Input cost compresses margins

IN FOCUS/ CERAMIC TILES

Ceramic tile manufacturers in India have taken a hit on their overall margins as operating profits over the past four quarters have dwindled to an all-time low of up to 11 per cent, owing to escalating input and freight costs, falling tile prices and policy anomalies.

Though the price situation in the Indian tile industry has been grim over the last few years, the manufacturers have not been getting any respite.

According to an industry source, "This is due to the ever-increasing input costs, snow-balling on freight prices as well as continuously declining tile prices." The raw material costs in the last three years have increased by 30 per cent.

At the same time freight costs have also propelled by 31 per cent during the same period, according to analysts tracking the sector.

Consequently, the operating margins of key players saw an average drop of 5 per cent to 10 per cent over the last four quarters. Medium sized and small-sized players however, bore the brunt of the squeeze.

Besides the Centre's move to reduce import duty on ceramic tiles imported from China has resulted in a major price overhaul in the domestic industry.

In 2004, following the reduction in import duty on tiles imported from China, prices of vitrified tiles declined from Rs 60 per square foot (Sq ft) to Rs 40.

The overall price erosion recorded over the last two years in this segment has been 65 per cent. This year, vitrified prices fell by almost another 25 per cent to Rs 30 per sq ft.

This has adversely impacted the pricing structure in the ceramic wall and floor segment too. The price difference between a ceramic wall and floor tiles is almost half as compared to that of a vitrified tile.

When prices of vitrified tiles decline the effective price of ceramic wall and floor tiles also reflects a slump. The ceramic floor and wall prices have dwindled by more than 60 per cent over the last two years. This year alone saw the prices in this segment crash by almost 17 per cent.

Moreover increased dumping of Chinese tiles by up to 300 per cent led the prices to hit an all time low. Until last year, the estimated value of dumping in the domestic market from China was about Rs 100 crore.