Tiles price may not recover in April too

Tiles price may not recover in April too

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Tiles price may not recover in April too -min

Tiles price may not recover in April too -min
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It may be recalled here that in November 2017, GST council had reduced the rate on tiles from 26% to 18%, but still tax evasion by unorganized sector was rampant due to lack of proper enforcement to curb tax evasion

According to tile dealers fourth quarter of just concluded financial year saw intense competition in Glazed Vitrified Tiles (GVT) segment. Price cuts and discounts had become order of the day eating into the margin of tiles manufacturers. According to market sources price war in the tiles segment started in Vibrant Ceramics exhibition held in November 2017 and continued to haunt throughout the fourth quarter.

Higher competitive intensity from unorganised players ahead of E-way bill implementation continued to impact price scenario in the market. Originally, the government had announced the introduction of the E-way Bill system from February. However, the decision had to be postponed till April 1st due to system breakdown in February. Suppliers in unorganised sector, however, had started dumping the products fearing that E-way Bill will become a reality in February. As a result, market saw over supply depressing the price of tiles in the process. Though most of the tiles manufacturers registered volume growth (in single digits) their margins got hit due to price war. According to some tiles manufacturers, it may take some more time to drain out excess supply and as such there are remote chances of price recovery for tiles in the near term.

It may be recalled here that in November 2017, GST council had reduced the rate on tiles from 26% to 18%, but still tax evasion by unorganized sector was rampant due to lack of proper enforcement to curb tax evasion. The key feature of GST i.e. matching of invoices was not implemented due to various reasons and the tax was based on self-declared mechanism. In addition to that, Government had removed check post without implementation of e-way bill and the absence of e-way bill had benefited the unorganized sectors as they could still resort to cash deals and evade taxes in inter-state transaction. However, when the government announced the date of introduction of E-way bill, the scenario changed and manufacturers in unorganised sector started clearing their stocks fearing action by tax administration.

According to analysts, compulsory introduction of e-way bill starting 1st April 2018, will help in increasing tax compliance thereby curbing tax evasion, which will help bridge the pricing gap between organized and unorganized tiles, which is currently in the range of 20-30% depending on size and format.

Despite the current blip in the price, industry experts are positive about the tiles industry prospects in the coming years. India’s tiles penetration at 10.8% in 2011 leaves lot of scope for growth for the industry in the coming years.  According to the 2011 government census, only 10.8% of Indian houses had mosaic and tile flooring, whereas 46.5% had mud flooring and 31.1% had cement flooring. In urban India, the penetration levels are better with almost 26% using tiles. Thus, considering the products utility a significant opportunity is available in both urban and rural areas, creating multi-year growth opportunities for large players.

Tiles penetration in rural India is far lower. 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.

China, Brazil and India are the three largest tile producers and consumers in the world, in that order. It is interesting to note that Brazil’s tile consumption is just 10-12% higher than India’s, but its per capita tile consumption is 7 times that of

India! While the global average is 1.6sqm. India, with 0.6sqm per capita, has one of the lowest consumption figures. As this inches up, it would offer long term, multi-year growth opportunities for the Indian tile industry. However, in the short term there may be some pains for the industry.