Tile companies see meagre gains from reduced gas prices
Tile manufacturers have warned that the recent gas price cuts by city gas distribution (CGD) companies, including Mahanagar Gas Ltd, Indraprastha Gas Ltd, and Gujarat Gas Ltd, are unlikely to result in significant margin gains for them.
Gas accounts for a significant portion of the overall expenses for tile makers.
So, lower gas prices should offer some relief for tile manufacturers such as Kajaria Ceramics and Somany Ceramics, which use it to fuel their kilns. But tile makers have advised caution as the advantage may not be substantial.
Ashok Kajaria, chairman and managing director of Kajaria Ceramics, told Mint that gas cost is 25% of its total production cost. “The recent price reductions are barely meaningful when compared with the 17% price hike by Gujarat Gas Ltd since August 2023,” he said. Mahanagar Gas and Indraprastha Gas both reduced prices by ₹2.5 per kg each on the back of the recent softening of LNG prices, while Gujarat Gas cut its Morbi industrial prices by ₹3.9 per standard cubic metre (scm). Morbi is a hub for tile makers.
Nilesh Jetpariya, the former president of Morbi Ceramic Association, said the recent price reduction would not have a major impact. He highlighted that Gujarat Gas cut prices by a mere ₹3.9 per standard cubic metre (scm), much lower than the anticipated ₹10.
Jetpariya went on to explain that “a substantial reduction would require manufacturers to pass it on to customers. Since the cut is small, it can be absorbed which would lead to better profitability for tile manufacturers”. More price cuts are on the cards, he believes.
Yet, Kajaria is still sticking to his guidance of about 7% volume growth for the March quarter and 15–17% earnings before interest, tax, depreciation and amortization (Ebitda) margin in FY25.
The company saw 6% growth in sales volume in the December quarter, while its consolidated Ebitda margin stood at 15.81% in the nine months to 31 December 2023.
Meanwhile, tile makers have said that the slowdown in tile exports could lead to a rise in domestic supply of tiles.
In their recent earnings calls, Kajaria Ceramics and Somany Ceramics highlighted a slowdown in exports. “Our exports have slowed after October 2023, with [the situation in] the Suez Canal, leading to uncertainty in the region and spurt in ocean freight,” Kajaria Ceramics said in its earnings call. Yet, both companies said the decline in exports could be just a blip.
Kajaria Ceramics and Somany Ceramics recently highlighted a drop in exports, but said the decline could be just a blip