Mumbai: RPG Group's tyre company Ceat has decided to change its product mix in favour of cutting back its own manufacture, and increase its outsourcing.

Presently, outsourced or contract manufacturing as it is better known, contributes almost 22 per cent of Ceat's tyre sales by tonnage.

Ceat is one of the few tyre makers in India who markets a comprehensive automotive range, with tyres for two and three-wheelers, passenger cars, commercial vehicles, and even off-road vehicles.

According to Ceat CFO K J Rao, of the 44,000 tonnes of tyres sold during the quarter, almost 10,000 tonnes were sourced from contract manufacturers that included imports.

For the same quarter last year, of the 41,000 tonnes, 8,000 tonnes had come from contract manufacturing. Displaying Ceat's focus towards contract manufacturing, while overall sales grew 7 per cent year-on-year, outsourced manufacturing grew 25 per cent during the same period.

Contract manufacturing at Ceat covers low-margin tubes, slabs, and two and three-wheeler tyres, while it imports passenger car radials, and truck and bus radials chiefly on account of production constraints. International tyre maker Pirelli is Ceat's technology partner, and one of its key suppliers.

According to Rao, Ceat is looking at China as a major source for contract manufacturing, and is presently testing some products from there.

The company has a dual outsourcing strategy - In one, Ceat supplies raw materials to the manufacturer, thereby paying only conversion costs for the tyres. In the second, Ceat pays on a per-tyre basis. Both arrangements result in cost structures similar to its home production, and allow the company similar margins as well.

To beef up domestic capacity, Ceat is reported to be looking around for prospective locations for setting up two greenfield plants, one in Maharashtra that will make specialty tyres, and the other in Uttarakhand, Gujarat, or Tamil Nadu that will make truck and bus radials, and passenger car radials. Both projects would entail an estimated outlay of Rs700-800 crore, spanning a three to four year period.