The ceramic tiles industry, which derives demand from the construction industry, has been seeing a lot of activity recently in the form of consolidation of established players as they gear up for boom in the construction industry cycle. The glazed tiles market is expected to witness an annual growth of about 25 per cent during the next three years as a result of the reduction in excise duty from 24 per cent to 16 per cent in the Union Budget 2001-02. The tax benefits in the form of deduction of interest on housing loans, the availability of housing loans on progressively attractive terms will enhance demand for housing construction and, thereby the ceramic tiles industry.

The Indian ceramic tiles industry is worth around Rs 1,500 crore comprising wall tiles, floor tiles and fully vitrified tiles. The industry which was growing at 15-20 per cent about five years ago slumped to 5-8 per cent subsequently and revived to 12 per cent in 1999- 2000. Though the proportion of floor tile production is less compared to wall tiles there is substantial growth in this segment. In the last one year, demand has gone up. This can be attributed to replacement of mosaic tiles as the product of choice by ceramic tiles due to the number and quality of options provided and the ease of maintenance.

With the increase in demand, unorganised players who were not in the floor tiles segment earlier, are now present in the one square foot category. In a strategic shift, the major players are now switching to larger sizes in floor tiles as had happened in wall tiles earlier and are resorting to increasing product mix with innovations. Even so, the market share of unorganised players has been diminishing due to the narrowing of price gap between unbranded and branded products, thanks to lower duties and taxes and increasing capacities (economies of scale) of the organised players. Brand consciousness amongst customers has also benefited the organised players.

The leading players in the organised sector are Kajaria Ceramics, H&R Johnson, SPL, Spartek Ceramics, Bell Ceramics, Regency, Sun Earth, Orient Ceramics and Murudeshwar Ceramics. These companies together represent about three-fifths of the entire capacity in the industry and 72 per cent of the organised sector capacity.

With an annual production of about 1 million tonnes per annum against the demand of 0.6 million tones, capacity exceeds demand even while there’s a growth in demand. The domestic tile manufacturers are not a worried lot as the market itself has been  growing at a healthy pace of 20-30 per cent in the past 3 years. This trend is expected to continue with the increase in urbanisation as penetration of ceramic tiles in India is one of the lowest in the world even when compared to a few Asian countries like Malaysia and Thailand. The market for ceramic tiles in India comprises institutional and retail buyers. Institutional buyers include big builders, government departments and corporates, while retail buyers include individuals who buy ceramic tiles from the dealer-distribution network. Architects and interior designers primarily influence the choice of institutional buyers. This segment is characterised by low operating margins, long credit periods and a high inventory turnover. The retail segment, which is characterised by high selling and distribution costs, offers good margins and credit recovery. About three-fifths of ceramic tiles sales are accounted by the institutional segment or the project market i.e bulk sales.

The export market for ceramic tiles, estimated at US $ 5 billion, is growing at 8-10 per cent per annum in recent years. Though there are about 25-30 medium and big players in the industry the share of India in the global export market for ceramic tiles is only just about 0.6 per cent, i.e around Rs. 1 billion. The industry is bullish about exports despite over capacity within the country is not without reason. Of late, due to various environmental concerns, manufacture of tiles is slowly shifting from the West to Asia, and India in particular.

Currently, the industry is in the consolidation phase as small players are closing shop while the top players who are invariably exporters, having major expansion and modernisation plans to upgrade capacities towards 1 lakh tonnes per annum to enjoy economies of scale. The sale of EID Parry’s Rs 30 crore wall tile facility at Karaikal to H&R Johnson, and of Madhusudan Ceramics’ Rs.41 crores wall tile facility at Baruch to Sun Earth Ceramics are important indicators of things to come.

Though 80 per cent of raw material requirements can be sourced from domestic markets, the industry is capital intensive with a long working capital cycle. Proximity of manufacturing facility both to the market as also the source of raw material are important, as freight is an important component of pricing. The determinants of success in this segment include a well-established distribution network, a large variety of shades and designs, and competitive pricing.

Further development in ceramic tiles may be effected in terms of mechanical, chemical, electrical and magnetic features. There has been a 10-20 time increase in the sturdiness of ceramic tiles over the last 2-3 decades, thereby opening up new areas of potential application. The industry should also focus on the development of high purity input materials, top performance quality products, enhance productivity and repair processes, and recycling of salvaged products.