Tile makers face weak demand and rising competition
Demand continues to remain subdued and has not picked up after the festive season
PremiumTile manufacturers are struggling with a scenario of bleak demand. Demand continues to remain subdued and has not picked up after the festive season, showed a recent dealers channel check by Nuvama Research with various stakeholders in the ceramics value chain.
Also, exports have not seen a meaningful uptick due to the Ukraine war. There has been a significant increase in credit period to 60-90 days, which post covid had reversed to cash sales, the report further highlighted.
In effect, the brokerage house has modified its outlook for listed tile makers Kajaria Ceramics Ltd and Somany Ceramics Ltd. "In our view, the demand scenario should improve in the next couple of quarters; and with gas prices stabilising as global tensions ease, margins will take a couple of quarters to return to normalcy," said the Nuvama report dated 31 March.
Meanwhile, a dealer channel check by JM Financial Institutional Securities Ltd showed that competitive intensity is rising in the sector. "Tile players are witnessing an increase in competitive intensity as many regional brands are expanding their footprint to become a national player. Besides widening their footprint, regional brands have also expanded their focus from project business to mid-premium and premium end of the retail segment," said the JM Financial report dated 30 March.
Given the modest demand and rising competition, tile companies are expected to continue to pass on the benefit of lower gas prices, in the form of discounts to boost sales.
Meanwhile, the stock performance is mixed with Somany giving positive returns of about 4% and Kajaria declining by nearly 9% so far in this calendar year.
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