Quickness to identify opportunities and use them to the advantage are the hallmark of Morbi based tiles industry and that quality has helped the industry to come out of woods with less damage this time too. Like in 2018 & 19 exports have come to the rescue of the industry in Covid hit 2020 too. Industry has witnessed strong recovery from the export market which has led to capacity utilisation back to pre-Covid level for Morbi based players.
China’s loss, India’s gain
Covid-19 outbreak had not only disrupted the supply channels world over but also had exposed risks of over dependence on one source for the supply. This had forced many buyers in Europe and America to follow China+1 policy and in tiles industry this may help our tiles industry to a great extent as India is the second largest manufacturer of tiles in the world. For example, during June-August 2020, Morbi has witnessed 30% YoY growth in the export market backed by strong demand from European and American countries. Export to US market has doubled against same period last year.
Exporters offering better terms & variety
Also, in order to lure the new customers Indian exporters are offering better credit period options in the international market than others. Another factor that is going in favour of Indian manufacturers is the variety of designs provided by them when compared to Chinese players as the latter are more focussed on volume rather than innovation. For example, Indian players can provide 20 designs in one container whereas Chinese players provide 2 designs in one container for exports.
Focus on quality & design
But attractive terms and conditions offered by Morbi players in themselves may not help in winning the export orders in the long run unless proper attention is given to quality aspects too. Most of the exporters are aware of this factor very well. Morbi players are now aggressively focusing on innovation and introducing new designs due to higher quality criteria requirement of the European and American consumers. European countries prefer thinner tiles thus manufacturer has to use proper raw material to avoid breakage of the product and also has to provide polished finish.
Will there be mad rush for capacity expansion?
Will encouraging scenario on exports front provoke Morbi players to go for capacity expansion? If so, will it result in repeat of 2017 & 18 when there was mad rush to add capacities? Such a possibility cannot be ruled out, warns an industry expert. Already, with increasing demand from the export market, Morbi players have announced 50 new plants with capacity 20-25k sqm primarily focused toward export orders.
Some are still in trouble
Meanwhile, the current situation should not be interpreted that every tile manufacturer in Morbi is drowned in exports order and some manufacturers are still struggling to come out of their problems. According to industry sources, Morbi can witness closure of 100 plants due to inefficiency or liquidity issues.
Domestic market improving slowly
On the domestic market front, situation is improving but slowly. Yes, the first quarter of the current financial year was bad as the manufacturing units remained closed in April and some units started operations in May while most of them became operational in June though capacity utilisation remained very low resulting in losses to the manufacturers. For example, Kajaria Ceramics reported net loss of Rs392mn in the first quarter of current financial year compared to net profit of Rs510mn in Q1FY20. Domestic market recovery was sluggish till the month of July due to continued lockdown, however, during the month of August, industry has witnessed strong demand growth primarily from semi urban areas.
Strong demand from semi urban areas
“While demand from metros and mega cities have taken a hit post COVID, demand from rural and semi-urban markets have remained intact. Post COVID, there is a new demand emerging from rural market as migration of labours from urban to rural resulted in need for home repairs and renovation. We have observed that budget and economic tiles seen good demand with construction and repair activity taking full pace in the rural market. Green shoots are visible in the demand especially from rural & semi-urban markets, fewer cases in the rural areas, better employment prospects have further brightened up the prospects of the recovery in rural markets,” says Kamlesh Patel, Chairman and Managing Director, Asian Granito India Ltd.
Price cuts through discounts
On pricing front nothing abnormal has happened in the domestic market thanks to robust exports demand. The industry has witnessed 3-4% price cuts in some of the product segments against February 2020 prices due to increase in cash and carry business but price cuts are mostly in the form of discounts.
GVT & PVT are preferred
GVT and PVT products are witnessing healthy traction in the market whereas wall tiles are still witnessing headwinds due to overcapacity. Industry would have been in far worse position had all the new projects for wall tiles announced in 2017-18 materialised. Fortunately, many of those projects were shelved as the trend demand had started showing signs of weakness.
According to reports available, domestic branded players such as Kajaria, Somany and AGL have witnessed strong double digit growth in August 2020 driven by traction in semi urban region and lesser competition from Morbi based players. However, industry experts warn that in the long run only those will survive who pay higher attention to product innovation. Presently, the domestic players are primarily focusing on brand building and less attention is given to product innovation. This strategy may be harmful for the industry in the long run.