Spartek Ceramics India Limited
N Venkiteswaran
Krishna Prasad Tripuraneni, the Managing
Director of Spartek Ceramics is wondering
as to what steps he should take to maintain
the growth pace of his Company — Should
he expand or diversify or acquire ?
Readers are invited to send their
comments on the case to Vikalpa. office.
N Venkiteswaran is Associate Professor in the
Finance and Accounting Area of the Indian
Institute of Management, Ahmedabad.
Vol.17, No.3, July-September 1992
Towards the middle of 1988, Krishna Prasad
Tripuraneni, the Managing Director of Spartek
Ceramics India Limited (Spartek), the Madras-based
ceramic tile company, was coming round to the view
that he would have to take some major strategic
decisions in quick time to maintain the growth pace of
his three year old Company. In the next couple of
months, he would be completing the major expansion
programme of its ceramic tile plant from 12,000 metric
tonnes per annum (TPA) to 26,000 TPA. While the
demand for Spartek tiles continued to remain strong,
Spartek's trail-blazing success had brought forth in its
wake any number of new entrants to the industry.
Krishna Prasad wondered whether the "herd
syndrome" of Indian business had caught the ceramic
tile industry too, like the mini-steel boom of the seven-
ties and leasing explosion of the mid-eighties. He knew
Spartek had distinct advantages of being the first mover
to the floor tile segment and it was important that its
future growth plans were launched from this strength.
His immediate concern was whether he should
straightaway launch the next phase of Spartek's expan-
sion to take its installed capacity to the government-
registered level of 40,000 TPA. While such a move
appeared logical, Spartek had to take cognizance of the
looming threat of competition from a host of new
entrants. The rapidly changing conditions in the
ceramic tile industry perhaps indicated diversification
to be the key strategy; but this carried its own risks. In
either case, there were always some potential acquisi-
tion opportunities available for the fleet-footed and the
intrepid. Krishna Prasad was, nonetheless, quite con-
scious of the fact that a merger or acquisition move,
while innately appealing, could pose tremendous chal-
lenges in successful consummation.
For a start-up venture which went into production
in September 1985, the Company had done extremely
well, declaring a maiden dividend (12.5%) in the very
first year of operation, followed by 20% in the succeed-
ing year. Spartek had introduced to the country a new
product and a new technology — in short, a new con-
cept. In a relatively short period, the term Spartek has
41
become a generic name synonymous with high quality,
high-tech floor tiles. Spartek's corporate motto, "In-
novation that pays," is/according to the Company, "a
phrase that has shaped our destiny, become our
philosophy and has constantly inspired us to explore
beyond the ordinary."
Company Incorporation and Promotion
Spartek was incorporated as a public limited Company
in the State of Andhra Pradesh in March 1983 with an
authorized capital of Rs 40.0 million. The main objec-
tives of the Company, inter alia, included manufactur-
ing and dealing in "Ceramic and Stoneware Glazed and
Unglazed Wall and Floor Tiles..., Ceramic Capacitates
and all types of Ceramic" Electronic components...,
Ceramic Earthenware and Porcelain Sanitaryware,......
and Glassware articles of industrial and domestic ap-
plication."
The Company was promoted by Krishna Prasad
Tripuraneni, a young electronics engineer in association
with several non-resident Indians (NRIs). Krishna
Prasad hailed from a largely agricultural family which
had branched off into mining of ceramic raw materials
and civil construction. An electrical engineer with an
MS in Computer Science, Krishna Prasad was working
in the US when he conceived the ceramic title project.
Product and the Market
In view of his family's experience in ceramic mining and
easy and plentiful availability of ceramics in virtually
any part of India, Krishna Prasad identified ceramic
wall and floor tiles a possible project concept. He noted
that in the Western countries, ceramic tiles had replaced
conventional flooring materials. "Over the years,
ceramic tiles usage has changed from functional as well
as floor-covering to decorative and artistic configura-
tion of housing and living space due to new manufac-
turing methods and changes in life styles." However,
ceramic tiles usage in the Indian home was still largely
confined to surfacing the kitchen and bathroom walls.
And the vast Indian market, he felt, presented great
opportunity for introducing ceramic tiles for flooring,
as in the West. Ceramic tiles are exceptionally strong,
stain and scratch-proof, abrasive- resistant and have
very long life compared to mosaic tiles, the common
flooring medium in India. They also provide elegance
at an affordable price besides lending themselves for
extensive industrial applications in chemical, dairy and
pharmaceutical plants because of their superior
strength and high degree of wear, acid and chemical-
resistance properties. In view of the fairly consistent
growth expected in the construction sector, the demand
42
for ceramic floor tiles, once the concept's acceptance
was achieved, was likely to grow steadily. Certain com-
parative features of ceramic tiles and mosaic tiles, are
given in Exhibit 1.
It was expected that the construction mdustry,
especially the housing sector, would get much greater
thrust in India's future national plans! The plan outlay
for the housing sector was increased from Rs 2.17billion
in the 4th Five Year Plan to Rs 6.0 billion in the 5th Plan
and Rs 15.0 billion in the 6th Plan. The private sector
investment in the housing sector was many times over:
this was estimated to be in the region of Rs 180.0 billion
in the 6th Plan. An indication of the trends in housing
growth is given by the following data relating to Hous-
ing Development Finance Corporation (HDFC) Ltd., an
agency recently promoted to provide middle-income
housing finance.
HDFC 1984-85 1983-84 1982-83 1981-82 1980-81
Number of
Units 27,645 27,379 19,472 12,403 10,189
(in terms of
approvals)
Cross Loan 1.35 1.03 0.76 0.47 0.34
Approvals
(Rs billion)
To quote Spartek's Public Issue documents
(January 1985), 'The construction industry in India is
growing spectacularly all over the country ... ; ....."
Despite this quantum jump, housing shortage was es-
timated at about 20 to 25 million units, of which about
30% to 40% were in the cities. In addition, commercial
and factory constructions were also slated for sharp
growth as a direct consequence of increased industrial
investments. Nonetheless, residential units accounting
for 70% to 80% dominated the new construction scene.
According to official studies, the total demand for
floor tiles in 1984 was estimated at about 300 million ft2.
This was broadly made up of 70% mosaic, 25% cement
flooring and 5% natural stones. Ceramic floor tiles
would have to be positioned mainly at the upper end of
the mosaic tiles and lower end of the natural stones
market in the price range of Rs 15 to Rs 25 per ft2. They
were unlikely to make any dent in the low priced ce-
ment flooring market which was extremely price-sensi-
tive (Rs 5 to 7 per ft2).
It would appear that there was considerable scope
to introduce, besides the middle-income urban hous-
ing, new applications for ceramic tiles; for example, use
of less than first quality tiles could be considered for
roofing in view of their light weight and very low
water-absorbing properties.
Vikalpa
Technology
The conventional technology for the manufacture of
ceramic tiles, known as "double-fired," is extremely
energy-intensive and slow and results in high process
wastage. A new technology "single firing" or "single
fast firing" (SFT) has already gained widespread accep-
tance in the West. SFT cuts down the process time from
about 60 hours to about an hour leading to about 70%
fuel saving. It also improves the inherent quality of the
tiles — with as much as 80% first quality tiles output
compared to 60% to 65% in the conventional process —
thereby contributing to better price realization. The
labour requirements in the new technological process
are also significantly lower. A diagram of the manufac-
turing process is given in Exhibit 2.
Ceramic Us, the US ceramic tile company, Ohio,
USA, a leading manufacturer of ceramic tiles for over
70 years, was identified by Krishna Prasad for technol-
ogy. Ceramic Us is well-known in the field of ceramic
technology and is the patent-holder in the fast fire
process, with several plants in the US and Canada and
marketing operations in the Far and Middle East. The
company enjoyed the largest independent distributors'
sales organization serving the ceramic tile industry in
the US.
Spartek entered into a technical collaboration with
CeramicUs for implementing a 12,000 TPA* tile project.
CeramicUs was to supply technical data and other
rights for a lumpsum consideration of US $ 250,000
(subject to Indian taxes), payable in three equal instal-
ments. A royalty of 5 per cent was also to be paid on the
export sales for a five year period. Ceramic Us also
agreed to participate in the equity capital to the extent
of about 8 per cent amounting to Rs 2.20 million.
The plant capacity was decided at 12,000 TPA to
begin with, taking into account scale economies, system
balancing of equipments, size of capital investment
required and above all the need for market develop-
ment. Key equipments such as Spray Drier System,
Glazing and Decorative System, Roller Kiln System, etc.
were to be imported from Saemi Imola, Italy, and Heim-
soth, West Germany, whose plants were successfully
running in many countries the world over. The total CIF
value of these major imported equipments was in the
region of DM 5.1 million (exchange rate: DM 1 = Rs 3.80
to Rs 4.00).
The Company also decided to use liquid petroleum
gas(LPG)as fuel for the first time in the country. Besides
2
* 1 tonne is, on an average, equivalent to about 650 ft ap-
proximately. This is only indicative as weight is influenced by
factors such as thickness.
Vol.17,No.3, July-September 1992
being the cleanest fuel, LPG would also give the best
colour development. As this involved, a major govern-
ment policy revision, this was not easy to come by.
Management
Spartek's Board of Directors included eminent and
well-known persons with rich experience in manufac-
turing, marketing, finance and administration. The
Board was headed by Dr Y Nayudamma, former Direc-
tor General of the Council of Scientific and Industrial
Research (CSIR), a leading national institution and in-
cluded personalities such as Dr S M Pa til, former Chair-
man and Managing Director of HMT Ltd., a
highly-rated public sector undertaking. Krishna Prasad
Tripuraneni was appointed as Spartek's Managing
Director to look after the day-to-day management.
(Especially, the contributions of the Founder Chairman,
Dr Nayudamma in conceiving and implementing
Spartek's ceramic tile project are considered significant
Dr Nayudamma was killed in an air-crash in June 1985
and Spartek's management gratefully acknowledges
him as "the source of every Spartek success.") Spartek
management recruited key technical personnel with
extensive experience in the ceramic industry and had
them trained at the plants of the collaborators and the
machinery suppliers. The Company was expected to
provide direct employment to about 200 persons with
regular opera Hon.
Project Implementation
Location: It was decided to locate the project at Narasin-
gapuram village, a notified backward area, near the
temple and educational town of Tirupati in Andhra
Pradesh. Its proximity to the promoters' clay mines
would ensure uninterrupted supply of the principal
raw materials. It is approximately 130 kms. from
Madras, a major market. The backward area location
would entitle the Company to receive Central Govern-
ment subsidy of Rs 1,50 million, besides confessional
power tariff for three years and interest-free sales tax
loans. The financial institutions also extended conces-
sions in interest rate and underwriting commission for
backward area projects.
Government Approvals and Other Clearances : The
major landmarks in terms of various government and
other clearances are given below:
Events Approval Dates .
a) Company incorporation : 09-03-1983
b) Industrial licence : 02-03-1984
c) Capital goods clearance : 10-10-1983'
d) Import licences : 13-03-1984/
30-05-1984
43

Project Cost The total project cost was estimated at Rs
90.0 million including margin money for working capi-
tal of Rs 3.4 million. This was to be financed by a share
capital of Rs 28.5 million, institutional borrowings of Rs
60.0 million and the Central Government subsidy. The
details are given in Exhibit 3. Besides the collaborators,
the Andhra Pradesh Industrial Development Corpora-
tion Ltd. (APIDC) also participated in the equity by
subscribing to the extent of 15 per cent.
Spartek came to the capital market with a public
issue of Rs 15.0 million in January 1985 and the issue
was oversubscribed. The Company also raised bridge
finance from an investment institution against the
public issue. As of June 30,1984, the Company had
incurred an expenditure of Rs 7.90 million on the
project. The project spending had increased to Rs. 68.0
million a year later.
Commercial Production: The ceramic tile plant was
completed without any major cost over-run though
after a delay of about 6 months. After trial runs in
August 1985, commercial production was started in
September 1985. Marketable quality product was
produced from the very first day. Ninety per cent first
grade output was achieved within days and 100%
capacity utilization within 2 weeks of the commence-
ment of commercial production. To quote the Directors:
"........... The market response has been very encourag
ing and with the product quality matching internation
al standards, it has been well received by builders and
architects all over the country ....... Market conditions
being favourable, the Company is confident of selling
its entire production in the potential market and hopes
to emerge as the premier ceramic tile manufacturer in
the' country in the near future........"
Spartek closed the financial year to June 1986, the
first year of commercial production, with an output of
9,567 tonnes and sales of 7,480 tonnes. In the following
year, both production and sales jumped to about 16,200
tonnes.
44
Marketing*
Ceramic floor tiling being a new concept in India, Spar-
tek had to develop a totally new marketing strategy in
terms of product positioning, distribution channels and
pricing.
The market for the tiles, namely the building in-
dustry could be broadly categorized as residential and
non-residential. The residential type could be further
segmented as:
a) Architect-designed upper income houses
b) Multi-storeyed middle income and upper income
apartments promoted by the real estate developers
c) Government housing schemes, and
d) Owner-designed and/or constructed houses.
Similarly, the non-residential side of the building
industry could also be categorized as follows:
a) Commercial centres and office complexes
b) Hotels, cinema halls and the like
c) Public places like hospitals
d) Factory and industrial buildings.
It was recognized that the key segment for ceramic
tiles in the residential sector was V i.e., the middle
income housing with some possibilities in the other
categories. In the non-residential sector, virtually every
segment offered penetration opportunities. The main
influencing agents in the target segments were the
building architects/engineers and real estate
promoters.
Long before the product launch, Spartek began par-
ticipating in building material exhibitions with display
of imported samples. The main focus had necessarily to
be building architects/ engineers and real estate
promoters. It was important to ensure acceptance of the
concept of ceramic floor tiles before selling the product.
In these exhibitions as well as other promotion efforts,
the distinctly superior features of ceramic tiles over
mosaic were emphasized. Technical brochures high-
lighting these were widely distributed in the target
segment (See Exhibit 1). The initial response was one of
scepticism: while the product concept generated en-
thusiasm, there were widespread misgivings about
Spartek's ability to replicate the same quality product
from its plant.
* The case writer acknowledges with gratitude the valuable
inputs received from S Muralidharan, an alumnus of 1IMA, in
writing this section.
Vikalpa
 On the basis of a market survey, the product was
positioned for its aesthetics — the early campaign ran
with the copy: "The world's most beautiful floors ...
Now in India." At the same time, the superior function-
al attributes of Spartek floors — elegance, smoothness,
toughness, ease in laying and maintenance — were
sufficiently highlighted. The entire emphasis was on
Spartek floors rather than on tiles. Also, in some of the
technical literature, a comparative analysis of Spartek's
technological superiority was highlighted as, for ex-
ample, shown in Exhibit 4. In keeping with the per-
ceived market segment's characteristics, Spartek tiles
were priced aro and the white mosaic tiles' price range
of Rs 18.0 to Rs 25.0 per ft2.
The Company was a little slow in creating a wide
dealer network as the major challenge was recognized
to be one of establishing credibility by producing floor
tiles of the quality and finish promised by it earlier.
While appointing dealers, Spartek selected well-known
local names with established business in the building
materials industry. Spartek also appointed as dealers
others who, though not necessarily in the building
materials trade, were otherwise resourceful. Spartek
initially concentrated in the Southern and Western In-
dian markets and had a dealer network of about 150 by
1988. Dealer margin was fixed at 10% which was con-
sidered to be somewhat unusual in the context of the
customary gross dealer margin of 25% to 30% in the
industry. In the latter case, the trade passed on a good
portion of its margins to the customers through heavy
discounts as a result of which the net margins enjoyed
by the trade were only of the order of 3% to 4%. The
declared low margin of Spartek acted as a psychological
barrier in the trade's own discount structure to the
customers. As a result, what they passed on was only
4% to 5% retaining in the process a higher margin of 5%
to 6%.
The initial advertising efforts were through up-
market magazines that could fully capture the range of
colours and the feel of texture of the tiles. In due course,
extensive television advertisements were also resorted
to, with focus on some of the other-than aesthetic fea-
tures of Spartek tiles. One of the major goals was the
creation of a strong image for Spartek, identifying
quality tiles with the name. Spartek also made it a point
to offer its tiles in a range of sizes — 8*4,12*12 and 8*8.
After nearly two years of operation, Spartek's posi-
tion was summed up by its Directors:
"........ Spurred by the overwhelming market
response to the product, the Company had launched
many new colours, designs and sizes to offer more
Vol.17, No.3, July-September 1992
wider choice and to cater to individual tastes. The Re-
search and Development effort in this regard has
yielded satisfying results and during the year (1986/87)
as many as 30 new colours and designs were introduced
in the market, some of them for the first time in the
Indian market. It is hoped that the Company in due
course would offer a wide variety of choice such that it
would be more a meeting of customers' specific require-
ments rather than just a choice between
alternatives....”
Spartek's sales in 1988 was somewhat concentrated
with about 40% in the South, 30% in the West — mainly
in the Bombay city — and balance in the North and the
East.
Expansion
In the announcements in connection with the 1985 equi-
ty issue, Spartek's management had indicated:
"..... The potential is so vast that we are making
necessary arrangements for doubling the capacity
shortly with marginal investments on balancing equip
ments ..... "
The ceramic tile industry was delicensed in March
1985 and the Company promptly obtained Government
of India registration for enhancing the plant capacity to
26,000 TPA. The expansion programme was completed
at a cost of Rs 80.0 million and the expanded capacity
became operational in April 1988. The main equip-
ments were sourced from the original Italian and West
German suppliers. The sharp depreciation of the rupees
against the DM and the hike in customs duty from 55%
to 85% led to a steep increase in the landed cost of
equipments imported for the expansion. The total
employee strength after expansion was expected to go
up to about 350.
While initiating steps to implement the first phase
of expansion, Spartek management' had, during
1986/87, sought and obtained government registration
for further increase in capacity to 40,000 TPA.
Financial Performance
Following commercial production in September 1985,
Spartek earned pre-tax profits of about Rs 12 million on
revenues of about Rs 63 million. With no tax liability
during the year, the Directors could declare a maiden
dividend of Rs 1.25 on its Rs 10 par equity share. In the
next two years, aided by full capacity utilization, while
the revenues increased to about Rs 141 million and Rs
174 million respectively, pre-tax earnings jumped to Rs
45
ventures promoted with the sole raison d'etre of ceramic Spartek's strengths strong enough to be transplanted to
tiles manufacture. The established names included another product- market?" and "Now that Spartek had
Somany Pilkingtons Ltd. and HR Johnson (India) Ltd., created a strong brand image and established its
while some of the new entrants were Regency Ceramics credibility with the user segment and the extremely
Ltd., Murudeshwar Ceramics Ltd., Kajaria Ceramics fastidious financial world, why not pursue growth in
Ltd., Bell Ceramics Ltd. and the like. , other areas, on the basis of these strengths?" No easy
answer was forthcoming, and matters were not par-
Most of the new entrants could sign up well-known ticularly helped by the stupendous range of options
ceramic tile producers from Italy, West Germany, Spain arrayed against Spartek within a diversification
or the UK for technical collaboration. Inspired by decision.
Spartek's experience, by and large, they also chose such
proven equipments suppliers as Sacmi and Heimsoth. A further confounding variable in the expansion vs.
The higher capital costs and increasing competition did diversification decision was the one relating to the
not seem to dampen their optimism about success in the - mode of entry. While a green-field investment would
market place. Thumb-nail sketches of major com- have been the only option available until recently, the
petitors — present and prospective — are given in major changes in the environment could be throwing
Exhibit 10. Key financial indicators of the competitors up acquisition opportunities as well. And both the in-
are also given in Exhibit 11. ternal growth and the merger and acquisition routes
had their strong debit and credit sides.
Surveying the overall scenario, the Board of Direc-
tors of Spartek summed up the Company's response in As Krishna Prasad began evaluating the various
the following words: options for charting Spartek's future growth, he could
not but help wondering about the irony of success-
"..... the Ceramic Tiles Industry is witnessing entry driven problems crying out for urgent solutions.
of new units and competition is getting intensified. The
Company being a pioneer in the field and with con
Exhibit 1: Comparison of Ceramic Floor vs Mosaic Floor
solidated distribution network would be able to face the
competition ......"
Given the fast-changing conditions in the ceramic
tile industry, Krishna Prasad was fairly convinced that
another phase of expansion of Spartek's capacity, say to
the DGTD registered level of 40,000 TPA, was not that
straightforward a decision. This, nonetheless, remained
an important strategic choice; while such a move
seemed to offer many obvious benefits, the looming
threat of competition also added several riders to the
decision. An important issue was whether he should
add capacity to an already over-crowding industry. At
the same time, failure to expand could mean tame sur-
render of Spartek's primacy and leadership in the in-
dustry that was its very creation. The question was;
"Should Spartek give up its leadership so meekly to
competitors most of whom were yet to come up with a
saleable product?" On the other hand, if the competitors
managed to carve out selective niches in various
regional markets, another Spartek expansion was
doomed to be a disaster.
Perhaps another option was a diversification move
which provided a neat opportunity to skirt the vagaries
of an increasingly fuzzy market place. But the long
history of well-known firms that had diversified into
disaster more than confirmed the associated risks. The
two extreme positions that emerged were: "Were

Vol.17, No.3,July-September 1992 47

 Exhibit 10: Competitors' Profiles*
a) Somany Pilkingtons Ltd. (SPL)
SPL was established in the early seventies by the H L Somany
group in technical and financial collaboration with
Pilkington's Tiles Ltd., UK, for the manufacture of glazed wall
tiles. Commercial production commenced in 1972/73 at the
factory situated at Kassar in Haryana. Production and sales
increased steadily despite facing a scries of labour unrests in
the early eighties. Since 1984/85, SPL has been undertaking
modernization of the Kassar unit and has also augmented
captive power back-up to overcome erratic power supplies.
SPL undertook to set up a new unit at Kadi, Gujarat, with
a licenced capacity of 6,000 TPA and production was started
in June 1983. Consequent to the expansion-cum-modern-
ization programmes undertaken by the company, production
capacity at Kassar would stand increased to 31,000 TPA and
at Kadi to 12,000 TPA from 1987/88. These schemes covered
installation of more modern automatic presses in replacement
of the mechanical ones, upgradation of glazing lines, introduc-
tion of tile decorating machines and modernization of sorting
and packing sections. In the four years to June 1987, SPL
incurred a capital expenditure of about Rs 160.0 million. As a
natural extension of its current product range, SPL is believed
to be entering into the floor tiles segment as well.
The total tiles production which was 23,813 tonnes during
1984/85 increased to 25,665 tonnes in the following year, but
* The competitors' profiles reflect the position largely as of
mid-1988.
54
declined to 19,742 tonnes during 1986/87dueto a three month
long strike. A few years earlier, SPL had diversified into
leasing business; the value of leases written amounted to Rs
32.5 million in 1983/84, Rs 33.3 million in 1984/85, Rs 20.0
million in 1985/86 and Rs 18.0 million in 1986/87.
SPL earned profits after tax of Rs 20.1 million on net sales
of Rs 227.1 million for the year to June 1987 compared to Rs
22.6 million on sales of Rs 237.6 million for the preceding year.
SPL also took control of Orient Ceramics Limited (OCL),
which became sick when its 5,000 TPA glazed tiles plant at
Sikandrabad in UP ran into rough weather. SPL quickly
turned it around and is reportedly planning to increase OCL's
capacity to 20,000 TPA in two phases.
It may be noted that the Somany Group has a significant
presence in the sanitaryware sector through its control of
Hindustan Sanitaryware Ltd. a Rs 300 million turnover com-
pany.
The Rs 10 paid-up share of SPL was quoted around Rs
100 in some May-1988 transactions.
b) HR Johnson (India) Ltd. (HRJ)
HRJ, a closely-held company, is the largest tile producer in the
country and reportedly has the second largest production in
the world. It was established with the assistance of H & R
Johnson of UK, a leading presence in the ceramic industry in
the world. HRJ has manufacturing facilities in Maharashtra,
Madhya Pradesh and Karnataka. Essentially a producer of
wall tiles, HRJ is reputed to have a strong all-India distribution
Vikalpa
network and excellent brand image. They have recently
entered the floor tile segment. Their initial batches of floor tiles
were slow in gaining consumer acceptance. HRJ is believed to
be creating large production facility for floor tiles in Kar-
nataka.
c) Neyveli Ceramics and Refractories Ltd. (Neycer)
Neycer was incorporated in 1960 with the main objective of
manufacturing sanitaryware, ceramicware, stoneware pipes,
etc. Its sanitaryware plant is located at Vadalur, about a couple
of hours drive from Madras. The Neycer brand image is fairly
strong and has an excellent retail level visibility in the
Southern states. Neycer's sanitaryware output was stagnant
at about 4,000 TPA in the late seventies. Aided by a phased
expansion-cum-modernization programme, the output
steadily increased to touch 8,143 tonnes during 1987.
Neycer diversified into glazed ceramic tile manufactur-
ing by setting up a 10,000 TPA plant in the Union Territory of
Pondicherry. The project, based on single fast firing technol-
ogy, was partially completed at an estimated cost of Rs 185.0
million after large cost and time over-runs. The plant which
was commissioned in December 1986 experienced major
teething troubles and started producing acceptable quality
floor tiles from the middle of 1987. During 1987, production
of tiles amounted to 4,158 tonnes while sales was 2,804 tonnes.
Neycer incurred a loss of Rs 18.9 million for 1987 (mainly on
account of the new project-related depreciation and interest
expenses) against a pre-tax profit of Rs 17.4 million for the 18
months to December 1986. This loss and the heavy burden of
borrowings to finance the cost over-runs seriously eroded
Neycer's financial position. The Rs 10 share of Neycer was
quoting around par in May-June 1988.
d) Regency Ceramics Ltd. (RCL)
RCL was originally promoted in 1983 by one G N Naidu and
his associates. The Andhra Pradesh Industrial Development
Corporation Ltd. (APIDC) and the Pondicherry Industrial
Promotion Development and Investment Corporation Ltd.
(PIPDC) also participated in the equity capital of the Company
to the extent of 7.5% each. RCL undertook to set up a project
for manufacturing 25,000 TPA of ceramic flooring and wall
tiles at Yanam (part of the Union Territory of Pondicherry but
inside Andhra Pradesh).
As this was envisaged as a 100% Export Oriented Unit
(EOU), RCL could avail of various concessions such as duty-
free import of capital goods, etc. The project commenced
commercial production in May 1986. RCL had entered into a
technical collaboration with Welko Industriale Sp A of Italy for
the supply of know-how, engineering and plant and
machinery.
In view of the reported downturn in the export market
especially from the slowdown in construction in the Middle-
East and intense competition paring down margins, RCL
sought government approval to opt out of the 100% EOU
scheme. This was granted with a number of conditions such
as reduced export obligation of 30% (for a 5-year period), and
reimposition of duties with penalty on the imported equip-
Vol.17, No.3, July-September 1992
ments/inputs. The project cost was estimated to have gone up
by about Rs 42.0 million to Rs 166 million due to these factors.
RCL re-commenced production in January 1987 under the
new status. For the 6 months to October 1987, RCL incurred a
loss of Rs 10.7 million on revenue of Rs 51.7 million. The
Regency share was quoted in the Rs 18^23 range during May-
June 1988.
e) Murudeshwar Ceramics Ltd. (MCL)
MCL was promoted by RN Shetty, a leading builder in Kar-
nataka, in association with Karnataka State Industrial
Development Corporation Ltd (KSIDC). MCL's floor tiles
plant, with a capacity of 12,500 TPA, is located at Hubli,
Karnataka.The estimated project of Rs 134.5 million was being
financed by equity capital of Rs 45.0 million, institutional
loans of Rs 83.0 million and balance in interest-free develop-
mental loan (Rs 5.0 million) and subsidy. MCL has technical-
cum-financial collaboration agreement with Klingenberg
Dckoramic GmbH of Federal Republic of Germany. Plant and
machinery arc being procured from Sacmi of Italy. Commer-
cial production was expected to start by the middle of 1988.
MCL is reported to have an export obligation to the extent
of 10% of its production for the first 5 years.
OKera Sinter Ltd. (KSL)
KSL was promoted in September 1983 in the joint sector by
APIDC, Kcrabedar GmbH, West Germany (KBG) — since
gone into liquidation — and KS Reddy and his associates. The
project for the manufacture of 13,200 TPA of ceramic floor and
wall tiles is located at Gudur village in the Nalgonda District
of Andhra Pradesh. Technical knowhow was provided by
KBC. The project cost initially estimated at Rs 69.0 million
went up to Rs 85.0 million due to certain modifications re-
quired on account of major equipment failure. The equity
capital of Rs 23.2 million was proposed to be increased to
almost Rs 30.0 million to part-finance the over-run. However,
APDIC which had about 26% holdings expressed its inability
to take up the Rs 1.69 million worth shares offered to it in the
additional issue. The financing was finally completed with the
Unit Trust of India taking up this amount in the form of
convertible debentures.
Trial production was started in early 1985, but production
could not be stabilized due to the technical problems en-
countered during the trial run and later due to power cuts.
g) Kajaria Ceramics Ltd. (KCL)
KCL, promoted by A K Kajaria Exports, (a recognized Export
House), was setting up a plant to produce 12,000 TPA of floor
and wall tiles at Sikandrabad in the district of Bulandshahar
in Uttar Pradesh, through the single fast fire technology route.
KCL has entered into a technical collaboration agreement with
Todagres S A Spain, a well-known ceramic tile manufacturer.
The project, with an estimated cost of about Rs 150 million,
and an equity content of about Rs 55 million was scheduled
to be commissioned in the third quarter of 1988. KCL is
understood to be working on expanding its capacity to 26,000
TPA.
55
 KCL is required to export 25% of its output during the
initial 5-year period.
h) Bell Ceramics Ltd. (Bell)
Bell, a Baroda based company, was implementing a 20,000
TPA tile plant in Bharuch District, Gujarat, in technical col-
laboration with Societa Impianti (SITI SpA), Italy. Bell has
been promoted by two non-resident Indians (NRIs), RK Jatia
and RCN Swamy. The former was one of the promoters of the
Asian Hotels Ltd. which owns Hyatt Regency hotel. New
Delhi. The project cost of Rs 147.8 million was to be financed
mainly through equity capital of Rs 54.1 million and Rs 90.2
million of institutional loans. Bell's products would be in the
market by mid-1988.
Bell was reportedly installing, for the first time in India,
'single fast firing double deck roller hearth kiln,' which would
facilitate simultaneous production of two main products. Bell
was also planning to use cheaper natural gas as fuel; this was
a major factor in the location of plant in Bharuch. In view of
the highly automated facilities, the manpower strength would
be kept at about 100. Bell also has an export obligation of 25%
of annual production for a period of 5 years.
Bell has already indicated that it has plans to expand its
plant capacity to 35,000 TPA, later.
i) Metlex Ceramics Ltd. (Mellex)
Mctlcx was promoted in 1986 by Jamna Datwani, an NRI, and
Vikram Chopra, a chemical engineer. It was set up in Cur-
gaon, Haryana, for manufacturing 12,000 TPA of glazed wall
and floor tiles in technical collaboration with Sacmi, Italy. It
would appear that in the first phase, the plant capacity was
limited to 6,000 TPA.
The project cost was estimated at about Rs 60 million with
an equity financing of Rs 26.3 million. Reportedly, the project
has not been appraised by the financial institutions. The plant
was likely to be put on stream in the third/fourth quarter of
1988.
j) Others
In addition to the foregoing units, a few more were reportedly
planning to enter the fray. These include (i) Anant Raj Croup
of New Delhi (already in the construction industry) with a
18,000 to 20,000 TPA plant in Haryana. In addition, several
existing ceramic companies were also expected to implement
tiles projects as part of their expansion/diversification
programmes.