2. Time is ripe for CEAT’s Entry into Bangladesh Market
60 %
Road as a primary
mode of transport
65 %
Freight traffic
served by Road
networks
80 %
Passenger traffic
served by Road
networks
90 %
Transport Sector’s
budget allocation for
road dev.
0
No. of Automobile
manufacturers
1 No. of Automobile
Assemblers
50 %
Market share of
imported used/
reconditioned cars
12 %
Tyre Industry
CAGR
Investment
in Infra
Improved
Connectivity
Demand for
Automobiles
and hence
Tyres
Multiplier
effect on
Economy
Rise in GDP
CEAT’s Rolling Wheel
Support for
Automotive
Industry
Increased
Mobility
Needs
Road Infra
Development
in Process
Increased
Import Tax
Rates
Exchange
Rate
Volatility
Electricity and
Land
Availability
ChallengesOpportunities
BD AUTO
MARKET
MARKET DRIVERS
PHASED
IMPLEMENTATION
PHASE 1
COUNTRY
CHALLENGES
COMPETITORS
RESPONSE
ECO-SYSTEMC E A T
Sources: BRAC EPL, February 2013
3. CEAT should sustain Existing Market Drivers while looking for New Opportunities
COST FACTOR
RATING OF PRIORITY
TYRE QUALITY
BRAND RECALL
VARIANTS AVAILABLE
SERVICES OFFERED
ADJACENT TERRITORIES
AVAILABLE FOR EXPORT MARKET
Current Tyre Market
Drivers Working In
Bangladesh
0
55
Missing Tyre
Market Drivers
In Bangladesh
3
4
2
4
DISTRIBUTION
CHANNEL
3
2.5
1
MARKET
DRIVERS
Unmanaged Cost Factor
• Scarcity of Raw Materials –
Rubber, Carbon and Yarn
• 90% supply from imported
tyres
• High import duties raise prices
• Scarcity of Electricity poses a
big challenge
Tyre Quality
Major Tyre companies in
Bangladesh offer similar Value
Proposition – Quality at
Reasonable Price
The Heavy Import duty makes it
difficult for local people to afford
these tyres.
Brand Recall
The market players are
established companies like
Bridgestone, JK Tyres, MRF, CEAT
etc.
These companies have a ready
brand value and recognition.
Available Variants
Many variants are available from
each tyre company but the local
customization has not been done.
CEAT should target
new market drivers
in Bangladesh
CEAT should sustain
existing market
drivers In Bangladesh
Current Distribution Channel
• Distribution Network is under
tapped.
• Major players offer less
incentives to distributors as
supplier’s bargaining power is
higher
New Export Markets To Target
with Bangladesh as epicentre is
unexplored.
Un-explored Service Offerings
like e-commerce, Tech. Training
Sources: Asia Tire Industry Outlook to 2017, Ken Research; Tire Market In India, MarketLine
BD AUTO
MARKET
MARKET DRIVERS
PHASED
IMPLEMENTATION
PHASE 1
COUNTRY
CHALLENGES
COMPETITORS
RESPONSE
ECO-SYSTEMC E A T
4. Project Charter for the Phased Plant Commissioning & Business Expansion
Phase I
Plant
Commissioning
Phase II
Commercial
Production
Phase III
Marketing and
Distribution
Market Share
Product Mix
Quality
Management
Raw Material
WarehouseInvest FinalizeTarget
DealersPricing
Strategies
Consumer
Preferences Distributor
Locations
Dealer
Locations
Gauge Decide
Set up a
Network
Land
Machinery
Seed
Marketing
Identify Optimal
Capital Structure
Purchase
Setup
Start Finance
Phase 0
Local Partner
JV with AK
Khan & Co
Market
Knowledge No Related
Retail Outlets
Local
Partner
Positive Challenge
Rubber
Plantation
BD AUTO
MARKET
MARKET DRIVERS
PHASED
IMPLEMENTATION
PHASE 1
COUNTRY
CHALLENGES
COMPETITORS
RESPONSE
ECO-SYSTEMC E A T
5. Chittagong
Sylhet
Dhaka
BarisalKhulna
Rajshahi
Dhaka is the Ideal location for Plant; 3 Warehouses Required
Dhaka Chittagong Khulna Rajshahi Sylhet Barisal
Dhaka 297 256 197 222 114
Chittagong 297 437 400 406 156
Khulna 256 437 200 468 85
Rajshahi 197 400 200 337 259
Sylhet 222 406 468 337 288
Barisal 114 156 85 259 288
Total 1086 1696 1446 1393 1721 902
Start the plant in Dhaka – the heart of Bangladesh
Using P median approach (taking P=3), we found that
warehouses can be developed at Chittagong, Sylhet & Khulna.
Chittagong being the port city will play a significant role in
exports
Advantages of having one plant and three warehouses –
Low Inventory Holding Costs
Faster Replenishment
Effective buyback contracts
Shorter Lead Time
Plant
Warehouse Other Major Cities
From warehouseFrom plant
Distance between Major Cities (in Km)
Mymensingh
Exports
BD AUTO
MARKET
MARKET DRIVERS
PHASED
IMPLEMENTATION
PHASE 1
COUNTRY
CHALLENGES
COMPETITORS
RESPONSE
ECO-SYSTEMC E A T
6. Hubs and Shoppes in India
States like Odisha and Chhattisgarh, which have rich mineral reserves have
17 and 12 hubs respectively compared to 3 and 1 shoppes respectively
Chittagong
Sylhet
Dhaka
BarisalKhulna
Rajshahi
221
133
Exclusive CEAT dealer outlets for Trucks and
Buses Segment
Exclusive CEAT dealer outlets for Passenger
Car Segment
HUBSHOPPE
Hubs and Shoppes in Bangladesh - Proposal
10
6
HUBSHOPPE
15
10
The proposed number of hubs
and shoppes in 2014 are based on
ratio of area of India and BD
(22.3) while in 2019, it is based
on ratio of GDPs (13.9)
2014 2019
HUB
SHOPPE
The hubs in Sylhet and Chittagong
cover the surrounding mineral
rich areas
Source: CEAT website
Proposed Hub & Shoppe Model
BD AUTO
MARKET
MARKET DRIVERS
PHASED
IMPLEMENTATION
PHASE 1
COUNTRY
CHALLENGES
COMPETITORS
RESPONSE
ECO-SYSTEMC E A T
Sources: CEAT Website
7. 60: 40 D/E – Optimal Capital Structure for CEAT Bangladesh
Methodology
Assumptions
Results
RESULTS FROM ANALYSIS
Current Optimal Change
D/(D+E) Ratio 53.21% 60.00% 6.79%
Beta for the Stock 1.83 2.08 0.25
Cost of Equity 22.23% 24.13% 1.90%
After-tax cost of Debt 10.81% 7.97% -2.84%
WACC 16.15% 14.43% -1.72%
Implied Growth Rate 8.50%
Firm Value 1510.6 1947.7 437.0
Value/share 206.4 334.0 127.6
• New investment of 65 million USD forms the 70% part of JV
• Optimal Capital Structure is attained when WACC is minimized
• Debt to be raised in India considering higher interest rates in Bangladesh
• Existing debt is refinanced at new rates
• Pre-tax cost of debt is taken from 5 year interest expense average
0
500
1,000
1,500
2,000
2,500
13%
14%
15%
16%
17%
40% 50% 60% 70% 80%
FirmValue,INRCrore
WACC
WACC Firm Value
Min. WACC, Max. Firm
Value @ D/(D+E) = 60%
Taken inputs from Balance Sheet and
Annual Income Statement
Analysed Interest Rates and Marginal Tax
Rates in India & Bangladesh
Calculated Default Spread using Interest
Coverage Ratio: Credit Rating Changes with
ICR but remain stable in a Band
Financial
Details
Tax Rate
Default
Spread
Optimal D/E
Cost of Equity and Cost of Debt change with
changing D/E. Optimal WACC was calculated
to maximize Firm Value
BD AUTO
MARKET
MARKET DRIVERS
PHASED
IMPLEMENTATION
PHASE 1
COUNTRY
CHALLENGES
COMPETITORS
RESPONSE
ECO-SYSTEMC E A T
Sources: Moneycontrol.com; CEAT Annual Report 2012-13
8. Determining The Product Mix At Bangladesh Plant : A Quantitative Model
CEAT’s Market Share
Growing at CAGR 54% in
BD
Each Segment Share
Targeted in range 0-30%
To Maximise Profit
From production at plant
2015
2018
2021
11 %
40 %
40 %
2016
2017
2019
2020
2022
17 %
26 %
40 %
40 %
40 %
YEAR
Market Share
Targeted by
Value & Volume
Marketsharestabilizes
Bus (Cross ply)
Bus (Radial)
Truck (Cross ply)
Truck (Radial)
LCV (Cross ply)
SCV (Cross ply)
3 Wheeler (Cross ply)
2 Wheeler (Cross ply)
2 Wheeler (Radial)
Gross Profit is
calculated with
information on ton
produced & Gross
Profit per ton
5.17%
3.98%
4.01%
4.01%
16.24%
17.74%
4.66%
3.69%
3.53%
2.46%
1.95%
1.87%
4.01%
11.05%
12.52%
0.00% 10.00% 20.00%
2015
2018
2021
2
Wheeler
(Cross
ply)
3
Wheeler
(Cross
ply)
SCV
(Cross
ply)
LCV
(Cross
ply)
Truck
(Cross
ply)
Bus
(Cross
ply)
80%
80%
63%
60%
IDENTIFIED TRENDS
IN PRODUCT
PORTFOLIO
3-WHEELERS
should dominate the
production
1
2- WHEELERS
production grows 8%
points in production
2
TRUCKS TYRES
Grow sharply by 12 %
points in production
3
LCV TYRES
Is another lucrative
product segment
4
2 wheelers 3 wheelers SCV
LCV Trucks Buses
BD AUTO
MARKET
MARKET DRIVERS
PHASED
IMPLEMENTATION
PHASE 2
COUNTRY
CHALLENGES
COMPETITORS
RESPONSE
ECO-SYSTEMC E A T
KEY PARAMETERS
ANALYSIS
(Using Excel
Solver LP)
Sources: Case Exhibits
9. Bangladesh Key Success Factor: Old Technology but New Segments
Slow Radialization
Maximizing @ 15% of CEAT
BD Market
Radial Tyres demand should be
catered by Imports from
parent factories in India & Sri-
Lanka
CEAT should use Cross ply
Technology for its new plant in
Bangladesh
Tyre
Technology
Enter into New Segments
Tractor & Farm Specialty & Industrial
Insights
Inference
Recommen-
dation
• Bangladesh is predominately an agricultural country
• Farm mechanization for crop production has become an
important issue
• Govt. to subsidise farm machinery purchase for farmers
• Sizeable market for tractor / farm equipment tyres
• Govt. subsidies to boost tractor & tillers sales
• CEAT overlooking a major segment that is set to expand
• CEAT should venture into Tractor & Farm segment in BD
• Must leverage the price position to build market share
• Tie-up with Progoti Industries (only tractor maker in
BD) to supply tractor tyres
• Due to current infrastructure crunch in BD, the govt.
has planned the following projects over the next decade:
Deep Sea Port in Sonadia Island, New International
Airport in Dhaka, Dhaka Mass Rapid Transit
Development, etc.
• Increase in demand for industrial equipment & tyres
• Buying decisions for govt. projects will be price-based
• CEAT should diversify into the Specialty & Industrial
tyres in the BD market
BD AUTO
MARKET
MARKET DRIVERS
PHASED
IMPLEMENTATION
PHASE 2
COUNTRY
CHALLENGES
COMPETITORS
RESPONSE
ECO-SYSTEMC E A T
Sources: www.unapcaem.org; BRAC EPL, February 2013
10. Key Drivers for Pricing Strategy
BD AUTO
MARKET
MARKET DRIVERS
PHASED
IMPLEMENTATION
PHASE 3
COUNTRY
CHALLENGES
COMPETITORS
RESPONSE
ECO-SYSTEMC E A T
Pricing
Strategy
Price Sensitivity
• Replacement Market is highly price
sensitive
• Price elasticity of demand for tyres in
short-term is 0.9, i.e. For every 10%
reduction in price, demand should
increase by 9%
Market Positioning
Value Proposition
• Better margins for Dealers and
Customers
• Enhanced Service Quality
• Regularity of Supply
Customer Life cycle Value
• OEM : Quality & Timely
Delivery, Enhanced margins.
• Replacement Market: Empowering
distribution channels, Build a strong
brand loyalty, Offering localized tyre
variants, Improved services.
Sources: Demand Elasticity, Fort Lewis
11. Market positioning expected to be derived from changes in perceived quality & price
Current Situation
Reorder Market
Dynamics
PERCEIVED QUALITY PRICE RANGE
1 -
2 -
3 -
4 -
- 1
- 2
- 3
- 4
Strategic Shift:
Opening Plant In Bangladesh
better service &
quality offerings
passing cost advantage
to customers
BD AUTO
MARKET
MARKET DRIVERS
PHASED
IMPLEMENTATION
PHASE 3
COUNTRY
CHALLENGES
COMPETITORS
RESPONSE
ECO-SYSTEMC E A T
12. Price leader with Quality differential
Import Duty Savings
Better Service
Infrastructure
Higher Dealer
Margins
Cost benefit to
Customers
Tax holiday (Greenfield
project, First 5 yrs)
Profit/Debt service
Products
Expert
Advice
Service
6 CEAT SHOPPE
1.8 Cr/year
Current Margin: 5-6%
New Margin: 7-8%
Benefit: 2%
INR 70,18,225
INR 8,77,27,816
Current Positioning
2-3% Below
MRF
3-5% Above
Birla
Proposed Positioning
2% Above Birla
• 10 yr Amortization
Schedule
• 18.29% interest rate
55.32 Cr Yearly payment
INR 6.086 Cr
25% cost
savings
Benefits: INR 70,18,225
BD AUTO
MARKET
MARKET DRIVERS
PHASED
IMPLEMENTATION
PHASE 3
COUNTRY
CHALLENGES
COMPETITORS
RESPONSE
ECO-SYSTEMC E A T
13. Getting electricity for a new business establishment in Bangladesh requires 9 procedures, takes 404 days and costs 5193.8%
of income per capita – World Bank, Ease of doing business report
Key Takeaways
• Cost-benefit analysis results in
cost savings of 11.95 Lakh Rs
per month
• Can produce 90 MW of
electricity from 900 tonnes of
scrap tyre.
• Environmentally safe and
reduces tyres dump into land.
• Tripura, Assam & Meghalaya
are potential nearby states for
importing rubber.
• From South East Asia Thailand is
a potential country for
importing rubber to
Bangladesh.
Addressing the
challenge of
Electricity by
making CEAT
plant self
sufficient in
Electricity.
Addressing the
challenge of Raw
Materials scarcity
in Bangladesh.
0
5000
10000
15000
20000
25000
Tripura Assam Meghalaya Nagaland Manipur Mizoram Arunachal
Rubber production in North East India (Mt.)
Sources: PwC study on rubber production in North east , Business Today – tyre pyrolysis process
CEAT can overcome Raw material & Utilities challenges by In-House Electricity
Generation and Imports from North Eastern states of India
Shredding
and cleaning
of tyres
Solids
separation
and handling
Pyrolysis (fixed-
bed fire-tube heating
pyrolysis reactor)
Separation
of oil and
gas
Oil
Carbon Black
Steel Wire
Waste
Tyre
Feed
BD AUTO
MARKET
MARKET DRIVERS
PHASED
IMPLEMENTATION
PHASE 3
COUNTRY
CHALLENGES
COMPETITORS
RESPONSE
ECO-SYSTEMC E A T
14. Start
Price War
Excess Margins to
Multi-Brand Dealers
Set up Production
Plants in Bangladesh
Competitors Reaction – CEAT’s Potential Response
• Bangladesh is a Price
Sensitive market
• Competitors can reduce price
of their products to retain their
market share
• Take advantage of local
production - save on high
import duties and other tax
breaks
• Pass on price advantage to
consumers
• Competitors won’t be able to
push beyond a point
Expected
Situation
What should
CEAT do?
• Competitors may try to
incentivize local dealers
and distributors with extra
discounts
• No encouragement for
dealers to switch to CEAT
• Follow the suit; Associate
with OEMs and their service
centers
• Launch exchange scheme
to retain and attract
customers
• Majority players currently market
tyres imported from other
countries
• They can copy CEAT to open
their manufacturing plants and
enjoy similar cost advantages as
CEAT
• Have long term contracts with
rubber suppliers in North East
• Leverage AK Khan’s rubber
plantation business
• Go for in-house electricity
generation with supply contracts
of scrap rubber
Playing on Cost alone would invite competitors for a Price War. Making Services as the USP would make it
Difficult for them to Compete!
BD AUTO
MARKET
MARKET DRIVERS
PHASED
IMPLEMENTATION
PHASE 3
COUNTRY
CHALLENGES
COMPETITORS
RESPONSE
ECO-SYSTEMC E A T
15. Brand promotion – sponsor cricket
gears of BD national cricket team
INDIA
Dhaka Plant
Raw material
Sylhet – warehouse 1
Khulna – warehouse 2
Distribution centers –
Barisal, Rajshahi, Mymens
ingh
OEMDealers
Sub-
distributors
ForeignStrategicAlliancePartners
Tyre Specialty Stores
Service Stations
Automobile Dealers
Automobile Parts Retailers
Automobile Repair Shops
After Service Sales
Shoppe
Hub
Passenger vehicles
Trucks
Domestic alliance – Progoti
Industries, TagAz
End
Customer
Exportafter4years
M
Product promotion – alliance with
truck transport companies
M
M Product/Brand
marketing
Facility for radial tyres by 2020
Use of A K Khan’s superior local distribution
channel to gain market share
Business Model | Bangladesh Tyre Ecosystem
Chittagong – warehouse 3
BD AUTO
MARKET
MARKET DRIVERS
PHASED
IMPLEMENTATION
PHASE 3
COUNTRY
CHALLENGES
COMPETITORS
RESPONSE
ECO-SYSTEMC E A T