Demand Sag Causes Cracks In Ceramic Sector

The Rs 1,060-crore ceramic tile industry has been facing a severe demand crunch in the current year.

The sluggish real estate market and subdued construction business have compelled major players to offer discounts under the garb of monsoon offer schemes.

As a result, an industry source said, manufacturers with huge pile-ups of unsold finished products are facing a severe cash crunch.

Another industry source said industry major Kajaria Ceramics has reduced the prices of its ceramic tiles by 20 per cent, while SPL has pared tag by 25 per cent on select items. Murudeshwar Ceramics, he said, has offered a 15 per cent price reduction, while Bell Ceramics has offered 10 per cent discount.

 

Rakesh Kumar Budhiraja, vice president (finance) and company secretary of Kajaria Ceramics, however, denied any price cut by his company. He says Kajaria offers a monsoon scheme every year to ensure stock movement during the rainy season, which is an off-season for the construction industry.

Moreover, contrary to the industry expectations, Budhiraja hopes for a 20-25 per cent growth during the coming year. In the current year, he is expecting a good demand as he foresees a pick-up in housing sector construction activities in the near future.

Shreekant Somany, managing director of SPL, said his company has not offered any price reduction for any of its products. There is a considerable slowdown in the real estate and construction market and this has affected the new comers but not to old players, he said.

Somany, however, expected a bullish trend ahead for the industry. According to him, the over-reaction to the glut in the industry and the resultant desperation will be a thing of the past soon.

A N Ransaswamy, general manager-marketing, Bell Ceramics, said, since we produce affordable tiles through better use of technology (dry process) at out new Hoskote, Karnataka plant, we do not find the need to resort to any price-cutting.

Ransaswamy, however, says that Kajaria, Spartek, H&R Johnson, SPL, Pedder and Nitco have resorted to price-cutting on flimsy grounds such as discounts during the off-season.

Santosh Balan, senior executive, H&R Johnson, has denied any price cutting by his company. Since 90 per cent of the demand comes from retail consumers and only 10 per cent from institutional consumers, the question of price cutting does not arise, he said.

According to Balan, the industry may face a glut situation in the coming years. As against a 15 per cent rise in the demand, the supply would go up by 60 per cent. He said it is likely that the smaller players will be marginalised and big and fitter ones would thrive.

H&R Johnson, however, reported a dismal performance during the year ended March 1997. Though sales rose by 13.8 per cent to Rs 151.2 crore, net profit declined sharply by 91.8 per cent to Rs 1 crore.

The industry pins its hopes on the revival of construction activities. The small as well as big builders in Mumbai sees no improvement in the current situation.

While the ceramic tile makers denied any price discount, Bhupesh Shah, a small scale builder in the western suburbs of the metropolis says: Since there is no major housing construction activities in Mumbai, the major manufacturers, except H&R Johnson, are offering special discounts on ceramics tile.

A cash memo of July 16 instant from Bishan Saroop Krishan Kumar, a wholesale authorised dealer in ceramic tiles in New Delhi, also shows a discount being offered by a leading ceramic tiles manufacturer.

The retail price list provided by the industry source also indicates a major price-cutting exercise by the leading players in the industry.

The eight major players listed on the stock exchanges clocked a modest 7.7 per cent growth in sales turnover during 1996-97. The piling up of inventory not only increased the cost of funds but also ate into their margins.

Interest burden was up by 19.7 per cent, while net profits dipped by 44.2 per cent. The gross profit margins also took a severe beating at 18 per cent from 24.8 per cent in the previous year.