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Crisil SME Tracker: Ceramic tile makers may face double whammy

NGT order is expected to reduce the exports of SME tile manufacturers, leading to a fall in sales volume by two to four per cent in the current fiscal

Business Standard 

Ceramic

In March 2019, the (NGT) ordered shut all ceramic tile manufacturing units (the industry size is Rs 33,000-34,000 crore, with SMEs holding a 55 per cent share) using coal gasifiers in the Morbi cluster of Gujarat, which accounts for 85 per cent of produced in India.

SMEs, which account for two-thirds of domestic production, have been severely impacted by the order which, in the event of any anti-dumping duties imposed by the Gulf nations (investigations have already been announced), will act like a double whammy.

Most of them have shifted to piped natural gas (PNG) and also increased domestic prices of (about three-fourths of production is sold within India) to partially pass on the rise in manufacturing costs and thus limited their margin contraction.

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However, ceramic tiles exports, which are largely dominated by SMEs, were severely hit, since players couldn’t pass on cost hikes in an intensely competitive global market. Further, (GCC) nations, which purchase about 40 per cent of India’s exports, announced anti-dumping duty investigations on tiles imported from India, China and Spain in December 2018. While India will continue to export to the GCC region because of a production deficit there, margins are likely to be hit severely if any anti-dumping duty is imposed.

Thus, the order is expected to reduce the exports of tile manufacturers, leading to a fall in sales volume by two to four per cent in the current fiscal. However, a surge in both domestic realisation and demand will lead to revenue growth of five to seven per cent this fiscal, compared with seven to nine per cent in fiscal 2019. Margins are expected to decline about 100 basis points on the back of slipping volumes and rising cost pressures.

First Published: Mon, May 13 2019. 19:51 IST
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