Rating agency Icra highlighted that the domestic market, which accounts for 64 per cent of the Indian ceramic tiles industry’s revenues, continues to witness resilient real estate demand, auguring well for the sector. However, the export market has started showing signs of a slowdown. The demand slowdown from the USA is visible in the current fiscal, post the commencement of the USA Department of Commerce’s investigations, in May 2024, on ceramic tile imports from India.
Further, a sharp increase in freight cost amid the Red Sea crisis and slow-moving residential markets in the USA and Europe has derailed the export momentum from Q4 FY2024. According to an ICRA study, India’s ceramic tiles export revenue is likely to decline in FY2025, primarily on account of the anticipated imposition of significant anti-dumping duties (ADD, 328 to 489 per cent) by the US, resulting in an annual contraction in tile exports in FY2025e. The US accounted for 9 per cent of Indian tiles exports in FY2024.
Chintan Lakhani, Vice President and Sector Head– Corporate Ratings, Icra said, “Icra expects exports to contract by 8-10 per cent in FY2025, mainly due to the impact on India’s two major exports hubs— USA (owing to likely imposition of ADD) and Europe — given the continued sluggish residential markets. The decline could be even sharper if the Red Sea crisis persists for a prolonged period. India’s ceramic tiles export to Europe and the Americas has been impacted in recent quarters because of the increase in logistics cost, thus affecting competitiveness. While freight rates have eased sequentially, the logistics cost remains higher on a YoY basis and continues to impact the export demand."
Demand from the domestic market remains resilient despite a favourable outlook for the real estate sector. Consequently, the overall revenue growth of the sector is estimated at 7 to 9 per cent for FY2025e, primarily supported by domestic demand, whereas exports are likely to remain a drag in the near term. The share of domestic revenues is relatively higher for larger entities compared to small/mid-sized ones, as large entities enjoy pricing flexibility owing to their strong market position.
Lakhani further adds: “Notwithstanding the expected contraction in exports, the revenue of Icra’s sample entities is likely to grow by 7 to 9 per cen on a YoY basis in FY2025e, aided by growth in the domestic residential estate sector. Icra expects industry capex to moderate from 8 to 9 per cent of operating income (FY2023 and FY2024) to below 7 per cent in the current fiscal, as the tiles companies shift their focus towards improving operating efficiencies and capacity utilisation. The industry’s operating margins are expected to remain flattish at 11 to 12 per cent in FY2025, as operating leverage benefits and moderation in input costs are offset by intense competition and supply overhang pressure on realisations.”
Icra highlighted that several large tile players have a relatively lean cash conversion cycle, low leverage, and comfortable credit metrics. However, small and mid-size players have limited pricing flexibility and relatively high exposure to exports; hence the headwinds in the export market could have a bearing on their cash conversion cycle and coverage metrics. Moreover, a slowdown in exports will result in a supply overhang in the domestic market, which will curtail pricing flexibility and constrain margins, in Icra's view.
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