Ceramic Tile Makers Will Maintain Operating Profitability: CRISIL

<span style="font-weight: 400;"> Stable export demand and lower gas prices are expected to keep the operating profitability of ceramic tile makers firm this fiscal despite the impact of the Covid-19 pandemic on domestic demand, according to CRISIL Ratings.</span> <span style="font-weight: 400;">E

BY Realty Plus
Published - Dec 19, 2020 4:52 AM

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Stable export demand and lower gas prices are expected to keep the operating profitability of ceramic tile makers firm this fiscal despite the impact of the Covid-19 pandemic on domestic demand, according to CRISIL Ratings. Exports, comprising about 35% of the sector’s revenue of Rs 38,900 crore last fiscal, are unlikely to de-grow this fiscal. Exports to key markets such as the US and the UK, which contribute to about 9% of overall ceramic tile exports, are expected to grow a robust 50% following the anti-dumping duty (ADD) imposed by the US on Chinese tiles earlier this year. Exports to the US spurted about 50% on-year in the first half of this fiscal. All that, in turn, will help mitigate a decline of about 10% in exports to the Gulf Cooperation Council (GCC) countries, with the imposition of 41% ADD from June this year. The GCC nations contribute about Rs 4,000 crore, or about 30% of the total ceramic tile exports, annually. These exports are expected to remain stable because of India’s cost competitiveness and the ability to cater to orders with small batch sizes. Thus, ceramic tile exports are seen at Rs 13,500 crore this fiscal, similar to last year, Crisil said. The domestic market, which accounts for 65% of the sector’s revenue, is expected to see a de-growth of about 18% due to the nationwide lockdown in April and May. Demand from institutional real estate, constituting 65% within the domestic market, is expected to decline 35% on-year in the current fiscal, as fresh construction activity has moderated. However, retail demand is expected to grow 15%, mainly from Tier 2 and 3 cities, cushioning the fall to an extent. Nitin Kansal, director, CRISIL Ratings said Ceramic tile revenues are likely to de-grow 12% this fiscal, compared with a growth of 4.5% on average in the past five fiscals, with exports limiting the slide in domestic sales. However, despite the revenue contraction, operating profitability of ceramic tile companies will remain ~11% due to lower gas prices. Gas prices, which contribute to about 22% of the total cost for tile makers, have fallen 30% to $2.3 per mmBtu in September 2020 from $3.3 per mmBtu during April 2020. Prices are expected to decline further to $1.8 per mmBtu by the fiscal end, supporting the operating profitability of these players.