India's tyre giant CEAT aims to export back at least 30 percent of the products to be manufactured at its plant in Mymensingh, taking advantage of the duty benefits the neighbouring country has extended to Bangladesh.
The Mumbai-based company last year signed a joint venture agreement with the local AK Khan and Company to set up the plant with an initial investment of $67 million last year.
In November 2012, India extended duty-free benefits to Bangladeshi products, except for 25 alcoholic and beverage items.
“We are particularly looking at the northeast region of India for its geographical proximity. At present, CEAT has to bear huge transportation cost to reach that region,” said Salahuddin Kasem Khan, chairman of the newly-formed company CEAT Bangladesh Ltd.
The move will also be beneficial for Bangladesh as the country will be able to earn a huge amount of foreign currency in the process, he said, adding that high officials of CEAT are due in Bangladesh in the first week of September to discuss the plant's progress.
About the progress of the plant, Anant Goenka, managing director of CEAT Limited, recently said in an interview with Indian news channel CNBC-TV18 that it is still undergoing civil work.
“So we are still over two years away from high capacity utilisations in Bangladesh,” he said, adding that the tyre giant is looking to expand the plant's production capacity to 65 tonnes a day.
About CEAT's expectations from the joint venture, Goenka said they are looking at a turnover of Rs 400-500 crore from the Bangladesh market at best.
“Bangladesh itself is not a very large market, so the kind of benefit or turnover will not be substantial. But margin should be attractive and long-term profitability is expected to be good because competition there is very limited.
“Like in Sri Lanka, there is place for only one player in Bangladesh and we hope to occupy that very quickly from a manufacturing perspective,” the CEAT MD said, adding that the company will be able to provide “a lot of benefit with respect to after-sales service to the Bangladesh consumer”.
The joint venture, which is one of the largest Indian investments in the country's manufacturing sector, will create jobs for around 1,000 people, according to Khan.
The plant will make tyres for trucks, light commercial vehicles and motorcycles. The tyres manufactured would also come in the Tata Motors and Bajaj Auto vehicles sold in Bangladesh.
CEAT, which will have 70 percent stake in the plant, will provide technical and business expertise and manage the operation, while AK Khan will bring in knowledge of the Bangladeshi market besides providing the strength of goodwill and local presence.
Khan, also the managing director of AK Khan and Company, said the plant will save foreign currency as well, as its products would be import substitutes.
The country spends around Tk 1,000 crore to import over 15 lakh pieces of tyres a year mainly from India, Japan and China, according to importers, distributors and sellers.
Around 10,000-12,000 buses and trucks are entering the roads a year, according to an industry insider. The demand for motorcycle tyres is booming as well, with 25,000-30,000 pieces being sold a month.
Currently, Apex Husain, Gazi Group, Meghna Group and Rupsha Tyre are the leading players in the light truck, minibus, microbus, motorcycle, autorickshaw and easy bike tyre markets.
The country's annual tyre sales are close to Tk 1,500 crore and are growing at 15 percent a year, said industry insiders.