HomeIndustry TrendsTile makers are reworking strategies

Tile makers are reworking strategies

Tile manufacturers are going through one of the worst phases in the history of ceramics in India. On the one hand, cost is going up while the market conditions are not  conducive enough to pass on the price escalation to the consumers. At the same time, there are no signs of real estate sector who is the main source of its demand, seeing any revival in its fortunes in the near future.

When the government introduced GST and followed it up e-way bill system, after a gap of nine months, major tiles manufacturers in the country felt that tides will start turning in their favour. But it has been four months since the government has introduced e-way bill system and players in the organised sector are seeing the things happening the other way. Suppliers in the informal sector are taking advantage of weak surveillance  system, and unbilled transactions are as rampant as they were in the pre-GST era.

During last few months, as many as 100 new tiles manufacturing units have come up in Morbi area. Most of them are wall tiles and ceramics units and very few of them double charge tiles. Some manufacturers have also converted their double charge tiles unit to GVT unit with small capex of Rs 10-12 crore. Demand for double charge tiles, both institutional and retail, are decreasing as buyers are preferring GVT over double charge tiles due to better finish. This has further added to the existing capacity of GVT in the area and has made competition intense.  Natural casualty of this sudden capacity increase is the price which has taken a steep fall in recent months. According to market reports, in some cases price fall is as steep as 30%+. There are also reports that another 30-40 tiles manufacturing units are in the pipeline and as such recovery in the price in the near future is ruled out.

While the prices of tiles are showing declining trend, the cost of natural gas is moving in the opposite direction, that is, upwards. Though cost of natural gas in Morbi area is less than at other manufacturing locations like Haryana, thanks to subsidies provided by the Gujarat government, gas price in general has gone up 10% during the first quarter on year on year basis. Natural gas price is closely associated with crude oil price which is on upward trend in recent months. Due to subsidies given by Gujarat Govt, gas price for Morbi plants is Rs32/scm and for non-Morbi plants it is Rs37/scm. Ceramic manufacturers only hope that the crude prices stabilise at the current level. Gas price is based on 3 months average crude price.

Increasing gas price, stagnating demand and steep price correction has forced many tiles manufacturers to rework their expansion plans. Some have already decided to keep their expansion plans on hold. For example, Asian Granito (AGL), fourth largest tiles manufacturer in the country, has shelved its plan to set up tile manufacturing unit Andhra Pradesh, at least for the time being. The company was planning to set up a unit Andhra through a JV route which it has put on backburner  now “due to challenging environment.”

Forced to re-strategise

Intense competition in tiles manufacturing has forced many leading players to re-work their strategies to maintain their growth momentum. As the retail segment is crowded by the unorganised players, with nearly 100 new plants at Morbi, some players in the organised sector  have started looking at  institutional and government projects as an opportunity. This segment is less crowded as the unorganised players are not active here. Though, price realisation is less here, it is offset by bigger size of orders and lower marketing costs. For example, Asian Granito is a newcomer in this segment. However, within a short span the company has bagged Rs 30 crore government orders. Somany Ceremics, on the other hand, is now concentrating on the upper end of Affordable Housing segment and has launched 2-3 series of designs to target this segment. These tiles are thin in size compared to normal Somany branded tiles.

Dealer expansion

Aggressive dealer expansion is another strategy adopted by the tiles manufacturers to keep the growth momentum ticking in retail segment. For example, Asian Granito has enrolled 800 new dealers to generate higher retail sales. CERA Sanitaryware plans to double the distribution footprint over the next three to four years and aggressively add CERA Style studios in key Tier I cities going forward. CERA has already created 25 distributors for brand Isvea and 100 for brand Senator.

Product branding

Various studies and surveys have shown that there is an increasing tendency to buy branded tiles/sanitaryware and willingness to pay a higher price for premium offerings. Consumer preference for branded products and willingness to pay a premium in tiles/sanitaryware are similar to those for paint/home-improvement. Leading tiles manufacturers spend 1-3% of their revenue on brand building. For example, Kajaria Ceramics, the market leader, has spent 43% more on advertising than the average spend of the three next largest players on an average over FY16-17.

Large sized tiles

Another strategy adopted by the leading players is to get into manufacturing of those tiles which smaller players cannot afford to manufacture. For example, Asian Granito is aggressively pushing large sized tiles where the company doesn’t see intense competition. Also, wall tiles have been less explored segment till now. Some manufacturers like CERA are becoming aggressive in that segment as they see lot opportunities there.

Thus, leading manufacturers in the tiles industry are reconciling to the idea of intense competition and lower growth in the foreseeable future and finding ways and means to sustain business. They feel few more quarters of hardship can help them to get bigger pie in the longer term.

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