Bathware segment of ceramics industry is one of the fastest growing segments with some of the leading brands registering attractive CAGR in recent years. Some of the leading brands in this segment are Hindustan Sanitaryware, Cera Sanitaryware, ROCA Bath products (Parryware) and Jaquar.
From tiles to bathware natural extension
Interestingly, all the leading tile manufacturers, viz., Kajaria Cermaics, Somany Ceramics and HR Johnson have diversified into bathware segment for various reasons, the most important being it’s the natural extension of their existing business. It also helps the tile brands to graduate into a lifestyle brands. However, CERA is an exception to this general rule in the sense that it adopted an opposite route by diversifying from sanitaryware manufacturing into tiles production in recent years.
Further, the success of Indian tiles manufacturers in the domestic market is largely due to their distribution network. By diversifying into related segments like bathware, these brands can leverage their existing network to sell wider range of products. For example, Kajaria had a network of 1,500 dealers pan India, with 270 being exclusive to the company as at March 2021. Most of the manufacturers initially started off with asset light strategy, meaning outsourcing most of their requirements and later on setting up their own units through subsidiaries or joint ventures. For example, Cera Sanitaryware outsources nearly 55% of its sanitaryware and faucets requirements.
Marketing strategies differ
The companies are adopting different strategies to market their products and reach out to wider spectrum of customers. For example, Kajaria is strengthening its connect with plumbers, dealers, and architects for growing brand and product awareness. On the other hand, Somany Ceramics is widening its reach through the scaling up of new Bath Studios, leveraging the ‘shop in shop’ approach to widen its retail footprint.
Higher margin is another attraction for the tile manufacturers to diversify into this segment. For example, Kajaria entered the sanitaryware and faucets categories in 2014 through its brand Kerovit. Its bathware products are manufactured in-house with factories at Morbi and Gailpur. Within five years, bathware division turned profitable for the company despite the fact that residential real estate sector was experiencing slowdown during most of the five years period.
Growing despite many hurdles
India’s economic growth has been slowing since 2017. The slowdown also saw some major government actions/reforms such as demonetisation in November 2016, implementation of GST in July 2017 and COVID-19 pandemic in March 2020 that disrupted consumption demand periodically. The global outbreak of COVID-19 pandemic in 2020 hit Indian industry hard with national lockdown imposed in the second half of March 2020 leading to virtually nil production for April and May for the industry.
Owing to the COVID-19 pandemic in 2020, most of the manufacturers initiated several cost control measures resulting in staff costs and operational expenses falling. Some have also effected lower advertising, publicity and sales promotion spends which is also partly due to strong demand trends in the country.
Raw material intensive industry
Key raw materials used to manufacture sanitaryware include clay, feldspar, silica and quartz. For Faucets, brass is the key raw material, forming 70% of total material costs. Owing to supply chain disruption globally and in India, raw material prices have risen sharply. Marginal price hikes would offset some impact, but not completely.
Constantly introducing new products
Bathware market is becoming very competitive and unless the manufacturers is on his toes to know the latest trend and introduce new products regularly he is destined to see the exit door soon. Continuous research and introduction of new products is necessary for growth and market expansion. For example, Cera developed a new flushing system that uses 30% less water (four litres instead of six earlier), maintaining the flush effectiveness. Some manufacturers saw an opportunity in pandemic outbreak and introduced COVID-19 resilient products like anti-microbial sanitaryware ensuring zero retention of bacteria after usage. Touch-free sensor-based faucets and self-cleaning closets and antibacterial seat covers are some of the new products introduced in the market by some leading manufacturers keeping in mind the latest trend and need.
Demand for sanitaryware, faucets and tiles is highly correlated to industrial capex by the government and private sector as well as urban and rural real estate demand. Strong bathware demand recovery in Jun-Mar 2021 (COVID-19 unlock period) surprised the industry experts positively. Further, with the growing urban population, coupled with increasing nuclearisation of families, demand for housing is expected to rise which in turn ensure steady demand growth for the bathware industry. No wonder then, most of the corporate managements we have spoken to have guided for cyclical recovery and sustainable demand environment over the next 3-5 years.