HomeIndustry TrendsTiles industry on a sustainable growth path

Tiles industry on a sustainable growth path

In 2020, India exported 445 mn square meters of ceramic tiles to 170 countries globally thus, claiming the title of world’s second-largest ceramics exporter after China, surpassing Spain. In the domestic market too, things are looking up for the industry thanks to changing fortunes of the user industry, demographic transition and market share shifting within the industry.

According to analysts, demand is expected to sustain in the near to medium term driven by: A) market share gains from Morbi in the domestic space with increasing focus on exports, B) sustained growth traction in tier-2 and above cities and towns, C) pick-up in new construction activity, D) increasing absorption of real-estate inventory, E) increasing replacement demand, and F) shift in market share from unorganised to organised sector.

Market share gains

While the ceramic tile category also derives high percentage of growth from new construction activities, the branded ceramic tile players are likely to witness impressive volume recovery driven by market share gains from the Morbi players who are focusing incrementally on exports, which has seen exponential surge post first wave of Covid. Real estate analysts expect the demand for real estate to remain strong throughout 2022 calendar year which is a good news for tiles manufacturers. Also, consolidation in real estate industry means increased demand for branded products.

Export surge halted

However, due to higher freight/container charges and also increase in raw material prices led a decline in exports from Morbi in 2021. Tile exports were up 20% YoY in FY21 despite the washout in April-May 2020 due to Covid-19 lockdown. Export momentum continued to remain strong in April-June 2021 registering more than 25% 2 years CAGR. However, exports slowed down in July-September 2021 period (mainly due to non-availability of containers and high freight rates) and the growth fell to high single digit. Non-availability of containers (for exports) and prevailing high freight rates are affecting export of tiles from India to other countries which in turn is forcing the tile manufacturers to divert the production to domestic market to tide over the situation.

Anti-dumping duty by Europe, Taiwan and GCC in recent months have only compounded the problem of exporters. However, the impact of anti-dumping duty in Europe is expected to be only to the extent of 8-10%.

The Morbi manufacturers expect the international container shortage problem to normalize by February 2022. Post that, exports are expected to pick up from the current level of Rs 120-150bn/annually to Rs 200bn annually.

Rising gas price

However, power & fuel cost (mainly gas) forms 25-30% of total cost which has been on a rising spree in 9MFY22. The tile companies have taken a price hike to mitigate the impact. Higher volumes, price hike and operating leverage have helped in margin expansion. Revival of the industry in general and exports in particular will largely depend upon the behaviour of the natural gas price in the coming days. Though oil experts hope the gas price to cool off in the coming days, political trouble (war like situation) in some of the countries that export oil may make the things worse.

Expansion plans by leading manufacturers

On the other hand, some of the leading tiles manufacturers have embarked upon expansion plans which shows their confidence about the future prospects of the industry. For example, Kajaria Ceramics is spending huge sum on expansion projects – (i) Gailpur plant – Rs 600mn capex, adding 4.2msm of capacity, (ii) Srikalahasti plant – Rs 1.1bn, adding 3.8msm of capacity, and (iii) Jaxx plant – Rs 800mn, adding 4.4msm of capacity. All the projects will be completed in Q4FY22. Similarly, Somany had announced capex of Rs 1.8bn-1.9bn which is on track and expected to be commissioned in February-March 2022. This includes (a) Sudha Ceramics (brownfield capex of Rs 0.4bn, additional capacity of 3.6msm), (b) Kassar plant (brownfield capex of Rs 0.5bn, additional capacity of 3msm), and (c) Somany Piastrelle (greenfield capex of Rs 0.9bn, additional capacity of 3.48msm).

However, one can derive consolation from the past when the industry had faced even deeper problems but had come out of them victorious. Considering those problems, these are too minor for the industry to worry about. Also, some of the problems like shortage of containers, high freight rates and spike in natural gas price are global in nature and not limited to Indian tiles industry alone. Thus, it may not have much impact on the competitiveness of the industry globally. Therefore, one can safely hope that good fortunes of the tiles industry can be sustained in 2022 also.

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