Despite the strong and sustained exports demand and expected sharp recovery in demand on domestic front, tiles manufacturers are increasingly becoming concerned about the steep increase in gas price. According to some tiles’ manufacturers, unless some solution is found it may spoil the party for the Indian tile manufacturers.
It should be noted that power and fuel (mainly natural gas) account for 30% of the total production costs and 20% of net sales. Due to sustained increase in cost of living during last few months and uncertainty over the income/jobs of the consumers, passing on the entire cost inflation through price hikes has become difficult as it may affect the demand itself.
Gas price had been benign over the first nine months of the last financial year which enabled the tile manufacturers to earn better margins. However, gas prices were hiked by Rs4-5/scm in Gujarat in Dec 2020.
The gas sourcing contract differs on a regional basis. The Gujarat plants at Morbi source their gas requirements from the Gujarat State Public Corporation (GSPC) on a spot basis, while the plants in Rajasthan and Uttar Pradesh have a mix of long-term and spot-gas sourcing contracts.
Key raw materials used to manufacture tiles and 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 in recent months.
Though manufacturers have hiked the prices to absorb the cost inflation, some have also focused on savings (especially on publicity expenditure) and increasing operational efficiency.