High input cost may eat into tile industry's margins: Report

Margins of the domestic tile industry is likely to come under pressure in the coming quarters on falling realisations and increasing input cost, according to a report.

The upward movement of gas prices, following the rising crude oil prices, and limited flexibility with the industry players to pass on the increase in the cost due to stiff competition are the key factors impacting margins, ratings agency Icra said in its report.

Realisations have declined by 8-9 per cent in FY18 on the recent capacity additions in the vitrified tile segment, coupled with a protracted slowdown in the residential real estate sector, it added.

Real estate slowdown, along with demonetisation and implementation of the goods and service tax (GST), according to Icra, have impacted the overall domestic tiles demand and curtailed the revenue growth for majority of the players in FY17 and FY18.

Sanket Thakkar, senior analyst, corporate ratings, Icra, said, the growth trajectory for the tiles industry is likely to remain at the single digits for FY19 with the real estate sector continuing to face headwinds due to subdued consumer sentiment.

Icra also said that the gap between domestic production and consumption has been widening in the last few years because of large capacity additions.

Tiles production grew at 9 per cent annually over 20122016, while consumption grew at a 4.6 per cent, it added.

Meanwhile, Icra said tiles exports grew at 50 per cent over the last five years to Rs 5,700 crore in FY18, on rising competitiveness of domestic tile players, following large investments in technology upgradation and imposition of anti-dumping duty on Chinese imports by some European as well as North and South American nations.

It believes the growth opportunity in exports is huge, with the present low contribution of the country's exports at 7-8 per cent of the world's exports.