Consolidation in ceramic tiles

By Ramnath Subbu

MUMBAI, JAN. 6. The ceramic tiles industry, whose fortunes depend on the construction industry, has been seeing a lot of activity recently. A consolidation of sorts is under way with the established players gearing up for a crest in the construction cycle.

The industry size is around Rs. 1,500 crore industry comprising wall tiles, floor tiles and fully vitrified tiles which was growing at 15-20 per cent about five years ago but slumped to 5-8 per cent subsequently and has revived to 12 per cent in 1999- 2000. According to Mr. Vijay Aggarwal, managing director, H&R Johnson (India), ``the proportion of floor tile production is less compared to wall tiles. The floor tile segment is growing and the main reason is replacing of mosaic tiles as well as offering various options better than marbles and granites.''

Earlier, the industry was hit by excise duty of 24 per cent which constituted 16 per cent CENVAT and 8 per cent SED. However, since last year, this has been rationalised with the removal of the 8 per cent SED.

According to Mr. Suresh Motwani, chairman, Sun Earth Ceramics (SECL), ``In the last one year, demand has gone up and the polarisation has become more intense.

The unorganised players who were not in the floor tiles segment earlier, are now present in a big way especially in the one square foot category. Also, the major players are switching to larger sizes in floor tiles as had happened in wall tiles earlier.''

The industry is capital intensive with a requirement of working capital cycle of at least seven and a half months of sales. Location of a plant vis-a-vis the market and raw material sources are important as freight is an important component of price (7-10 per cent). Manufacturing units are concentrated around raw material sources which include china clay, feldspar, flint and talc.

The players are resorting to increasing product mix with innovations. After Sun Earth Ceramics (SECL) acquired the tile plant of Madhusudan Ceramics and H&R Johnson (India) acquired EID Parry's plant last year, this year has seen SECL acquire two European companies - the Romanian Sanex and Monalc of Spain for consideration of $5 million. Sanex has a capacity of 7.2 million sq.m. of tiles while Monalc 2.7 million sq.m. of tiles a year.According to Mr. Motwani, ``We need to create a big market. Through our own exports we could only touch southern Europe. We needed to acquire skills too, which we got through the Spanish company and also an access to the West European market. Eastern Europe offers tremendous opportunities and assets there are going very cheap. The Romanian facility had a turnover of $16 million last year and a profit of about $500,000.''

SECL has a capacity of 10 million sq.m. per annum in India. It is increasing the capacity at Alibag to 11.5 million sq.m. annually by December 2001 and expects a turnover of around Rs. 325 crores this year and Rs. 550 crores in 2001-02.

This will come from the major increase in vitrified tiles capacity. The facilities will be ready by April 2001 and will have a capacity of 3 million sq.m. annually including both Karjat and Bharuch facilities.

H&R Johnson (India) has a dominant presence with a 24 per cent plus market share. It acquired EID Parry's ceramic tile plant at Karaikal, Pondicherry and this will cater to the high-end segment and the export market.

It recently launched premium vitrified tiles - Marbonite - and is setting up a new 1.5 million sq.m per annum floor tile plant at Bangalore. At the other end of the spectrum, the company launched Exel tiles to take on the unorganised sector. The company's Pen plant is implementing an expansion scheme at an investment of Rs. 75 crores and this would be ready by March 2001. The expansion by 4.3 million square metres to 20 million sq. m. is on.

The company has plants in Maharashtra, Bangalore, Pondicherry and Indore. According to Mr. Aggarwal, ``We are adopting a regionalisation strategy, that is, meeting local demand with local supply. This strategy has worked well for the company as this is the industry which is similar to the trend in the cement industry. The industry is also freight sensitive and this regionalised strategy helps in reducing the freight as regional demand can be met by the respective manufacturing centre.''

H&R has entered the premium bathroom fittings segment. It has tied up with Delta of the U.S. for a range of top-line faucets and mixers, Huppe of Germany for luxurious shower cubicles and Vitra of Turkey for sanitaryware. It is importing these products and the suppliers will manufacture the products on an OEM basis.

The products are targeted at the premium segment and would be marketed under the brand - Milano.

The rationale behind this, according to Mr. Aggarwal, ``We have noticed wide product gaps in the existing range of bathroom products available in the market. We are trying to address the need by marketing an exclusive product range and are leveraging our inherent strengths in distribution.''

Kajaria Ceramics has a technical collaboration with Todagres, Spain. The company has a focus on exports and is tapping new regions. It has two facilities in Rajasthan and U.P. and is targeting Gujarat giving more focus on its industrial townships. The company's new plant at Bhiwadi became fully operational last year and has doubled capacity from 80,000 to 1.50 lakh tpa.

The company last year test-marketed imported sanitaryware in Delhi and has ventured into this business, tying up with RAK Ceramics of Dubai. Depending on the volumes, the company may go in for a plant in India. It recently launched granite tiles.

Somani Pilkington (SPL) has a 16 per cent market share in the organised sector. The company entered into a technical agreement with Leonardo Ceramica of Italy for the manufacture of vitrified porcelain tiles. With a total capital outlay of Rs. 100 crores spread over three years, SPL has already invested in the equipment for manufacturing the product. SPL is also considering exports to Sri Lanka, West Asia and Mauritius.

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