As cracks appear, ceramic tile makers face challenging months ahead

livemint.com:

The past six months have been challenging for listed ceramic tile makers. Shares of key tile manufacturers Somany Ceramics Ltd, Kajaria Ceramics Ltd and Cera Sanitaryware Ltd have clocked muted returns of 4-8% as demand has been sluggish. Apart from elevated inflation, a slowdown in retail demand and delays in construction due to higher cement and iron prices have weighed on domestic demand, said analysts.

Although real estate activity has picked up, a meaningful revival in domestic demand is unlikely anytime soon and the sector is in for a challenging end to FY24. What’s more, competition for listed companies from tile makers in Gujarat's Morbi district seems to be rising. It's worth noting that despite higher gas costs – a key input for tile companies, comprising a large chunk of overall expenses – companies in Morbi have not hiked prices in the past six months.

This is a worrying sign for listed firms. Typically, the unorganised sector leans towards exports and listed companies focus on the domestic market. So, in a scenario in which exports from Morbi are rising, it could ease pricing pressure in domestic markets, potentially improving operating margins and sales for their listed counterparts.

But there’s a catch. According to a recent Centrum Broking report, while export growth is better than domestic growth, Q3 is generally weak on exports owing to the festive season. “Growth in this quarter will be 4-5% and domestic segment will be declining or flat," said the Centrum report.

In short, the scenario is far from rosy for listed tile companies. Kajaria Ceramics has trimmed its FY24 tiles volume growth guidance from 13-15% to 9-10%. Somany Ceramics’ management expects volume to be stronger in H2, but has guided for