Domestic tiles demand likely to remain weak in current fiscal: Icra

The domestic tiles demand is likely to remain weak in the current fiscal, mainly due to low disposable income and subdued consumer sentiment amid COVID-19 pandemic, according to rating agency Icra.

The already sluggish real estate sector, the largest end consumer of tiles, has been further impacted due to the pandemic, given slowdown in project execution and new launches that in turn impacted the tile industry.

"Demand in the domestic market is likely to remain weak for the current fiscal owing to low disposable income and weak consumer sentiment and it is likely to rebound slowly and gradually closer towards the next fiscal. This has impacted industry revenues and margins, and credit metrics of the players may come under pressure," it said.

According to Icra, the industry-wide revenues in Q1 FY2021 declined by almost 55-65 per cent on a year-on-year basis, due to lower demand and supply chain disruptions.

"The plants were also shut for almost two months in April and May due to the lockdown and labour shortage during the quarter. The operations resumed from June and witnessed a gradual recovery in both domestic and export demand, with current capacity utilisation of 60-70 per cent industry-wide," its Vice President and Head, Mid-Corporate ratings, Suprio Banerjee said.

As per the industry players, recovery, post the lockdown, is better-than-anticipated due to incremental order inflows from Tier 2 and Tier 3 cities, wherein the impact of COVID-19 was short-lived and construction activity is back to normalcy, he said.

"Nevertheless, the sustainability of such recovery will largely hinge on a sharp recovery of the key consuming sectors and absence of any further disruption in the near future," Banerjee added.

Exports are a silver lining and will continue to support the demand, as witnessed by robust growth of 33 per cent in last two fiscal, owing to improved competitiveness of Indian tile players, following large investments in technology upgradation and the imposition of anti-dumping duty on China by some importing countries, according to Icra.

"In the ongoing pandemic situation, the demand recovery in the export market is faster compared to the domestic market.

"In the first two months of fiscal 2021, exports sales stood at Rs 800 crore, however, the same jumped to around Rs 2,500-2,700 crore for June and July 2020, while the monthly average for FY 2020 stood close to Rs 830 crore. The uptick in June and July can primarily be attributable to pent-up demand post lockdown across the world," it said.

The rating agency believes that pent-up demand, coupled with a growing acceptance of India as an alternate source, compared to China and a push in the less penetrated markets like the US, Europe, Australia and African countries will keep export growth in positive territory in FY2021, going forward.