Grappling with poor domestic demand, tile makers eye exports for near-term recovery

After a turbulent June quarter, tile and ceramic dealers are back in the business, showed recent channel checks by brokerages.

As per management commentaries of listed tile companies, capacity utilisations in July reached around 70% of their pre-covid levels. However, the lull in Indian real estate sector continues and demand for tiles and ceramics is directly co-related to the realty sector. So, tile and ceramic manufacturers are likely to bet on exports to boost near-term volumes growth. Channel checks show that export markets are recovering at a faster pace than domestic market.

As a short-term strategy to utilise capacity and keep manufacturing units running, Somany Ceramics Ltd would look at export orders. In a post earnings conference call, its management said, export demand is strong as lot of countries are looking away from China and there is pent up demand post opening of certain markets. Exports demand is healthy from the US, Europe, Australia, New Zealand and Indonesia. That said, the primary focus of the company will be domestic market where it earns premium realizations, the management added.

Latest analysis by rating agency ICRA Ltd showed that in the first two months of the fiscal 2021, exports sales of tiles and ceramics stood at around Rs 800 crore. However, the same jumped to around Rs.2500-2700 crore for June and July 2020, while monthly average for FY 2020 stood close to Rs.830 crore," it said in a note dated 7 September.

Export competitiveness of Indian tile manufacturers has improved in the recent years aided by various government measures. Recently, the Indian government imposed an anti-dumping duty of $1.37 per sq meter on vitrified tiles imported from China, which is the largest producer of tiles globally.

Analysts say, similar action on import of Chinese tiles are expected from Taiwan and South Korea. Thus, aiding Indian tile makers to benefit from the shifting global supply chains. Further, anti-China sentiments have opened doors for exports for listed as well as unorganised companies. Around 60% of the sector is unorganised with comprising players from Morbi, Rajkot and other clusters. However, since smaller companies are struggling to quickly restore supply chains due to cash and labour constraints, larger listed players such as Somany Ceramics Ltd, Kajaria Ceramics Ltd and Cera Sanitaryware can benefit in terms of gaining export market share.

In the backdrop of gloomy domestic demand scenario, faster recovery in exports is a silver lining. However, imposition of definitive anti-dumping duty by the Gulf Cooperation Council GCC) on Indian tiles and ceramics for a period of five years which started from June, is a dampener, Care Ratings Ltd said.

The GCC has announced the imposition of anti-dumping duty on imports of ceramic floor and wall tiles originating from India. The duty varies depending on the type of tiles and the average duty imposition works out to be 41.2%, analysts said. Saudi Arabia is the biggest ceramic export market for India. It is followed by UAE, Indonesia, Mexico Iraq.

"GCC has highest share in exports at 37% from India during FY20 Imposition of duty is envisaged to exert pressure on pricing and profitability from Q2FY21 as well as impact overall credit profile of the entities, which have a higher geographical concentration to GCC member countries," said the Care report on 7 September.

“Nevertheless, geographical diversification of exports in markets, which were earlier catered to, by China, is envisaged to mitigate the shortfall in exports to GCC to an extent," the report added.