Ceramic Tiles Units Shakeout
The ceramic tiles industry is heading towards a major shakeout as oversupply has forced all major players to slash prices by 15 per cent over the last six months. At the same time, input costs of some critical raw materials have gone up by nearly 12-15 per cent, putting severe pressure on margins.
Despite the oversupply position, the total installed capacity is projected to increase by 125 per cent over the couple of years. The capacity utilisation during the current fiscal is nearly 69 per cent.
The situation may become more worse forcing a few of the smaller companies in the organised sector to pull down their shutters, said industry sources. This is more so in the light of the proposed capacity expansions by the major players which will take up the total installed capacity by 275,000 tonnes, the sources said.
In fact, seven companies in the organised sector has closed down in the last two years and a new entrant, Foremost Ceramics, has not gone into commercial production despite setting up the plant and machinery.
Keeping in view the increased competition, some of the major players have entered into technical collaborations with foreign partners and, industry sources said, aggressive marketing is the only way to survive.
The unorganised sector, which now controls about 40 per cent of the market, has added to the woes by introducing similar and cheaper wall and floor tiles, said sources.
A senior source at H&R Johnson (India), the joint venture
between the Rajen Raheja group and Johnson International of the UK, said: "The organised sector has flooded the industry with imitations of designs of all the major companies which, though cheaper, are vastly inferior in quality."
G L Sultania, executive director of SPL Ltd (formerly Somany Pilkington), said: "Only SPL and H&R Johnson are assured of maintaining a steady marketshare because of the high quality
and wide range of their products."
SPL had, In March this year, increased capacity by 40,000 tonnes to become the largest producer in volume terms. H&R Johnson, on the other hand, plans to step up capacity by 93,000 tonnes by setting up a new plant at a cost of Rs 130 crore.
Industry estimates show that the installed capacity of the industry is far more than the demand. Most of the ceramic tiles manufacturers, as a result, are producing at far below their installed capacity, sources said. Industry sources have put the average capacity utilisation in the industry at nearly 73 per cent in 1995-96.
The four top players, H&R Johnson, SPL Ltd, Kajaria Ceramics and Bell Ceramics, will add nearly 228,000 tonnes to the total installed capacity of the industry by the end of the calendar year. The fifth major company, Spartek Ceramics, has, however, chosen the acquisition route for increasing capacities. It has taken over Stiles India and Neycer India, with total installed capacity of 20,000 tonnes.
According to industry estimates, the situation is expected to improve only after 1999, when supply is expected to fall short by around 80,000 tonnes. This is partly because none of the major companies have planned major expansions during that period, industry sources said.