GVT prices falling but signs of it abating visible-min
India’s tiles penetration at 10.8% in 2011 leaves lot of scope for growth for the industry in the coming years. Further, tiles penetration in rural India is far lower than in urban areas. With better distribution and reach in these areas, rural India could provide significant growth impetus to this industry. It should also be remembered that the government aims to double farm income by 2022
Yes, competition in Glazed Vitrified Tiles (GVT) segment has affected the manufacturers, if the latest quarterly results announced by some of the major tiles manufacturers are any indication. However, intense competition in GVT segment might have affected their (major tiles manufacturers like Kajaria) performance but not their hope.
An interaction with some of the Morbi based players revealed that price war had become intense in the fourth quarter of the last financial year and had continued in April too. Fortunately for them, there are some early signs of price fall abating also visible, they say. According to them, price may stabilise in this quarter or early second quarter and may see some upward movement by the time festival season begins.
GVT manufacturers had received double whammy in the form of falling price and rising gas prices. GVT prices came under pressure in the second half of last financial year due to additional capacities going on stream, especially amongst unorganized players. However, most operators are now operating at break-even level thanks to hike in gas prices in Gujarat. Any further fall in the GVT price, which is unlikely say some players in the industry, may force some of the newcomers to close down their unit.
Gas prices are continuously moving up and likely to move up further in line with international crude oil prices. Gas prices are set by GAIL every month and have been rising. LNG prices have gone up by almost 23% during the first quarter of current year vis-a-vis same period last year. Even established players like Kajaria were not able to pass on the LNG price increase to the consumers due to intense competition. Cancellation of Iran nuclear deal by USA and depreciating rupee are bad news for the tiles manufacturers as these events may affect fuel prices adversely in the coming months. For example, Kajaria Ceramics, the largest tiles manufacturer in the country, took a hit of Rs 30 crore in its P&L A/C in 2017-18 due to increase in gas price.
Earlier it was expected that introduction of GST will spell deathknell for the players in unorganised sector but that was not to be. GST regime sans E-way bill system was business as usual for unorganised sector players who also oversold heavily on the eve of introduction of GST. However, things are slowly stabilising on GST front for the organised sector who were affected due to de-stocking. According to some major players in organised sector, with the introduction of E-way bill system with effect from 1st April, full benefits of GST regime will start unfolding now. There is strong belief that the unorganised segment will lose market share owing to implementation of the e-way bill, reducing the ability of unorganised players to evade taxes, thus narrowing the price gap. Much awaited shift is likely to happen now, say the analysts. Some big players in the industry too are of the same opinion. It may be noted that nearly 50% of the market in terms of value and 60% in terms of volume is now cornered by the unorganised sector in the tiles business. Shift in market share from unorganised to organised sector is expected to happen in next one or two quarters. No wonder then leading players like Kajaria are expecting a volume growth of 12-15% during the current financial year, despite the subdued growth in realty sector. Last year the company registered a volume growth of just 6%. Analysts expect at least 10% of the market share, in terms of volume, is expected to shift to organised sector from unorganised sector during the year.
Established brands like Kajaria and Cera are also unperturbed by the entry of some of the newcomers like Varmora and Simpolo. According to the established brands, newcomers will have limited influence restricted to some region. In order to gain national prominence newcomers need to have wide network of dealers which will take few years for them to establish. For example, Kajaria Ceramics has a national network of around 1,400 dealers. Nearly 10% of it was added during last year.
Last year, the government had imposed anti-dumping duty ranging from USD 0.28-1.87 per sq meter on import of vitrified tiles from China. Though this has reduced imports from China substantially, imports in future cannot be ruled out. It should be remembered that China is the largest producer of tiles globally. However, falling rupee value against USD may make the imported tiles costlier, at least in the near future.
All said and done long term prospects of the industry remain intact and the industry is poised for a sustained growth once the realty sector recovers from slowdown and the industry stabilises itself post GST implementation. India’s tiles penetration at 10.8% in 2011 leaves lot of scope for growth for the industry in the coming years. Further, tiles penetration in rural India is far lower than in urban areas. With better distribution and reach in these areas, rural India could provide significant growth impetus to this industry. It should also be remembered that the government aims to double farm income by 2022. In other words, one can see increased disposable income in the hands of rural India providing good scope for the industry to grow.