Why tiles manufacturers hesitant to switch over to PNG?

Why tiles manufacturers hesitant to switch over to PNG?

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Though transition from coal gasifiers to PNG is happening (at slower pace), many ceramics manufacturers are still hesitant to take a plunge due to various reasons – some of them are basic to their survival.

The impact on cost of production, post switch over to new fuel is the main deterrent for the Morbi ceramics manufacturers. During the last 18 months or so PNG price has gone up by more than 30% which has widened the gap between the cost of PNG and coal gasifier. Presently, the cost of Piped Natural Gas is Rs36/SCM compared to Rs22/SCM for coal gasifier. Further, payment to Gujarat Gas, the PNG supplier, will have to be made in cheque while payments for coal gasifier used to happen in cash. Still further, payment to Gujarat Gas will have to be made once in 15 days while coal suppliers used to give 45-60 days of credit facility.

Payments using banking channels will bring the manufacturers under the surveillance of tax authorities which risk many ceramics manufacturers wouldn’t like to take at this juncture when the revenues are hardly touching the breakeven level. Low tax outgo (or nil) has been the pricing strategy which has helped to withstand the onslaught of branded manufacturers.

Already, many ceramics suppliers have become the victims of longer working capital cycle since the eruption of liquidity crunch post NBFC crisis. Now the average debtors’ realisation period has gone upto 120-135 days as against earlier 60-65 days.  Working capital stress coupled with higher cost of production have resulted in underutilization of plants which is now hovering around 60-65%.

To accommodate the increased cost of production, Morbi manufacturers recently hiked the prices of their tiles which has narrowed the gap between the prices manufactured by unorganised sector and the branded products. This may eventually lead to the formalisation of the industry.