High Cost, Competition And Glut Dent Margins Of Ceramic Tiles

The ceramic tiles industry is not in the best of health. This is because, as industry sources fear, the current slump in construction activity, aggressive international selling by Spain, Italy and China and domestic competition from mosaic tiles. Besides, a glut in the market and slow offtake have also reflected on the performance of the Rs 1,200-crore ceramic tiles industry in 1996-97.

In the first half of 1996-97, the results of five major ceramic tiles companies indicates that all is not well with their performance.

The companies sales income increased 12.1 per cent to Rs 189.8 crore (Rs 169.3 crore), however, Bell Ceramics posted a decline of 22.5 per cent in its sale income. Operating profit rose by 9.1 per cent to Rs 62.8 crore (Rs 57.6 crore). Gross profit went up 7.3 per cent to Rs 48.2 crore (Rs 44.9 crore) but net profit declined by 5.4 per cent to Rs 32.9 crore (Rs 34.8 crore).

 

Low price realisation coupled with high operational cost has eaten into their profit margins. This is obvious from a decline in the operating profit margin of the select five companies to 33 per cent (34 per cent), gross profit margin to 25.4 per cent (26.6 per cent) and net profit margin to 17.3 per cent (20.5 per cent).

H&R Johnson, a closely-held company and a part of the Rajan Raheja group, is the market leader with a 30 per cent share in the organised sector in the wall tiles segment, followed by SPL (formerly known as Somani-Pilkingtons) with 23 per cent, Kajaria Ceramics with 16 per cent, and Orient Ceramics with 12 per cent. However, Murudeshwar Ceramics and Spartek with 17 per cent dominate the floor tiles segment, followed by Kajaria Ceramics with 14 per cent, Regency Ceramics with 11 per cent, H&R Johnson and SPL with 10 per cent each respectively.

The capital intensive ceramic tiles industry has 31 major players with an estimated annual installed capacity of 9.15 lakh tonnes in the organised sector. Out of this, nearly 1.16 lakh tonnes lies idle, with net capacity being 7.99 lakh tonnes.

Of the total 31 players, 12 players have an installed capacity of more than 20,000 tonne each.

These are - ACP Industries 24,000 tpa, Bell Ceramics 42,000 tpa , EID Parry 24,000 tpa , H&R Johnson 1,26,000 tpa, Kajaria Ceramics 80,000 tpa, Murudeshwar Ceramics 65,000 tpa, Neycer India (subsidiary of Spartek) 26,000 tpa, Orient Ceramics 30,000 tpa, Pedder & Pedder 55,000 tpa, Regency Ceramics 40,000 tpa, SPL 1,00,000 tpa and Spartek Ceramics 38,000 tpa. At estimated production of 6.44 lakh tonne for 1996-97, capacity utilisation works out to around 80 per cent. An additional capacity of about 2.75 lakh tonne is expected to materialise in 1997-98.

H&R Johnson accounts for 93,000 tpa, comprising 30,000 tpa of wall tiles and 63,000 tpa of floor tiles. After the plant goes on stream in mid 1997, Johnson Tiles would have an approximate capacity of 2.19 lakh tpa.

ACP Industries, which used to manufacture AC pipes, diversified into ceramic wall tiles segment and commenced production in December 1995. The companys plan to set up a floor tile unit at a capacity of 30,000 tpa and estimated to cost Rs 40 crore is scheduled to commence production in 1998-99. This will help the company to reap the economies of scale.

Wall tiles and floor tiles are two major segments of the ceramic tiles industry. Of the total 1200-crore ceramic tiles industry, the share of wall tiles is nearly 70 per cent. In the wall tiles segment, the unorganised sector accounts for a 50 per cent share. According to industry sources, there is no presence of the unorganised sector in the floor tiles segment.

The sales ratio of wall tiles to floor tiles is as high as 3:1 in India as against 1.5:1 in the developed countries. This shows even demand for wall tiles and floor tiles in the developed countries, while in India it is heavily tilted towards wall tiles.

Yet, recently the floor tile segment has been growing at a rate of 20-25 per cent compared to 10-15 per cent growth in wall segments. Globally, the wall tile segment is growing rapidly.

A less known, but equally important variety of ceramic tiles, is special vitrified tiles. These tiles are used in industrial and chemical plants, as well as on footpaths, railway platforms and other public places.

Special vitrified tiles have greater strength and durability than normal ceramic floor tiles as also a better finish. They are acid and abrasion resistant, with zero moisture content. At present, Murudeshwar Ceramics and Restile Ceramics manufacture vitrified tiles. H&R Johnson is also set to turn out vitrified tiles in its new plant. Raw material consumption accounts for 24.7 per cent and power & fuel 14 per cent of the value of production of the six companies. In the case of Bell Ceramics, the power & fuel share is lower at 10.2 per cent than the average because the company uses natural gas as fuel.

The global market for the ceramic tiles industry is approximately Rs 80,000 crore. Of the total export market of Rs 20,000 crore, Indias share in the global market is a miserable 0.25 per cent. India needs to stress more on technology upgradation and economies of scale if it has to have a sizeable slice of the market. The international trade in ceramic tiles is mainly controlled by Italy with 24 per cent and Spain with 11 per cent.

In the recent budget, the excise duty on glazed tiles has been reduced from 30 per cent to 25 per cent.

However, industry sources said that the reduction in the duty is too low to make a difference to the industrys fortunes as other factors like service tax on transportation, railway freight hike and imminent hike in diesel prices outweigh the impact.

According to industry sources, since last year the input cost has risen by 15 per cent, while selling prices of tiles fell between 12 to 15 per cent.

As a result, all tile companies are in a fix and many of them may curtail production and a few may down shutters.

Hopefully, the present dull market is a short-lived one. The Indian ceramic tiles market is estimated to grow at 25 per cent, aided by the construction industry revival in the near future.

The ceramics tiles industry has large growth potential. It has not tapped the rural market as yet. Marketing and distribution network, apart from varieties and designs, may influence the market in a big way.