Changing face of Indian tiles industry

Changing face of Indian tiles industry

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There is almost a general consensus that price of GVT tiles has reached the rock bottom and there is no scope for further fall. According to our survey, most of the new plants are operating at break-even level and as such further price cut will only lead to operating loss to them. Also low return on investment due to low prevailing prices will discourage new capacity addition at least in a foreseeable future. Having said that, industry expects another 30-40 new plants in the current financial year itself but most of them will be in wall tiles than vitrified tiles segment. It should be noted that Morbi saw an incremental addition of 100 new plants in 2018 (50 new plants in 2017) with 1.5msm per annum production capacity. Most of capacities came in vitrified tiles segment. Capacity glut led to pricing pressure and as a result prices of GVT tiles corrected by as much as 30% during last one year.

Despite the disruption and slower growth in demand, Indian tiles industry has thrown in some surprises. Though there is mushroom growth of tile manufacturers in recent times, most of them belonging to ‘also ran’ types, some new entrants have started snapping at the heals of market leaders. They are: Varmora, Simpolo, Qutone, Sunheart, Imerys. They are reportedly giving tough times to leading players through regular product innovation and manufacturing efficiency. Till recently their main focus was exports however now they have started taking keen interest in domestic market.

Demand from North East states during last one year has seen a surge and most of the players were not able to explain the main reason for this strong demand. Further, demand from this region is for premium tiles which make the development even more interesting.

Increased capacity in Morbi has been able to survive partly due to strong demand from abroad for Indian tiles. Many players in unorganised sector are focusing on this segment which has lessened the pressure on domestic supply. It should be noted that the Vibrant Ceramic Expo held in November last year has provided a great platform for unorganised players to directly connect with importers from across the globe.  In Financial Year Morbi recorded an export of Rs 6200 crore thus accounting for 22% of Morbi’s total production. In FY 2018 exports from the region saw a jump of 77% reaching Rs 11,000 crore accounting for 34% of the total product of tiles in Morbi.

In recent years several countries have imposed anti-dumping duties on Chinese tiles thus making tiles import from that country costlier and uneconomical. India, the second largest tiles maker in the world is taking full advantage of the situation which is visible in its surging exports of tiles. Saudi Arabia is the biggest market for Indian tiles followed by Iraq, UAE and other Gulf countries. Nearly 75% of its tiles exports are to Asian countries.

Another advantage playing in favour of Indian exports is that Chinese players mainly manufacture using double charge and soluble salt method but Morbi players have expertise in GVT and printed tiles. Further, India has more SKU’s (stock keeping units) than China whereas China has less SKU’s but higher scale.

Due to intense competition in mass consumption products, market leaders like Kajaria and Somany are slowly moving towards premiumisation of their portfolio. For them this strategy has two advantages. One, in case of premium products margins are higher as compared to other products. And secondly, competition is less in case of premium products when compared to mass products with nil presence of unorganised sector. Further, branding also plays an important role in case of premium products. Newer product line which are still having higher margins are Slim tiles, large format tiles and wall cladding tiles which may see new supply in coming years.

One of the major steps taken by the major tiles manufacturers in premiumisation of their portfolio is the increased push given to vitrified tiles segment, especially during last two years. Unfortunately for them, the period also coincided with pricing pressure, particularly during last one year. For example, vitrified tiles now account for 20% of Kajaria’s revenue while two years ago it was in low single digit.

It should also be noted that both ceramic and PVT  (Polished Vitrified Tiles) have witnessed lower volume in FY18 vs. FY16 and only GVT has grown in volume during the same period. This clearly indicates changing consumer preference for GVT tiles which are produced in more designs and offer a superior finish.

Slim tiles are now becoming the trend especially in high end constructions. Slim tiles are thin and lightweight yet incredibly strong.  Special manufacturing process of these tiles make them tougher, longer lasting and much more resistant to water and frost than ordinary tiles. Manufacturers like Kajaria and Somany have already introduced sevearl types of slim tiles and now are planning to give bigger marketing push for these products.

Another strategy adopted by the leading tiles manufacturers like Kajaria, Somany and Asian Granito is to focus on introducing large-sized tiles in all categories as they command higher prices per sqm because of better look and shine. Further, small time players do not have the manufacturing capability to produce large sized tiles due to which there is not much crowd in this segment.

It is not that the prices of finished products only have come down, production costs have also have come down in recent times. Only worry for the manufacturers now is on natural gas price front which is on upward move thanks to ever rising oil prices. One of the reasons for spurt in capacity addition in recent years is due to declinging machinery cost. Machinery cost has come down significantly due to increased competition between China and Italy in tiles machinery market. Further, digital printing availability has increased dramatically in recent times which has further brought down design costs. According to market sources prices have fallen by almost of 30-40% in last 2-3 years. So, overall market scenario is not that bad and with GVT pricies stabilising at current levels along with natural gas prices, there are reasons for tiles manufacturers to be cautiously optimistic.