Tiles and bathroom fittings-maker Somany Ceramics is expecting its ₹200-crore capital expenditure plans to come on-stream by March this year.

The capital expenditure will lead to a 20 per cent capacity ramp-up across its plants in south, west and north India thereby making it ready to tackle increased demand following uptick in home sales.

Post the brownfield expansion plans coming on stream, the ₹1630-crore NSE-listed company will have a total installed capacity of 64 million square metre per annum. It will have an access to a capacity of 74 million square metre per annum with additional 10 million square metre being procured from dedicated contract manufacturers of Morbi (in Gujarat), the largest ceramic manufacturing hub in India. Business is already back at pre-Covid level.

Covid impact

According to Abhishek Somany, MD and CEO, Somany Ceramics, some slowdown is expected due to Omicron and rising Covid cases, imposition of local-level restrictions – like odd-even rules or temporary restrictions on markets operating hours and so on, and people delaying home renovation work for fear of contracting the virus. The company expects a slowdown in sales to be temporary lasting mostly for January or into early February. 

“Some slowdown will be seen as people are delaying renovation plus there is restriction on operating in the market places. However, if the current wave of infections is short-lived then we do not see slowdowns beyond early February,” he told BusinessLine. 

Real estate, especially home sales, are expected to see an upswing this year on the back of stable prices, lower bank interest rates and pent-up demand. 

“With markets (real estate) expecting buoyancy towards the latter half of 2022, our planned capacity ramp up should be on-stream by March, thereby making us ready to cater to this increase in demand,” Somany added. 

Majority sales of (around 80 per cent) come from retail markets (individual home buyers, renovation and so on) while 10-12 per cent are government and corporate sales; the remaining sales are from large private builders and developers.

Price hikes

While the company had to take price hikes to the tune of 10 per cent (from September to December) on account of rise in input costs, primarily because of gas price rise, Somany expects a small pressure on margins. Around 85 per cent of the cost increase could have been passed on to end-users.

“For every ₹100 increase in cost, just ₹85 was passed on for the end user. So there is small pressure on margin. However, there are no immediate price hikes in the offing. But, if gas prices move up, then maybe….” he added. 

Somany and Kajaria – among the large branded players – have passed on part of the raw material price hikes; excess supply in Morbi has led to dealers/distributors trying to get the best deals from these players, brokerage firm Nirmal Bang said in a report. 

“Domestic demand is increasing at a steady rate. However, supply from Morbi has increased as the export-oriented players have increased supply in the domestic market to liquidate their inventory,” it said. 

Exports from Morbi are under pressure because of availability of containers; high cost of international freight – freight cost had risen from $7000-8000/container to $15,000/container denting profitability of ceramic companies; anti-dumping duty by Europe, Taiwan and the GCC.

Apart from gas prices, cost of zirconium has increased sharply, resulting in increased cost of manufacturing by 2 per cent.