is the key to building and enhancing customer experience. To enhance customer experience, CEAT is focusing on Product Rating / EU labeling parameters – Rolling Resistance, Noise and Wet Grip. CEAT is also one of the first companies to comply on meeting all the requirements of the Indian BEE Energy Star label ratings.

CEAT values the opinions and suggestions put forth by customers and the Companys channel partners across the business units and factors the same into product and service quality improvement. Customer touch-points are improved with a unified ‘Voice of the Customer system to address concerns related to product and services. Automatic reports are generated, and phenomena are assigned to relevant process owners and the closure of these are tracked at various review forums. The final effectiveness of the QA system is measured through an extensive customer satisfaction survey, conducted by external agencies. In the current market scenario, with ever-changing customer expectations and market conditions, emergence of new competitors and existing competitors are always evolving to be best-in-class for adhering to dynamic and demanding situation. Due to this, market superiority may be lost for regularised products over the course of time. In the journey of customer centricity, through pro-active approach, QA team carries out rigorous benchmarking of such regularised products (products which exist in the market for >2 years), where CEAT products and their respective Key Value Propositions (KVPs) such as tyre life, ride and handling ration etc. are evaluated and products with inferior performance undergo upgradation to re-establish their best-in-class status. In the ongoing process, the superior products are promoted accordingly in the market for better value proposition to the customers. With a rolling multi-year benchmarking roadmap about 2/3^rd of the Companys products continue to prove their superiority, while the rest get taken up for product refresh, or as an input to future product/ platform development through the New Product Development (NPD) system.

Risk Management

The risk management methodology adopted at CEAT begins with the stage of risk identification and is followed by a detailed assessment of their potential impacts. The assessment is conducted by analysing previous trends and future estimates, while also accounting for external perspectives to ensure a comprehensive coverage of current and emerging risks. Subsequently, appropriate measures are developed 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

CEATs risk management approach consists of several key components that work together to ensure that the Company is adequately prepared to address and manage potential risks. These components include:

Risk Management Approach

Risks	Mitigation
1. Margin Impact due to raw materials Price Volatility and inability to increase the prices to off-set the RM price increase	CEAT is implementing various measures to foster long-term associations 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
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.	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, expanding in premium segment as well as new markets. CEAT is leveraging its deep domain knowledge, technology prowess, brand recall, and reach to stay ahead of competition.
2. Cyber Security Risk	CEAT periodically examines the risks of cyber-attacks to its system and takes preventive and detective measures to ensure its mitigation. External IT consultants are involved to provide inputs for safeguarding systems against cyber-attacks. A Business Continuity Plan (BCP) is also developed to ensure mitigation against unplanned exigencies.
3. ESG Risk	The Company has established a ESG council that regularly examines ESG specific risks, plans its mitigation and ensures implementation. In terms of governance, the Company utilises a web-based compliance tool to monitor all the pertinent compliances. Additionally, there are policies in effect that addresses various human rights needs, diversity and other obligations.
4. Geopolitical disruption	To mitigate the risk, proactive measures are being taken in the following areas:
The emergence of a big risk, due to factors	1. Ensuring supply chain agility
such as a debt crisis, war, trust deficit in inter- state relations, and uncertainty leads to supply	2. Maintaining healthy balance sheet ratios
disruptions and an overall increase in prices.	3. Developing long-term supply and demand plans
	4. Expanding into new geographies and OEMs/sizes

Environment, Occupational Health, and Safety

CEAT is committed to providing a safe and secure work environment for its people and reduce injuries and accidents at the workplace. CEAT uses a proactive and systematic strategy to identify potential risks and hazards related to occupational health and safety in order to achieve this goal. CEAT also ensures adherence to all pertinent environmental rules and upholds the principle of "prevention rather than control" of pollution.

Safety

The Company has a policy of zero accidents and has adopted the Five Star Occupational Health and Safety Management System of the British Safety Council (BSC) to ensure safety and well-being of its people. In October 2023, CEATs Ambernath and Chennai plants were recognised with the Sword of Honour from the British Safety Council (BSC), making it one of 115 organisations worldwide to achieve such recognition. All the manufacturing facilities of CEAT are certified with ISO 45001:2018. Extensive safety training is provided to all employees, including contractual employees, to ensure compliance with safety measures. During the reporting period, CEAT conducted 7,958 man-days worth of health and safety trainings. The Central Safety Committee and the EHS Steering Safety Committee meet on a quarterly basis while the Departmental Safety Committee conducts meetings on a monthly basis.

Occupational Health

CEAT works across its functional lines to lower occupational health risks in an endeavor to reach "zero occupational illness cases." In addition, the Company also caters to non-occupational hazards wherever required. CEATs Occupational Health Centers (OHC) are open around-the-clock, and all the plants have first aid kit and ambulance services available. Periodic medical examinations are conducted for all its workforce including the contractual workers. Employees and workers can use the smartphone app that is developed to report harmful situations, unsafe behaviour, and near-misses. Shift Assembly Meetings (SAM) are held to address and track the health and safety concerns at the beginning of each shift.

Environment

With the goal of reducing carbon footprint by 50% by 2030, CEAT is dedicated to achieving sustainable manufacturing and operations through the adoption of clean energy sources and an emphasis on energy efficiency as well as on reducing the emissions intensity. The Company explores opportunities in the circular economy and environmental stewardship throughout the value chain in order to balance resource preservation and carbon footprint minimisation with sustainable practices. Renewable Energy: The Company is using solar, wind and hybrid energy across its manufacturing facilities which comprises approximately 50.9% of total energy consumption.

Sustainable Materials: The Company has set a target to use 40% sustainable materials by 2030. The Companys achievement as of March 2024 is 28.4%.

Use of Nitrogen Curing: Significant reductions in calorifier steam usage for nitrogen curing processes led to a daily saving of 15 metric tons of steam.

Briquettes: CEAT has started increasing the consumption of briquettes as an alternative to coal to reduce the amount of fossil fuels used in the production process and, as a result, reduce the carbon footprint of the Company.

Extended Producer Responsibility: The Company has successfully offset and completed the activity of buying credits that are compliant with the EPR regulation. For more information, refer Natural Capital section and Principle 6 of Business Responsibility and Sustainability Report.

People Matters

CEAT promotes an environment of openness and transparency by putting an emphasis on continuous learning and development, employee involvement, and well-being.

Please refer to the Human Capital section for a comprehensive explanation of the actions implemented to enhance workplace and human happiness, gender diversity, workforce learning and development, including upskilling programs. In addition, refer Principle 3 and Principle 5 of Business Responsibility and Sustainability Report (BRSR).

Internal Control Systems and Their Adequacy

CEAT has well-placed, suitable and adequate internal controls 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 of process lapses, if any. 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-today 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 encompass the Interest Coverage Ratio, Debt Equity Ratio, Operating Profit Margin, 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 v/s 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.

Discussion on Financial Performance

The standalone financial statements, the analysis whereof is presented hereunder and in the following pages pursuant to the requirements of Regulation 33 of the SEBI (Listing Obligations and Disclosures Requirements) Regulations 2015, have been prepared in accordance with the requirements of the Companies Act, 2013 and applicable Ind AS issued by the Institute of Chartered Accountants of India. The Management of CEAT Limited accepts the integrity and objectivity of these financial statements as well as various estimates and judgments used therein. The estimates and judgments relating to the financial statements have been made on a prudent and reasonable basis, in order that the financial statements are reflected in a true and fair manner and also reasonably presents the Companys state of affairs and profit for the year.

Balance Sheet

Property, plant and equipment, capital work-in-progress, intangible assets, intangible assets under development and right-of-use assets (Net Block) (Note 3, 4 and 5)

(H in Lakhs)

Particulars	As at March 31, 2024	As at March 31, 2023	Change	Change %
Property, plant and equipment	5,92,539	5,71,612	20,927	4%
Capital work-in-progress	65,911	50,931	14,980	29%
Intangible assets	7,392	8,780	(1,388)	(16%)
Intangible assets under development	2,440	2,748	(308)	(11%)
Right-of-use asset	24,692	29,203	(4,511)	(15%)
Total	6,92,974	6,63,274	29,700	4%

Property, plant and equipment values have increased during the year as the Company has capitalised property, plant and equipment of _ 61,106 lakhs mainly consisting of Chennai, Halol, Ambernath and Nagpur factories offsetted by depreciation of _ 39,720 lakhs on property, plant and equipment for the year.

Capital work-in-progress mainly includes the project capital expenditure incurred at Chennai,Halol, Nagpur and Ambernath factories. Intangible under development mainly comprises software and technology development.

Right-of-use assets are arising out of outsourcing arrangements of products which consists of Land, Buildings and Plant machinery used for production and distribution of goods and generation of power.

Investments (Note 6)

(H in Lakhs)

Particulars	As at March 31, 2024	As at March 31, 2023	Change	Change %
Non-current investments
Investments in subsidiaries and associates	12,430	9,850	2,580	26%
Other non-current investments	3,143	3,177	(34)	(1%)
Total	15,573	13,027	2,546	20%

The Company had invested _2,580 lakhs in Tyresnmore Online Private Limited during the current year, shown as investments in subsidiaries and associates

Other financial assets (Note 7 and 13)

(H in Lakhs)

Particulars	As at March 31, 2024	As at March 31, 2023	Change	Change %
Other non-current financial assets	808	812	(4)	(0%)
Other current financial assets	6,540	4,287	2,253	53%
Total	7,348	5,099	2,249	44%

Other current financial assets have increased mainly on account of fiscal incentives receivable from Government.

Other non-financial assets (Note 8 and 14)

Particulars	As at March 31, 2024	As at March 31, 2023	Change	Change %
Other non-current non-financial assets	8,451	4,719	3,732	79%
Other current non-financial assets	11,374	11,376	(2)	(0%)
Total	19,825	16,095	3,730	23%

Increase in non-current non-financial asset is mainly due to increase in capital advances amounting to _ 3,475 lakhs mainly for Chennai factory expansion.

Other current non-financial assets comprise advance to vendors, prepaid expenses and balances with Government Authorities.

Inventories (Note 9)

(H in Lakhs)

Particulars	As at March 31, 2024	As at March 31, 2023	Change	Change %
Raw Materials	39,026	41,637	(2,611)	(6%)
Semi-finished Goods	8,747	7,919	828	10%
Finished Goods (including stock-in-trade)	63,552	60,999	2,553	4%
Stores and Spares	2,089	1,853	236	13%
Total	1,13,414	1,12,408	1,006	1%

Raw material inventory when compared as a measure of the cost of material consumed is equivalent to 21 days as at March 31, 2024 against 25 days as at March 31, 2023 mainly due to lower inventory levels as at March 31, 2024.

The finished goods inventory (including traded goods stock) as a measure of the goods sold is stated at 31 days as at March 31, 2024 against 30 days as at March 31, 2023.

Trade Receivables (Note 10)

(H in Lakhs)

Particulars	As at March 31, 2024	As at March 31, 2023	Change	Change %
Trade Receivables	1,27,597	1,30,283	(2,686)	(2%)

The Receivables position for the current year is at 44 days of sales outstanding as at March 31, 2024 as compared to 42 days of sales outstanding as at March 31, 2023.

Cash and cash equivalents (Note 11)

(H in Lakhs)

Particulars	As at March 31, 2024	As at March 31, 2023	Change	Change %
Cash and cash equivalents	3,220	5,024	(1,804)	(36%)

Balance of last year was primarily higher on account of inflows after the closure of business hours on the last working day of the year.

Balance Sheet

Borrowings (Note 18 and 22)

(H in Lakhs)

Particulars	As at March 31, 2024	As at March 31, 2023	Change	Change %
Non-current borrowings	95,660	1,44,056	(48,396)	(34%)
Current borrowings	63,637	62,517	1,120	2%
Total	1,59,297	2,06,573	(47,276)	(23%)

The Companys strong free cash flow generation, coupled with rigorous management of working capital, enabled reduction in debt during the year to the tune of _ 47,276 lakhs.

Lease Liability (Note 4)

Particulars	As at March 31, 2024	As at March 31, 2023	Change	Change %
Non-current lease liabilities	10,170	13,055	(2,885)	(22%)
Current lease liabilities	6,085	7,222	(1,137)	(16%)
Total	16,255	20,277	(4,022)	(20%)

Lease liabilties are arising out of outsourcing arrangements of Companys products which consists of Land, Buildings and Plant machinery used for production and distribution of goods and generation of power. Reduction was mainly on account of repayment of lease liabilities amounting to _ 9,180 lakhs offset by additions including interest accretion of _ 5,158 lakhs during the year.

Other financial liabilities (Note 19 and 24)

(H in Lakhs)

Particulars	As at March 31, 2024	As at March 31, 2023	Change	Change %
Other non-current financial liabilities	2,117	1,881	236	13%
Other current financial liabilities	85,273	83,737	1,536	2%
Total	87,390	85,618	1,772	2%

Other non-current financial liabilities has marginally increased mainly due to increase in capital creditors by _ 226 lakhs.

Increase in other current financial liabilities was mainly due to increase in deposits from Dealers amounting to _ 4,473 lakhs, Employee related liabilities amounting to _ 4,575 lakhs and derivative financial instruments amounting to _ 236 lakhs as compared to March 31, 2023. This increase was slightly offset by decrease in capital vendor amounting to _ 6,341 lakhs, interest accrued but not due amounting to _ 1,367 lakhs, unpaid dividend and unpaid matured deposits amounting to _ 40 lakhs as compared to March 31, 2023.

Provisions (Note 20)

(H in Lakhs)

Particulars	As at March 31, 2024	As at March 31, 2023	Change	Change %
Non current provisions	7,797	4,730	3,067	65%
Current provisions	10,528	14,034	(3,506)	(25%)
Total	18,325	18,764	(439)	(2%)

There was an increase in provision for sales related obligation amounting to _ 1,533 lakhs which is in line with Companys policies, actual claims and higher sales. This increase is slightly offset by reduction in provision for Gratuity by _1,851 lakhs which is due to higher Plan Assets as on March 31, 2024.

Trade Payables (Note 23)

(H in Lakhs)

Particulars	As at March 31, 2024	As at March 31, 2023	Change	Change %
Trade payables	2,33,264	2,27,083	6,181	3%

The trade payable position was at 91 days purchases of goods and services outstanding as at March 31, 2024 as compared to 88 days as at March 31, 2023.

Other current liabilities (Note 25)

(H in Lakhs)

Particulars	As at March 31, 2024	As at March 31, 2023	Change	Change %
Other current liabilities	27,656	15,036	12,620	84%

Increase in Other current liabilities was due to increase in Statutory dues by _ 1,121 lakhs, for Extended Producer Responsibility (EPR) by _ 10,720 lakhs and advances recevied from Customers by _ 779 lakhs as compared to last year.

Statement of Profit and Loss

The following table sets forth the breakup of the Companys expenses as part of the Revenue from operations (net)

(H in Lakhs)

		% of		% of
Particulars	2023-24	Revenue from operations	2022-23	Revenue from operations
Revenue from operations	11,89,260	100.00%	11,26,326	100.00%
Cost of material consumed	6,92,363	58.22%	7,35,074	65.26%
Purchase of stock-in-trade	614	0.05%	990	0.09%
Changes in inventories of finished goods, work-in-progress and stock-in-trade	(3,381)	0%	(499)	0%
Gross Margin	4,99,664	42.01%	3,90,761	34.69%
Employee benefit expense	83,358	7.01%	72,536	6.44%
Other expenses	2,50,738	21.08%	2,20,499	19.58%
EBITDA	1,65,568	13.92%	97,726	8.68%
Other income	2,627	0.22%	3,866	0.34%
Finance costs	26,586	2.24%	23,904	2.12%
Depreciation and amortisation expenses	50,836	4.27%	46,925	4.17%
Exceptional items	4,251	0.36%	3,342	0.30%
Profit before tax	86,522	7.28%	27,421	2.43%
Tax expense	21,092	1.77%	6,794	0.60%
Profit for the year	65,430	5.50%	20,627	1.83%
Other comprehensive income for the year, net of tax	(24)	0.00%	120	0.01%
Total comprehensive income for the year	65,406	5.50%	20,747	1.84%

As compared to previous year:

- Revenue from operations has increased by 6%, largely driven by volume growth.

- Gross margin has increased by 28% (in absolute value) due to lower raw material costs and higher sales.

- EBITDA has increased by 69% (in absolute value) and increased by 525 bps (in percentage terms), primarily driven by a decline in raw material prices.

Revenue from Operations (Note 26)

(H in Lakhs)

Particulars	2023-24	2022-23	Change	Change %
Sale of goods
Automotive Tyres	10,96,253	10,34,379	61,874	6%
Tubes and others	75,291	74,430	861	1%
Royalty income	604	445	159	36%
Other revenues	966	506	460	91%
Total revenue from contracts with customers	11,73,114	11,09,760	63,354	6%
Sale of Scrap	6,500	6,126	374	6%
Government Grants	9,646	10,440	(794)	(8%)
Revenue from Operations	11,89,260	11,26,326	62,934	6%

Other Income (Note 27)

Particulars	2023-24	2022-23	Change	Change %
Other Income	2,627	3,866	(1,239)	(32%)

Other income has mainly decreased due to lower dividend received by _ 883 lakhs mainly from Srilanka subsidiary as compared to March 31, 2023.

Cost of material consumed/ finished goods consumed analysis (Note 28 and 29)

(H in Lakhs)

Particulars	2023-24	2022-23	Change	Change %
Cost of materials consumed	6,92,363	7,35,074	(42,711)	(6%)
Purchase of stock-in-trade	614	990	(376)	(38%)
Changes in inventories of finished goods, stock-in-trade and work-in-progress	(3,381)	(499)	(2,882)	578%
Total	6,89,596	7,35,565	(45,969)	(6%)

Movement of changes in Inventory is mainly on account of increase in finished goods stock as compared to the previous year. Inventory of finished goods is _ 63,387 lakhs as at March 31, 2024 as compared to _ 60,801 lakhs as at March 31, 2023.

Employee benefit expense (Note 30)

(H in Lakhs)

Particulars	2023-24	2022-23	Change	Change %
Employee benefit expense	83,358	72,536	10,822	15%

Employee benefit expenses increased due to regular annual salary increments and increased level of operations in factories.

Finance Costs (Note 31)

(H in Lakhs)

Particulars	2023-24	2022-23	Change	Change %
Finance cost	26,586	23,904	2,682	11%

The increase in finance costs is primarily due to higher interest payments on incremental Dealer Deposits and increase in interest rates.

Depreciation and amortisation expense (Note 32)

(H in Lakhs)

Particulars	2023-24	2022-23	Change	Change %
Depreciation on property, plant and equipment	39,720	34,808	4,912	14%
Amortisation of intangible assets	3,053	3,858	(805)	(21%)
Depreciation on Right of Use Asset	8,063	8,259	(196)	(2%)
Total	50,836	46,925	3,911	8%

Depreciation on Property, Plant, and Equipment increased due to significant Capital expenditures at Chennai, Halol, Ambernath, and Nagpur plants. Conversely, amortisation of intangible assets decreased as several assets reached the end of their useful lives during the fiscal year ending March 31, 2024.

Other Expenses (Note 33)

Particulars	2023-24	2022-23	Change	Change %
Conversion Charges	35,179	34,146	1,033	3%
Stores and Spares Consumed	9,925	9,412	513	5%
Freight and Delivery Charges	46,537	45,087	1,450	3%
Repairs - Machinery	11,021	9,644	1,377	14%
Travelling and Conveyance	6,089	4,470	1,619	36%
Advertisement and Sales Promotion Expenses	24,974	21,235	3,739	18%
Professional and Consultancy Charges	12,333	8,905	3,428	38%
Training and Conference Expenses	2,149	1,223	926	76%
CSR Expenses	583	604	(21)	(3%)
Sales related obligations	18,020	15,010	3,010	20%
Bank Charges	373	475	(102)	(21%)
EPR	7,267	-	7,267	100%

Variable costs such as conversion charges, power and fuel, freight, travelling, training, Sales related obligations etc. has increased in line with the increase in activity levels.

Increase in Advertisement and Sales promotion expenses is because of increase in markerting activities lead by IPL, WPL and other initiatives. Increase in professional and consultancy charges in account of engagement of Professional and Consultants for driving key projects. On July 21, 2022, the Ministry of Environment, Forest and Climate Change issued notification containing Regulations on Extended Producer Responsibility (EPR) for Waste Tyre applicable to Tyre manufacturers and Recyclers. As per the notification, the Company has a present legal obligation as at March 31, 2024 for FY 2023-24 (quantified basis the production in FY 21-22) and for FY 2022-23 (quantified basis the production in FY 20-21) to purchase EPR certificates online from Recyclers of waste tyre, registered with the Central Pollution Control Board, to fulfil its obligations. As at March 31, 2023 the Company could not estimate the liability reliably since the infrastructure for the same was not enabled and hence this obligation was not provided for. In the current year the enabling framework has been established for the Company to reliably estimate the liability and accordingly _ 10,720 lakhs has been provided in the books in the current year including _ 3,453 lakhs pertaining to FY 22-23 obligations, which has been disclosed as an exceptional item during the year ended March 31, 2024. The obligation pertaining to FY 23-24 has been disclosed separately in Other expenses. The Company has provided the above on a prudence basis while the matter has been represented to the Government by the Company along with the Industry forum to defer the applicability and proposed certain changes in the modalities.

Exceptional Items (Note 34)

(H in Lakhs)

Particulars	2023-24	2022-23	Change	Change %
Exceptional Items	4,251	3,342	909	27%

Exceptional items has increased due to EPR cost of _ 3,453 lakhs of FY 2022-23 offset by lower VRS of _ 2,362 lakhs in FY 2023-24.

Tax expenses (Note 21)

(H in Lakhs)

Particulars	2023-24	2022-23	Change	Change %
Tax expenses	21,092	6,794	14,298	210%

Effective income tax rate for the year 2023-24 was 24.38% as compared to 2022-23 is 24.78% in 2022-23. Tax expenses were higher in 2023-24 due to higher profits.

Cash Flows*

Particulars	2023-24	2022-23	Change	Change %
Net cash flow generated from operating activities	1,72,391	1,21,523	50,868	42%

Net cash from operating activities has increased as compared to previous year due to following reasons: a) Increase in the operating profit before working capital changes but after tax by _ 45,825 lakhs b) The Release of working capital by _ 5,043 lakhs

(H in Lakhs)

Particulars	2023-24	2022-23	Change	Change %
Net cash (used in) investing activities	(87,388)	(85,997)	(1,391)	2%

The increase in net Cash outflow from investing activities was driven primarily by an investment of _ 2,580 lakhs in Tyresnmore and a decrease in dividends from subsidiaries by _ 883 lakhs. This was partially offset by a reduction in capital expenditures (net) by _ 2,265 lakhs.

(H in Lakhs)

Particulars	2023-24	2022-23	Change	Change %
Net cash flows (used in)/generated from financing activities	(86,807)	(31,802)	(55,005)	173%

Increase in cash outflow for financing activities is mainly due to repayment of long-term borrowing _ 55,523 lakhs

* For details, refer cash flow statement

Ratio Analysis

Particulars	2023-24	2022-23	Reasons
Debtors turnover ratio	9.09	9.03	Debtors turnover ratio has remained in similar lines as compared to previous year.
Inventory turnover ratio	9.77	10.71	Inventory turnover has decreased marginally in the current year as compared to previous year primarily due to higher closing inventory.
Interest coverage ratio	5.73	3.94	Interest coverage ratio has increased in 2023-24 as compared to the previous year mainly on account of higher profits.
Current ratio	0.61	0.64	The marginal decrease in the current ratio is primarily driven by an increase in trade payables.
Debt equity ratio	0.40	0.62	The improvement is attributable to a reduction in debt and an increase in net worth, driven by higher earnings compared to the previous year.
Operating profit margin	13.92%	8.68%	The increase in margins is primarily driven by lower raw material
Net profit margin	5.50%	1.83%	prices and higher revenue.
Return on net worth	16.56%	6.17%	Return on net worth has increased due to higher post tax earnings.
Price earning ratio	16.55	28.44	Earnings per share stood at _ 161.75 for the year ended March 31, 2024 registering an increase by 217% as compared to year ended March 31, 2023. Closing share price was higher by 85% as compared to previous year.
Return on capital employed	21.54%	10.42%	Return on capital employed has increased due to increase in earnings before interest and tax.