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Business News/ Companies / News/  RAK Ceramics chalks out its expansion plan in India

RAK Ceramics chalks out its expansion plan in India

The company plans a capital expenditure of Rs400-500 crore and turnover of Rs2,000 crore in the next five years

To achieve this almost three-fold increase in revenue, RAK Ceramics (India) plans to set up a greenfield project in north or central India in 2016. Premium
To achieve this almost three-fold increase in revenue, RAK Ceramics (India) plans to set up a greenfield project in north or central India in 2016.

Mumbai: RAK Ceramics (India) Pvt. Ltd, a subsidiary of UAE-based RAK Ceramics, the world’s biggest ceramic producer, has chalked out a 500 crore expansion plan to become the No. 1 in the country, said Santosh Nema, chief executive officer, in an interview on Monday.

The company has planned a capital expenditure of 400-500 crore over the next five years. RAK also plans to increase its turnover to 2,000 crore in the same period, Nema said. As of December 2013, RAK had revenue of 766 crore.

To achieve this almost three-fold increase in revenue, the company plans to set up a greenfield project in north or central India in 2016. This new facility will also aim to reduce the impact of freight costs in these markets.

Among the challenges that the Indian company faces, land acquisition and high freight cost top the list. Freight costs account for 11-12% of the company’s revenues and RAK is moving more of its freight to railways and new containers to counter this.

The greenfield project will cost around 250 crore and “the funds will be raised mostly from internal accruals and with some assistance from our parent company," said Nema. At present, the company has a plant in Andhra Pradesh. South India is the biggest market for ceramic tiles, Nema added.

RAK in India manufactures vitrified tiles, ceramic tiles as well as sanitaryware. Its competitors include Kajaria Ceramics Ltd and Somany Ceramics Ltd.

RAK is also looking to form a joint venture with local ceramic manufacturers in Gujarat’s ceramic hub of Morbi, said Nema. The firm is looking to tie up with two or three manufacturers in Morbi to produce low-end tiles. It hopes to finalize the joint ventures by the beginning of 2015.

The company has already started ramping up existing facilities. It has doubled its sanitaryware production capacity to 2,000 pieces per day and aims to expand this to 3,500 a day from January 2015.

To expand its distribution network, RAK plans to add 500 dealer showrooms to its existing network. Currently, tier-1 and tier-2 cities remain the focus of the company. “These are the markets where demand is not impacted much by the broader market parameters," said Nema.

A representative from private equity firm Samena Capital, which picked up a 30.6% equity stake in the parent company just over two months ago, will soon be inducted on the board of the Indian subsidiary to strategize new growth opportunities, Nema said.

“They (Samena) bring management expertise and their connections from working in different markets. The biggest benefit for RAK India is that they are well connected in India, too, and going ahead, we might be able to raise funds easily through their connections."

On 29 April, Samena bought 250 million shares of RAK Ceramics, which Reuters reported to be valued at $261 million, based on the company’s stock price. RAK Ceramics is a global ceramics producer with a turnover of $1 billion and presence in over 160 countries.

Not everyone is sure RAK Ceramics can take the top slot in India, though.

“It would be surprising if RAK is able to take the No.1 position from Kajaria in the next few years. Kajaria has got the best-in-class distribution and marketing and a top-of-the-chart brand recall," said Nehal Shah, research analyst at Antique Stock Broking Limited.

He further added that there has always been a question mark on the focus of the parent company on the Indian subsidiary. Also, RAK India’s brand equity had suffered in recent past due to the quality of ceramic tiles that it was outsourcing from Morbi, he said, adding with the formation of new JVs, the problem of quality should be brought under control.

According to a September 2013 report by PricewaterhouseCoopers, the Indian ceramic tiles market size is estimated to have been 17,200 crore in 2012 and is expected to reach 30,100 crore by 2016, growing at a compound annual growth rate of 15%.

The Indian ceramic tiles market ranked third globally and accounted for over 6% of the total global production in 2012, the report added.

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Published: 15 Jul 2014, 11:40 AM IST
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