Economy

Ceramic tiles sector eyes faster growth due to increasing demand

Our Bureau Mumbai | Updated on August 28, 2019

Unorganised players lose cost advantage due to ban on coal usage in Gujarat, finds CRISIL study

After registering a muted growth in the last four years, revenue of the ceramic tiles industry is set to grow faster at eight per cent compound annual growth rate over the current and next fiscals due to higher domestic and overseas demand.

A study by CRISIL found that large companies that use natural gas to bake the tiles will benefit the most as the National Green Tribunal in March banned the use of coal-based gasifiers in Gujarat. The state houses a majority of India’s tile manufacturers.

The move has eroded the cost advantage of unorganised tiles makers, who offered tiles at least 30 per cent discount to branded product prices.

Demand up

Domestic consumption of ceramic tiles grew at a mere 3 per cent CAGR in last four fiscals, as the demand was impacted by a slowdown in the real estate sector following demonetisation, implementation of the Goods and Services Tax and the Real Estate Regulation Act.

Domestic consumption is expected grow by 2-3 per cent to 5-6 per cent CAGR, riding on the government’s push to affordable housing, smart city projects and creation of new industrial corridors.

Exports, which account for a fourth of production, could grow at an even faster 15 per cent due to reduced cost competitiveness of China, which is struggling with higher cost of coal, levy of environment tax and anti-dumping duties imposed by the European Union countries, Brazil, Taiwan, Korea, Vietnam and Chile.

Consequently, utilisation rates of ceramic tile makers should improve over the medium-term, after being weighed down by overcapacity.

Correcting the imbalance

Subodh Rai, Senior Director, CRISIL Ratings, said that the faster growth in demand would correct the demand-supply imbalance in the sector, and improve capacity utilisation to 75 per cent from 65 per cent over the next two fiscals. Large organised players, with revenues over ₹500 crore, account for half of the industry’s market share.

Rahul Guha, Director, CRISIL Ratings, said that the use of expensive natural gas and rising compliance cost for e-way bills will slash profit of unorganised players by 4 per cent, unless they raise selling prices by 10 per cent.

Published on August 28, 2019

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor