Getting tougher

SPECIAL REPORT

FY 08 Ceat's core business132.00 Value of investment arm26.00 Land value12.10 Total170.10  One such tyre company that has seen its operating margins move from under 4 per cent five quarters ago to a healthy 9.2 per cent in the current quarter is Ceat. With short-term triggers coming from non-core areas such as sale of land and demerger of its investment arm, the stock could see a rerating.  Unlocking value  Ceat wants to shift its 31-acre manufacturing facility located in Bhandup, Mumbai to a new location and sell the land to real estate developers. As a first step, the company has identified 6.5 acres which will be sold by the third quarter of the current fiscal. At Rs 14 crore an acre, the land is expected to fetch Rs 91 crore.  By FY09 when the entire facility will be shifted out to Patalganga and the entire land is sold, the company is expected to pocket nearly Rs 400 crore. The company is also demerging its investment arm, CHI Investments into a separate listed entity and this too is expected to boost the stock price.  Investment gains  CHI Investments has exposure to stocks of RPG group companies and has an investment value of Rs 127 crore. The current market value of these investments is put at nearly Rs 400 crore. According to the financial restructuring, existing shareholders will get one share in CHI Investments and three shares in the new Ceat for every four shares held in Ceat holding in the new entity.  In addition to these, the company is also expected to make an octroi saving of Rs 28 crore (in the event octroi is abolished), and has received refunds from income tax and Sicom to the tune of Rs 15 crore and Rs 8 crore respectively.  These are all windfall gains, and are mostly of a one-time nature. But besides these, the company has put in place plans to move into higher value-added products and improve realisations.  Value-added portfolio  To tackle increasing cost pressures and cut-throat competition, Ceat adopted a three-pronged strategy to improve margins. Ceat