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SECTOR REPORT: CERAMICS AND SANITARY

ANITARY
WARE
INTRODUCTION:
This report focuses on Indias ceramic and sanitary ware industry. The Indian Ceramic
Industry is almost equally divided between branded and unbranded segments, with the
t
unbranded segment comprises concentrated primarily in Gujarat.
The industry has been growing at a CAGR of about 15% since the last 5 years due to
various factors like the emergence of tiles as a durable alternative,
alternative cost-effective and
convenient flooring solution
solutions and rapid expansion in real estate sector.
sector Also, the
market is seeing a marked preference towards branded products. The branded segment
is further gaining market share owing to rapid capacity addition and shift to valuevalue
added products, which explains the 20% growth of the top 10 players as against
again the
industry average of 10% in the last fiscal year.
INDIAN CERAMICS AND SANITARY WARE INDUSTRY:
The Indian ceramic tiles industry is the world's third largest producer as well as
consumer after China and Brazil. Growing
rowing at a 15% CAGR per annum over the last 5
years, the industry is currently estimated to be about 15000 Cr. This is in stark contrast
to the global average growth rate of 6% per annum. The organized se
sector is estimated
at Rs. 7,000 Cr,
r, accounting for 47% of the total industry and is fairly consolidated with
only a few players accounting for an 80% market share. The Rs. 8,000C
8,000Cr unorganized
sector is located primarily in Gujarat and accounts for 53% of the total industry size.
India's sanitary ware industry accounts for nearly 8% of the world's sanitary ware
production. With the last few years of high growth
growth, the sanitary ware industry in India
has become the second largest sanitary ware market in South Asia and has emerged as
a major bath and sanitary ware market in the Asia-pacific
pacific region. India is also
al
emerging as a manufacturing hub for international sanitary ware brand
brands.
With only 40% of the countrys population having access to proper sanitation, India
provides a huge opportunity to various market players.
players. Almost 45% urban population
and 80% rural population do not enjoy access to adequate sanitation. Coupled with

increasing urbanization and Government's growing focus towards improving public


health, the Indian sanitary ware market
m
is expected to grow by 15% annually in the
coming years.
KEY GROWTH FACTORS:
FACTORS
Increasing urbanization and better standard of living,
living, India emerging
emergin as a
manufacturing hub, lifestyle changes, Rapidly expanding real estate and infrastructure
sector, Rising population, Replacement demand, Demand from other expanding allied
sectors like retail, hospitality etc.
GOOD COMPANIES:
(Price information as on 28-02
02-12)
The leaders

Current PE:
Price:

PB:

Avg. EPS PEG(Mar


Growth(3 2011):
year-%):

MCap(Cr):

HSIL

142.15

8.56

1.21

36.51

0.27

938.85

Kajaria

148.80

14.61

3.92

110.45

0.08

1094.92

Good
valuations
Cera Sanitary
ware

Other
names

Current PE:
Price:
218.95

9.03

good Current PE:


Price:

Nitco

47

5.45

PB:

2.07

PB:

0.28

Avg. EPS PEG(Mar


Growth(3 2011):
year-%):
14.97

0.50

MCap(Cr):

277.08

Avg. EPS PEG(Mar MCap(Cr):


Growth(3 2011):
year-%):
72.08

0.10

153.22

PORTERS FIVE FORCES ANALYSIS:

Threat of new competition: Due to large entry barriers and role of good
distribution strength and branding, threat of new competition is low for the large
players although there is much more stiff competition between the smaller players.

Threat of substitutes: It is low since ceramic products are being increasingly used
as the preferred choice with relatively few other alternatives.

Bargaining power of customers: This is moderate.. There are only a few national
players, although there are plenty of unbranded players in the market to increase
the choice for the customer.
customer

Bargaining power of suppliers: This is moderate to high. The biggest threat that
the sanitary ware industry faces is the rise in raw material costs along with power
and fuel costs which is a major ingredient in manufacturing of ceramic tiles.

Existing competition: Although there only a few national


national players in the industry
but dumping
umping of ceramic tiles at a very low price both from China and the
unorganized
nized sector in the ddomestic market poses a big threat to the industry.
industry

FUTURE OUTLOOK:
One of the key differentiators which distinguish the national players from the
regional players is the strong brand equity and large distribution network. Since the
industry
dustry is dependent on real estate and construction industry, which is the end user
of its products, relationships with housing developers and influencers like architects,
interior designers and plumbing consultants play a key role.
With a very low per capita consumption of ceramic tiles in India as compared to
global average, the opportunity for growth in the domestic market is very high.
India's per capita tile consumption is 0.42sqm, one of the lowest in the world
compared with China's
na's 2.26sqm, and more than 5sqm in some European countries,
according to CRISIL. The increase in disposable income and urbanization is further
expected to enhance Indian tile consumption

Also, improving sanitation and providing housing, in particular, affordable housing


has been a focus area of the Central Government
Government, and this is also expected to push
the growth of the sanitary ware industry. There is a significant demand supply gap in
the Healthcare & Hospitality sectors and this will also push the demand over the
next few years.. The replace
replacement
ment market will also contribute significantly to the
demand for ceramic tiles.
Going further, the biggest challenge that the industry faces is the increase in raw
material costs and Power & Fuel costs,
cos
which are a major ingredient in
manufacturing of ceramic tiles. Also, the ceramic industry's growth depends on
infrastructure and real estate sector, which in turn has seen a lean phase due to the
global economic downturn and poses a potential risk in the future. Another trend that
has been seen is that there has been a decline
ine in capacity addition by many
unorganized sector companies, indicative of evolving consumer preferences. While
there is a robust demand for quality products, unorganized
unorganized players have failed to
invest significantly either in expanding their capacities or in providing high quality
products. This trend is expected to continue resulting in a larger market share for the
organized players as they continue to invest in capacity addition, and grow at more
than the industry's average growth rate.