Ceramics is a phenomenal growth market
Realty+ interviews Kamlesh Patel, CMD, Asian Granito India Ltd, learning in detail about the current situation of the ceramic market, its challenges and growth drivers.
What is the current market scenario for ceramic tiles?
Tiles industry in India will be count around Rs 35000 crore to Rs.40000 crore which is likely to grow around 8-10 percent over a period of next 2-3 years. 40% organized and 60% is unorganized.
In last decade, the Indian Ceramic Tile Industry (ICTI) has recorded a phenomenal growth in terms of capacity, technology advancement, product portfolio and its structure. The installed capacity has increased substantially on account of inherent advantages like abundance of raw materials from indigenous sources, advanced infrastructure and low labour cost. Swatch Bharat Abhiyaan (aim to build 60 million toilets by 2019), Infrastructure status to affordable housing, Increase in carpet area under affordable housing, subsidy given on interest for affordable housing are some of the key growth drivers for the industry.
After the National Green Tribunal (NGT) banned ceramic units running on coal gasifiers in Morbi, India’s largest ceramic cluster, the tiles industry has witnessed a major hit. Largely impacted by the ban, the tile manufacturing units have only option to shut down and switch to natural gas. The switch, however, may increase fuel expenses for the manufacturers considering the PNG prices.
Of the 800 ceramic units in total, over 400 wall tile plants running majorly on coal gasifiers have been closed so far owing to shortage of raw material that has been impacting the operation costs for these units. The Morbi ceramic industry had expected a huge growth. In fact, the industry is reportedly planning to establish 50 new wall tiles manufacturing plants. After the ban on March 6, the production has reportedly dropped by 60%-70%.
India being the third largest ceramic producer in the world has been eyeing the global market. Given the fact that nearly 70% of total output in the ceramic industry comes from Gujarat alone, the new regulations may also affect the large ceramic players.
What is the percentage segmentation of ceramic, vitrified tiles and other tiles?
India is rich in its mineral resources with high quality natural stones like granite, marble, sandstone, slate, limestone and quartzite in different regions of the country. India ranks second in the world and produces 12.90% of global output. Also India is the 3rd largest tiles market and among the top five fastest growing markets in the world. Ceramic tiles account for 60% of the total demand for tiles in India. Vitrified tiles account for around 50% share. The market share for wall, floor, and industrial tiles are 20%, 23%, and 7% respectively.
What percentage of Tile market still remains unorganized and how has GST made a difference in this sector?
Tile market in India is 40% organized and 60% unorganized. GST for the tile is 18%. However there are many loop holes in implementation of the E-way bill, hence doing business smoothly has become very hard for the organized players which have resulted in increase into under billing. We believe that going forward strict implementation of the E-way will result decline in under invoicing and will provide level playing field for the industry players.
The challenges facing the ceramic tiling industry
As per the recent NGT/GPCP order, all units operating on coal gasifiers will have to shut down or move to natural gas with immediate effect. This will lead to increase in cost for unorganised players considering gas is 10% expensive compared to coal. Also, unorganized players will have to keep aside more money as working capital to manage day to day expenses. Apart from this, no cash transactions (as in coal) will bring unorganised players under the purview of taxation.
This measure coupled with stricter implementation of GST and E-Way Bill regulations definitely bode well for organised players as the cost of doing business outside regulation will increase significantly. More importantly, this will also push incremental capacities in the organised fashion, thus benefiting organised players.
The growth drivers for the Tile industry
Global growth is expected to pick up to 3.90% both in 2018 and 2019, supported by strong momentum, favourable market sentiments, accommodative financial conditions, and domestic and international repercussions of expansionary fiscal policy in the US. The growth graph reflects continued strong economic performance in emerging Asia. This projected pick-up also reflects improved prospects for commodity exporters who had experienced three years of weak economic activity till 2017.
Indian ceramic tiles industry was estimated at USD 3.70 Billion in 2016. India ranks second in the world and produces 12.90% of global output. Also India is the 3rd largest tiles market and among the top five fastest growing markets in the world. Ceramic tiles account for 60% of the total demand for tiles in India. The key drivers for ceramic tiles in India are the boom in real estate which accounts for nearly 7O% of the total demand followed by retail IT & BPO sectors.
Though the industry is capital intensive, easy availability of raw material, uninterrupted power supply, availability of cheap labour, abundance of sea ports, and Government support are some factors responsible for the prosperity of this industry. The Government’s ‘Make In India’ drive, ‘Housing-for-All by 2022’, ‘Swachh Bharat Abhiyaan’, ‘Smart Cities Mission’ covering 100 cities in 5 years is expected to generate a volume-driven growth resulting in economies of scale.
Almost 63% of India’s rural population is living in homes with mud flooring. Per capita consumption in India is at 0.59 sqmt versus the global average of 1.40 sqmt. Indian tiles market thus hold immense growth potential owing to high population, low per capita consumption and rapid urbanisation.
Industry outlook remains positive and industry is likely to grow in double digits on back of government focus on infrastructure and housing for all.
Brief on the company's Indian and international JV/ partnerships
Today, AGIL is Ranked amongst top 3 listed ceramic tiles companies in India. By Mar 2021, company has set a target of Rs. 2,000 crore revenue, expand the exclusive stores network to 500 and international presence in over 100 countries. Company has the vision to be a leading retail brand. The special emphasis put to increase retail sales to 50% of the total sales (Currently 40% retail sales and 60% project sales). Currently, AGIL is having 289 showrooms including 16 display centres which it plans to expand to 500 by March 2021.
For FY 18-19, Exports will reach more than Rs. 100 crore. The company further looks to double the exports over the next 2-3 years. Exports to 58 countries currently and plans to scale to 100 countries by 2020-21. The company also plans to forays in the international markets in the US, Canada, Australia, and New Zealand. AGIL aiming to double the exports to US and Canada too. Demand for Quartz and tiles from export markets (Latin America, Europe, South East Asia and other parts of the world) remains strong. However, pricing remains under pressure for tiles but Quartz realization continues to remain strong in export markets.
AGIL entered into a joint venture to form Camrola Quartz Ltd with 51% stake, a dedicated company focusing export markets only where demand is very strong and growth in double digits. Demand for the Quartz in the international market is likely to remain strong especially for Indian Quartz on account of import banned on Chinese Quartz in U.S.A, replacement market remains strong and new infrastructure development.
We believe that Camrola will continue to show strong performance going ahead on revenue and margins terms. We may further increase the capacity in Camrola Quartz depending on demand and profitability. All together, AGIL will continue to set new benchmarks across the verticals.
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