CEAT Kelani JV profit slips on higher costs, tax expense in 3Q

Kelani Tyres PLC, a local listed tyre manufacturer, which has a joint venture with India’s CEAT, reported lower profits for the three months ended in December 2021, as the surging costs and higher taxes weighed on despite the increased sales amid import controls on tyres.     

The company reported profits of Rs.230.3 million for the October-December quarter or Rs.2.86 a share, compared to earnings of Rs.299.9 million or Rs.3.73 a share in the same period in 2020, after its joint venture firm reported earnings, which slipped from a year earlier period.    The joint venture firm is bigger than the holding company itself, as it added earnings of Rs.253.4 million in the three months under review, down from Rs.302.3 million in the year earlier period. 
In the nine months to December 2021, the joint venture firm reported profit after tax of Rs.606.2 million, which is also down from Rs.740.1 million in the corresponding period in 2020.  Total sales for the nine months was recorded at Rs.11.8 billion, up 42.2 percent from the year ago period. The sales in the domestic market were Rs.11.2 billion, compared to Rs.7.6 billion in the same period in 2020, up 47 percent. 
The company also contended with the surging costs, as direct costs rose by 60 percent to Rs.9.1 billion. The company also saw its income tax rising to Rs.518.9 million, from Rs.194.9 million.  Recently, the board of directors at the CEAT Kelani joint venture passed a resolution to invest Rs.3.2 billion to increase the capacity of its line of passenger car, SUV, UV, light van steel-belted radial tyres and motor cycle and scooter tyres. Funds will also be allocated to replace the existing upstream tyre manufacturing equipment to bring that in line with the international benchmarks.  The company believes the investments would start yielding results two years from now in the 2023/24 financial year. 
The group already leads the market for truck, light truck, van and passenger car radials, three-wheeler and agriculture tyres in Sri Lanka. 
With the machinery already imported and commissioned by August last year, the company said it has the capacity to meet the car/van radial tyre market with 600,000 tyres annually of an estimated 1,200,000 tyre market. 
“We are also in the process of further expanding truck/bus radial tyre production capacity and ramped up production is expected in the final quarter of this financial year,” Kelani Tyres Chairman Chanaka De Silva said in his annual review of operations.  De Siva said that the users who shifted to the company’s tyres from the imported tyres in the recent past, due to the import ban, have shown acceptance of its tyres.  The Employees’ Provident Fund has a 1.93 percent stake in Kelani Tyres PLC, as the sixth largest shareholder.