CEAT plans to invest approximately Rs. 12 billion (around US$ 125.1 million) to expand its two-wheeler tyre manufacturing capacity by about 66%, as the existing capacity at its Nagpur plant approaches full utilisation.

The tyre manufacturer will add approximately 53,000 tyres per day in phases by the end of FY31. CEAT currently has the capacity to produce around 80,000 two-wheeler tyres per day, excluding other capacity additions already under implementation. The latest project will increase its total capacity to approximately 133,000 tyres per day.

The company's board approved the investment on Thursday. The project will be funded through a combination of internal accruals and debt, CEAT said in a stock exchange filing.

Its existing two-wheeler tyre capacity is operating at around 95% utilisation. The company stated that the proposed capacity may be added through either a greenfield or brownfield expansion, based on an internal assessment. It has not yet disclosed the location of the project or the investment planned for each phase.

"The existing production capacity for two-wheeler tyres at the company's Nagpur plant is nearing full utilisation," CEAT said. The expansion forms part of the company's capacity-planning strategy.

The proposed capacity addition is equivalent to approximately two-thirds of CEAT's current two-wheeler tyre capacity. However, the company has not disclosed how the additional output will be allocated among original equipment manufacturers, the replacement market and exports.

Demand and utilisation

The expansion follows growth in CEAT's two-wheeler tyre business. During its Q4 FY26 earnings call in April, the company stated that two-wheeler replacement sales had grown in the mid-20% range during the March quarter, while demand had exceeded pre-Covid levels.

CEAT also stated that capacity utilisation across product categories was in the 85-90% range, with planned utilisation exceeding 90%. The company said these utilisation levels led it to accelerate capacity additions during the final months of FY26.

The company is also increasing its presence in the electric two-wheeler segment. During the Q4 earnings call, CEAT stated that it held an estimated 18% share of the domestic electric two-wheeler original-equipment tyre market and was involved in several upcoming vehicle launches.

CEAT did not specify whether the new capacity will be dedicated to conventional two-wheelers, electric scooters, premium motorcycles or a combination of these categories.

Rs. 3 billion spent in Q1

CEAT spent approximately Rs. 3 billion on capital expenditure during the first quarter of FY27, primarily to increase capacity and support its business plan.

"We stayed invested on our capex to the tune of Rs. 3 billion, largely to enhance our capacities," Chief Financial Officer Kumar Subbiah said. He added that the company was also maintaining control over discretionary spending and routine capital expenditure to conserve cash.

During its Q4 FY26 earnings call, CEAT indicated an overall FY27 capital expenditure requirement of approximately Rs. 13-14 billion, covering both growth-related and routine investments. The company stated that spending would be reviewed each quarter based on demand and prevailing operating conditions.

The company has not clarified how much of the newly approved Rs. 12.05 billion two-wheeler tyre project will be spent during FY27. As the additional capacity is scheduled to be introduced progressively through FY31, the investment will be distributed over several years.

Investment amid margin pressure

The expansion was announced alongside CEAT's Q1 FY27 results. Consolidated revenue increased by 22% year-on-year to Rs. 43.18 billion.

However, the EBITDA margin declined to 8.56% from 10.94% a year earlier, while net profit fell to Rs. 40 million from Rs. 1.12 billion. The company attributed the margin pressure primarily to a sharp increase in raw-material costs following the West Asia crisis.

On a standalone basis, revenue increased by 18% to Rs. 41.63 billion, while net profit declined to Rs. 980 million from Rs. 1.35 billion. CEAT has implemented cumulative price increases of 5% to partially offset cost inflation and expects raw-material prices to remain elevated during the second quarter.

"Despite these pressures, CEAT delivered strong double-digit revenue growth, supported by healthy demand across segments and high capacity utilisation," Managing Director and CEO Arnab Banerjee said.