A STUDY OF CERAMIC INDUSTRY IN INDIA WITH SPECIAL REFERENCE TO TILE SECTOR

Project Report submitted to H.N.B. Garhwal University (A Central University) Srinagar (Garhwal) for the degree of M.B.A.

Project Guide: Dr.A.C.Pandey Assistant Professor Department of Business Management H.N.B. Garhwal University, Srinagar (Garhwal)

Project Scholar: Kumar Shashwat M.B.A.IV Semester

DECLARATION

I, Kumar Shashwat, student of MBA (4th semester), hereby declare that the project report entitled topic A STUDY OF CERAMIC INDUSTRY OF INDIA WITH REFERENCE TO TILE BUSINESS is a record of independent research work carried out by me under supervision of Dr. A.C.Pandey, Assistant Professor, Dept. of Business Management, H.N.B. Garhwal University(a central university). This project has not been previously submitted for award of any diploma, degree or any other similar title.

(KUMAR SHASHWAT) MBA IV Sem. Batch 09-11

ACKNOWLEDGEMENT

This project work has been a quantum leap in terms of practical savvy, understanding of management concepts, sincerity, diligence, responsibility & above all self-confidence. In particular, I would like to extend my heartfelt gratitude to my project guide Dr. A.C.Pandey without whose facilitation and cooperation this project would not have been so fulfilling. I would also like to thank him for his guidance and for keeping me on the track through his expertise in this field. A study like this cannot be completed without help from other persons and therefore I would like to express my gratitude to my friends VISHAL SOODAN, MOHIT JAMWAL and CHANDAN SINGH who provided me crucial facts to complete this Project. A lot of individuals have contributed in the preparation of this project. I am thankful to all of them for their timely help encouragement, support, valuable comments, suggestions and many innovative ideas in carrying out these projects. It is my proud privilege and pleasure to express deep sense of gratitude to these people.

Place - Srinagar, Garhwal Date MBA IV SEM.

(KUMAR SHASHWAT)

Preface
The word "Ceramic" has originated from the Greek word, "Keramos", which means pottery. It also relates to an ancient Sanskrit word whose root meaning is to burn, but it is predominantly used to indicate "burnt stuff". Almost 10,000 years later, with the establishment of settled communities, tiles were manufactured in Mesopotamia and India. The first instance of functional pottery vessels being used for storing water and food is thought to be around 9,000 or 10,000 BC. Clay bricks were also made around the same time. The ceramics industry in India came into existence about a century ago and has matured over time to form an industrial base. From traditional pottery making, the industry has evolved to find its place in the market for sophisticated insulators, electronic and electrical items. Over the years, the industry has been modernizing through new innovations in product profile, quality and design to emerge as a modern, world-class industry, ready to take on global competition. Though there are a number of large companies in the ceramics sector, small and medium enterprises (SMEs) account for more than 50 per cent of the total market in India, offering a wide range of articles including crockery, art ware, sanitary ware, ceramic tiles, refractory and stoneware pipes among others. Most of the players are grouped together in clusters. Over the last two decades, the technical ceramics segment has recorded an impressive growth propelled by the demand for high-alumina ceramics, cuttings tools and structural ceramics from the industry. Overall, the Indian ceramics industry has emerged as a major manufacturer and supplier in the global market. Ceramic products are divided into four sectors which includes Structural, including bricks, pipes, floor and roof tiles; Refractoriness, such as kiln linings, gas fire radiant, steel and glass making crucibles ; White wares, including tableware, wall tiles, pottery products, and sanitary ware ; Technical ceramics which classified into three distinct material categories of oxides, non-oxides and composite.

Contents

Objectives of the study

Scope of the study Review of literature Introduction- Current status of the industry Industry highlights Industry statistics Global ceramic tile industry Marketing policies of players

Export-import scenario

Problems and barriers to ceramic industry Competitive environment Government policies and incentives to ceramic industry Future of ceramic industry Graphs and charts Findings Recommendations Conclusion References

OBJECTIVES OF THE STUDY

1-

To study the current status of Indian ceramic (tile) industry.

2- To study the marketing strategies of different players in the market 3- Study the export and import scenario of the industry. 4- To study the problems and barriers faced by the industry. 5- To study the competitive environment of the industry in this globalized scenario. 6- Analysis of government policies and incentives provide to the industry. 7- To study the future and scope of the industry.

SCOPE OF THE STUDY

With the help of this project, we can take a decision regarding expansion of the ceramic business, and finding maximum profitability.

To find opportunities and scope in ceramic tile sector and thereby in construction industry. The scope of study is wide towards the dealers of tiles, sanitary ware & designer tiles.

This study provides scope for export oriented units for ceramics. In India, growth rate of building material industry is at high, and constantly growing. By this project finding, we have been trying to catch the opportunities and demand of ceramics for their commercial and residential needs. This study also provides scope for business strategists and analysts to take decisions for combating stiff competition.

The scope of study is wide towards estimation of future business by marketing strategists. It offers guidance in market penetration and increasing product range.

REVIEW OF LITERATURE
According to EXIM BANK research brief on Indian Ceramic industry: Perspective and Export potential , At present, in India the market share of these segments are 42%,46% and 12% respectively.Ceramic tiles are produced both in organised as well as in unorganised sector. In India, share of organised sector is around 55% of total production. There are three major regions in the world, namely, Asia, Latin America and European Union (EU), that produce and export ceramic tiles in bulk. In 2002, they had jointly produced more than 87% of the global output. World production of ceramic tiles was 5904 million sq.mt. in 2002. China was the largest producer with a total production of 2100 million sq.mt. Spain and Italy were the 2nd and 3rd largest producers with production of 651 million sq.mt. and 606 million sq.mt. respectively. India ranks at 8th position with production of 150 million sq.mt., which is around 2.5% of global production. A recent study carried out by Regional Research Laboratory, Jorhat (Assam) in collaboration with the Indian Bureau of Mines (IBM) suggests that there exist ample reserves of one of the key raw materials i.e. Kaolin (China Clay) in Meghalaya. Thus the existing scenario presents excellent opportunities for the entrepreneurs to set up manufacturing units for the Ceramic Glazed tiles in the region. Presently there are no manufacturing units for Ceramic glazed tiles in the North-East region. Consequently, the existing market demand is largely catered to by the manufacturing units located in other parts of the country. Hence, there exists a prima facie need to set up a manufacturing unit in this region.

According to (UNEP, 1998; SIDBI, 2002; Visvanathan and Kumar, 2002; Kathuria and Gundimeda, 2002), SSI sector, being a vital component of Indian economy is also a major consumer of energy input. Even if the energy use by an individual unit is trivial, the total consumption by the SSI clusters and the sector as a whole is likely to be of sizable quantum in view of the large number of SSI units and clusters operating in the country. However, SSIs are found wanting in energy utilization efficiency and environmental aspects like pollution control (LUS, 1997). Highly energy-intensive SSIs belonging to steel, paper and pulp, textile, cement, sugar etc., cause both global and local pollution due to their inefficient energy use. Studies have shown that SSI firms not only produce more waste per unit of output,

but also, at an aggregate level, account for at least equal if not more pollution than their large-scale counterparts. According to a study by EXIM BANK on Potential for Ceramic Industry, The study makes an attempt to analyse India's export opportunities for select ceramic products, namely, unglazed ceramic tiles, glazed ceramic tiles, ceramic household articles and ornamental ceramic products. For each of these products, the study has analysed the price competitiveness of Indian products in different markets, which include the markets of leading importers of ceramic products as well as the major export markets for India. The study also identifies thrust markets for India where focus should be given to enhance export. The study also focusses on the problems faced by the ceramic sector. It has been observed that dumping of tiles from China is the biggest problem of the industry. An anti-dumping investigation concluded in 2003 has also confirmed this problem and levied anti-dumping duty of US $ 8.28 per sq.mt on vitrified ceramic tiles imported from China. Despite the levy of anti-dumping duty, China accounted for over 42% share (0.7 million sq.mt.) in total imports of unglazed ceramic tiles by India (1.7 million sq.mt.) in 2003-04. The unit price of Chinese unglazed ceramic products stood at US $ 3.1 per sq.mt. as compared to the world average of US $ 3.8 per sq.mt. in 2003-04. The study is of the view that such dumping is drastically reducing profit margin of domestic producers. The study reports that rise in cost of raw materials and fuel prices are other major problems of the industry.

INTRODUCTION TO INDIAN CERAMIC INDUSTRYThe ceramics industry in India came into existence about a century ago and has matured over time to form a industrial base. From traditional pottery making, the industry has evolved to find its place in the market for sophisticated insulators, electronic and electrical items. Over the years, the industry has been modernizing through new innovations in product profile, quality and design to emerge as a modern, world-class industry, ready to take on global competition. Ceramic products are divided into four sectors which includes Structural, including bricks, pipes, floor and roof tiles; Refractoriness, such as kiln linings, gas fire radiants, steel and glass making crucibles ; White wares, including tableware, wall tiles, pottery products, and sanitary ware ; Technical ceramics which classified into three distinct material categories of oxides, non-oxides and composite. A large and growing middle class population of more than 300 million people, a changing life style, better cost of living etc is growth drivers for this sector. With the growth in the housing sector the demand of ceramic is expected to increase. Indian tiles are competitive in the international market. These are exported to East and West Asian countries. The ceramics tiles industry in India emerged in the late 1950s with H & R Johnson setting up its plant for the manufacture of wall tiles at Thane near Mumbai. Spartek Ceramics joined in 1985. The booming demand for floor tiles prompted the entry of other players like Regency Ceramics, Kajaria Ceramics, Murudeshwar Ceramics, Bell Ceramics. By basic product variation, the tiles market has three component segments: mosaic, ceramic, and natural stones. Mosaic tiles claim a 50 to 60% share. The ceramic tiles and natural stones share the rest almost equally. Natural stones also have three segments: granites, marbles and other stones, including Kota stone. The ceramic tiles are available in at least three variations. They are floor tiles, wall tiles and vitrified tiles. These tiles are differentiated also by technology that is double firing (the older system) - roller/roller. Ceramic tile industry can be classified into three segments wall tiles segment, floor tiles segment and vitrified & porcelain tiles segment. At present, in India the
10

market share of these segments are 42%, 46% and 12% respectively. Ceramic tiles are produced both in organised as well as in unorganised sector. In India, share of organised sector is around 55% of total production. The organized sector is characterised by the existence of a few large players, such as, H & R Johnson, Kajaria Ceramics, Bell Ceramics, SPL, Spartek and Murudeshwar Ceramics to name a few. In the domestic market of ceramic tiles H & R Johnson is the leader followed by Kajaria Ceramics, with market shares of 21% and 13%, respectively. The industry has been experiencing increased demand, which, in recent years, has matched the installed capacity. While capacity has also increased significantly, from 120 million tonnes in 2004, to 215 million tonnes in 2008, the demand has grown nearly two and a half times in the same period, from 97 Million tonnes to 207 million tonnes. The growth in the ceramic tiles sector has primarily been driven by the substantial increase in the upper middle class catchments and increase in the purchasing power of this class. The growing housing construction and replacement market along with the demand for real estate from retail players over the next couple of years in malls, etc., would create a huge demand for the tile industry in the country. The government's stand on FDI in real estate and single window clearance system has also sparked interest among global private equity players and real estate developers. Further, the PM's announcement to spend Rs 1,740 billion on rural development that entails building six million houses in the next four years should also aid the growth of the tiles industry. Ceramic tiles as a product segment has grown to a sizeable glob today at 340 Millions Square meters production per annum. However, the potential seems to be great, particularly as the housing sector, retail, IT & BPO sectors have been witnessing an unprecedented boom in recent times. The ceramic tiles sector has been clocking a robust growth of 12-15% consistently over the last few years. Today, India figures in the top 5 countries in the world manufacturing ceramic tiles. According to data collected in a survey conducted by the magazine Ceramic World Review (published by Tile Edizioni), world tile output dropped to 8,515 million m2 in 2009, 0.1 percent down from 8,520 million m2 in 2008. This

11

compares unfavorably to average annual increases that were 6 to 7 percent in the period 2004-2007 and a 3.2 percent increase in 2008. While Asias market share is growing and is now at 65.1 percent of world production, the opposite trend occurred in the Americas and Europe, which experienced a decrease of 24.8 percent since 2008 (equivalent to a drop of 354 million m2) bringing production to 1,076 million m2 . The consumption of tiles in Asia is more than US and other western countries due to recession, but now the situation is becoming better. In annual meeting of World Ceramic Tiles Forum held on july 1 2010 in Jakarta, unveilild the fact that world consumption of ceramic tiles has been constantly increasing over the last years with an estimate of 5,39 billion m2 in 2000 to 8,55 billion m2 in 2008. The investments in the last five years are approx. Rs 2000 crores. The industry also enjoys the unique distinction of being highly indigenous with an abundance of raw materials, technical skills, infrastructural facilities despite being fairly capital intensive. A total of over 5,50,000 people are employed in the sector. Out of this, 50,000 people are directly employed and 5,00,000 are indirectly associated. The potential is huge considering the per capita consumption of ceramic tiles in India. Currently it is at 0.30 square meters per person in comparison to over 2 square meters per person for like countries like China, Brazil and Malaysia. Indias real estate market suffered heavily in the global economic downturn and so the tile market because both are dependent on each other. After the brutal fall in rentals reported for 2009, more companies are now seeking office space on the basis that rents are bottoming out. According to a report released in October 2010 by Cushman & Wakefield, 240mn sq ft of commercial property and about 4.25mn units of residential property will be required to meet demand over 20102014. Office space demand will total about 55mn sq feet. Hotels will experience a demand for about 78mn room nights over 2010-2014. Bangalore, the National Capital Region (NCR) of New Delhi and Mumbai will generate demand for about 46% of the Indian office space over the next five years. Demand for office space in second tier cities, such as Chennai and Kolkata, is expected to increase at a faster pace, at about 17% and 22%, respectively. In Mumbai, retail rentals have been on the rebound since the beginning of Q210. They are set to grow further, averaging 10-15%, by the end of the year. Vacancies are low at a time when retailers are seeking to expand, after the global downturn.

12

Market Characteristics of the Tile Industry

Market for ceramic tiles in India

Institutional buyers

Retail buyers

13

INDUSTRY HIGHLIGHTS
India is expected to increase 7% While India affected by economic crisis, 24% of the factories to stop the kiln, the number of unemployed reached 40000, but has maintained GDP growth of India, India housing industries and pillar industries, IT has continued to grow, the future government plans will increase by about 2,000 million units of housing construction. Ceramic tile production increased by 20% last year to reach 390 million square meters. At present, India's per capita consumption of ceramic tiles from 0.36 square meters, there is still much room for development. Marketing point of view, yield 70% reliance on the domestic market. In the output of which accounted for 43% of tiles and other floor tiles account for 40%. Imports of 2,450 million square meters, export of 1,400 million square meters. 2008 sales of view, the international market increased by 11%, imports increased 24%. This year, an estimated 7% of domestic market growth. The domestic tiles market has recorded a growth of 11% CAGR over FY0509. However, adjusting for a meager growth of 2% in FY09, the industry growth has been fairly attractive at 14% CAGR (FY05-08). We believe that the ceramic tile industry has regained its growth momentum after a sluggish FY09, which was adversely affected by the economic slowdown. We expect that revival in real estate projects led by recovery and improve macro scenario in housing, retail, office complexes etc will boost demand for the tiles industry. Further, the government's thrust on building infrastructure is likely to create demand from verticals like airports, education, hospitality etc. Per capita consumption in India is as low as 0.36 sqm as compared to China at 2 sqm. Similarly, tiles demand from replacement market is expected at just ~12% in India as compared to 40% in other countries like Spain, Italy. We foresee that with increasing disposable income, rising affordability and urbanisation, demand for tiles industry should remain robust, going forward. We estimate domestic tile industry volumes to grow at 13% CAGR during FY09-12E. For FY09, the Indian tile industry was ~403msm and for FY10 same is estimated to be 450msm, +11.6% YoY. In monetary terms, Indian ceramic tiles Industry size is pegged at ~INR 112bn for FY10 with national players controlling 50% of market. Ignoring FY09 being exceptional year, Indian tile industry has been growing at a CAGR of ~15-16% historically. The Indian ceramic tile industry

14

comprises of a) Glazed Vitrified tiles having annual turnover of ~INR 6.2bn (average price INR 620/per Sq.Mtr.) b) Polished Vitrified Tiles having annual turnover of INR 42.8bn (average price of INR 329/per Sq. Mtr.) and c) Ceramic Glazed Tiles having average annual turnover of INR 63bn (average price of INR 203/per Sq. Mtr). The Indian tile industry, despite an overall slowdown of the economy, continues to grow at a healthy 15% per annum. Investments in the last 5 years have aggregated over Rs. 2000 crores and production during 2006-07 stood at approx. 340 million sq mts. The Indian tile industry is divided into organized and unorganized sector. The organized sector comprises of approximately 16 players. The current size of the unorganized sector is about Rs 3000 crores. The unorganized sector accounts for 55% of the total industry bearing testimony of the attractive returns from this sector. The size of the unorganized sector is approximately Rs 3500 crores Revenue earning industry - excise mops up over Rs. 350 crores annually from the organized sector itself. Indian ranks in the top 5 list of countries in terms of tile production in the world. The size of the tile industry in the country was Rs. 8,500 crore to Rs. 9,000 crore. The organised sector had 40 per cent share in volume and revenue. About 280 brands were available in the country and 95 percent of these were in the unorganised sector. Of the total industry, imports were nearly Rs. 1,000 crore. About Rs. 600 crore of it was from China and the rest from other countries, including Italy and Spain. The Indian tile industry has come of age. We are making quality products now. The size standardisation has also improved, he said. At the global-level there are about 20 standard sizes. When the tile industry started in the country in 1960s the industry was very small. It had grown up to about Rs. 1,200 crore till a decade ago. In the last few years, it has reached nearly Rs. 9,000 crore. Indian tile industry was as competitive as the Chinese now. Not more than 20 per cent of vitrified tiles were from China. Two or three years ago it was almost 70 per cent, he said. The Indian industries needed to focus on services and packaging.

15

Industry: Growth Drivers

16

INDUSTRY STATISTICS:
1. World production: 2. India's Share: 3. World ranking (in production): 4. Per capita consumption: 5. Global Industry Growth Rate: 6. Growth Rate (India Domestic Market): 7. Organized industry turnover (India): Glazed Wall Tile share: 40% Glazed Floor Tile share: 46% Unglazed Vitrified Tileshare: 8% + Glazed Porcelain Tile Share: 6% Unorganised Industry Turnover Glazed Wall Tile share: 57% Glazed Floor Tile share: 35% Unglazed Vitrified Tile share: 6% Glazed Porcelain Tile Share:2% 8. Investments in last 5 years: 6900 Million sq.mt. 400 Million sq.mt.. 5 0.36 sq.mt. 6% 15% Rs 4500 crores

Rs 5400 crores

Rs 2500 crores

9. Organized sector: Share of Production: 56% No. of units: 16 Revenue (excise duty): Rs 300 crores 10. Unorganized sector: Share of Production: 44% No. of units: 220 (approx..) (70% based in Gujarat region) Revenue (excise duty): Rs 350 crores per annum or less 11. Job Potential: 80,000 direct 5,50,000 indirect

17

Industry Scenario
Huge Potential in India: Per Capita consumption of ceramic tiles per annum: China Brazil Turkey Malaysia India 1.52m2 2.35m2 2.44m2 2.13m2 0.36m2

Indiaspercapitaconsumptiontogrowto0.63m2perannumby2012-13 Indiasconsumptionlikelytoincreaseto700millionm2by2012-13 Longtermscenarioremainshealthyduetohighgrowthinhousing/retail/ITsectors

18

Global Ceramic Tile Industry

Registering a CAGR of around 3.05% over the analysis period, Asia-Pacific represents the fastest growing market for ceramic tiles. In light of the anticipated economy recovery in the medium term and the ensuing resurgence in construction activity, coupled with effervescent product innovations, world ceramic tiles market is projected to reach 92.78 billion square feet by 2015. Global ceramic tile industry size is ~USD36bn with production of 8,495msm (CY08). While India ranks fifth in production capacity, in terms of consumption, India ranks at 3rd level contributing 5% both to global production and consumption. However when compared to China, India lags in consumption since per capita consumption of China is ~2 square meter (Sq. Mtr.) as against Indias 0.36Sq.Mtr. With Indian infrastructure and housing sector going through revolutionary phase, this trend is beginning to correct and indicates lot of scope of ceramic/vitrified tile consumption in India. The total size of the ceramic tiles industry at present is more than $32 billion globally and it is growing at 7% CAGR with China being the largest producer, accounting for close to a third of world production

PRODUCTION
The most apparent trend in the manufacturing sector is the geographical shift in tile production from the industrys traditional European base to the nascent economie of Asia, North Africa and the Middle East. The ongoing erosion of Europes manufacturing power was further underlined last year by a fall in production of 400 million square metres. This latest downturn was mainly confined to the member states of the European Union who registered a collective decline of 354 million square metres. Twenty-seven EU nations produced 1.076 billion square metres of ceramic tile, a figure that represents a 24.8 per cent drop in total output. The Spanish tile industry continues to shrink at an alarming rate, production has halved in seven years. In 2002, manufacturers in Spain made 651 million square metres of tile, a figure that has

19

dropped to 324 million square metres. As recently as 2006, Spain was ranked second on the list of tile manufacturing nations. It now lies in sixth place with Indonesia and Vietnam progressing quickly. Spanish tile production declined by 34.5 per cent last year, a rate of regression that was very nearly matched by struggling manufacturers in Italy. Until 2008, the state of the Italian industry was relatively stagnant. There was no sign of the precipitous collapse which would have a detremental effect on the industry worldwide, following the global financial crisis. For instance, total Italian production was only one million square metres lower in 2006 than it had been in 2005. The third significant slump in the European Union took place in Germany where tile production decreased by 13.6 per cent. Elsewhere, Poland and Portugal experienced identical downturns of 5.1 per cent. Outside the EU, Europes manufacturing woes were limited and less severe. In those countries, tile production declined by 10.4 per cent, from 441 to 395 million square metres. This was almost entirely attributable to the diminished capabilities of Russian and Turkish manufacturers. In 2009, Asia (including the Middle East) furthered its influence in the production sector, accounting for 65.1 per cent of all ceramic tile output. Asian manufacturers increased their productivity by more than seven per cent, ultimately making 5.542 billion square metres of tile in the calendar year. China once again confirmed its status as the worlds leading tile producer, with its vast industrial base creating 3.6 billion square metres of product. It is astonishing to think that China alone is responsible for nearly two-thirds of Asias tile production and 42.3 per cent of the tile industrys global output. A discernable pattern is emerging in Chinas production habits as the quantity of tiles produced in the Peoples Republic has increased by 200 million square metres in each of the last three years. Indias manufacturing sector expanded rapidly, conclusively making amends for the underwhelming progress of 2008. Tile production rose by a quarter, reaching an all-time high of 490 million square metres.

20

As the worlds third largest manufacturer and consumer of ceramic tile, India has a telling effect on the industrys performance, despite the fact that few of its products are exported or used overseas. Manufacturing growth was also recorded inIran and Vietnam, two of Asias most reliable and promising tile producers. Iran has doubled its tile production in the past five years, during which time Vietnam has developed at an even quicker rate. In 2009, the countries sustained similar rates of growth; 9.3 per cent in Vietnam and 9.4 per cent in Iran. Although these statistics are undeniably impressive, they pale in comparison to the recent expansion of the manufacturing sector in Saudi Arabia. Tile production in the oil- rich state totalled 55 million square metres last year, following a remarkable 37.5 per cent upsurge in annual productivity. Elsewhere in the Middle East, production stalled in the United Arab Emirates at 77 million square metres, whilst an emergent Syrian industry grew for a second year in succession. There were minor variations in Asia-Pacific nations such as Indonesia and Thailand, and a 5.9 per cent increase in Malaysian output. South Korea reported an upturn in production for the first time in years, but the same cannot be said of the Taiwanese industry which once again declined. Production in North America remained the same (252 million square metres) despite a 10.4 per cent increase in U.S. manufacturing. The renewal of Americas production sector was to some extent futile, as any improvements in the United States were quickly cancelled out in neighbouring Mexico. Mexican output fell by 2.4 per cent, or five million square metres, thus nullifying the greater efforts and improved productivity of their counterparts in America. In total, Mexico created 200 million square metres of tile, while U.S. manufacturers saw their output rise from 45 to 50 million square metres.

CONSUMPTION
The tile two had last two years production and was as high as fallen to only have seen a remarkable convergence between consumption. In 2004, the gap between the 370 million square metres. By 2009, this figure 55 million square metres, with manufacturers

21

and suppliers mindful of adding to existing warehouse stocks. As production slumped by the smallest of margins, worldwide consumption rose by 1.3 per cent to an all-time high of 8.46 billion square metres. The geographical breakdown of production and consumption highlights several recurrent themes, such as the growing dominance of Asia, the increasing significance of Central and South America, and the inexorable decline of Europe, chiefly those nations in the European Union, where consumption fell by 18.8 per cent. Tile consumption in the EU amounted to 991 million square metres, with every sizeable market reporting a downturn in sales. Europes three representatives in the top ten of the 2008 consumption list were ousted unceremoniously by nations in Africa, North America and the Middle East. The biggest slump was recorded in Spain where tile sales dropped by 34.9 per cent. In 2007, the Spanish public purchased 314 million square metre of tile, a quantity which has since halved. Italian consumption has abated as well, but to a far lesser degree, falling by 16.8 per cent to 146 million square metres. The popularity of tile has diminished in Britain, where a previously settled consumer market has shrunk by a third in only two years. Further losses were reported in France and Germany with consumption dwindling in those larger markets by 11.5 and 4.8 per cent. Germans used less ceramic tile for the fifth consecutive year - 106 million square metres - while sales in France declined after a recovery had taken in 2007 and 2008. Polish tile consumption dropped below 100 million square metres for the first time since the nation joined the European Union in May 2004. The downturn in sales in non-EU Europe, which measured 11.1 per cent, was largely confined to Russia and Ukraine. Russian buyers purchased 139 million square metres as sales decreased by 27.3 per cent. Ukrainian consumption fell by 18.8 per cent, bringing to an end a three year period of massive market expansion. Turkish sales rebounded impressively after two years of decline.

22

FEATURES OF GLOBAL CERAMICS There are number of technologies available from low cost segments to high priced designer products, which enables the industry to market products to a large range of consumers; The largest markets for ceramic tiles in the Europe are Italy, Spain, Germany, France, and the United Kingdom. The European ceramics industry continues to be highly competitive internationally, with strong production concentrations in Sassuolo (Italy about 180 firms) and Castelln (Spain over 200 firms), and sizeable activities in Germany, Portugal and France. The Italian ceramic tile industry is the world leader both in terms of production and exports. Italian production is concentrated in the provinces of Modena and Reggio Emilia, whose ceramic tiles production constitutes 80 percent of the overall Italian total. China, Turkey, Egypt, South Africa, Morocco, Thailand, Tunisia are major exporters. China has emerged as the world leader in production and export of tiles, which have a very low unit production cost. Unit price of tiles is on a downward trend due to competitive pricing from China Countries like Malaysia, Thailand, Indonesia, Sri Lanka and Vietnam are setting up their own plants due to a construction and housing boom in these countries. Producers from Spain and Italy have the advantage of lower transportation costs while exporting to USA and Germany. The rising Euro has prompted European exporters to raise prices and import from low cost producing countries

23

 Imports of finished tiles from low cost producing countries like Brazil, Turkey, Venezuela, Colombia and China into USA has shown massive growth of around 71%in dollar terms Per capita consumption of tiles was 9.88 sq. ft. For USA in 2003 compared to mature markets like Italy with per capita consumption of 35.2 sq. ft. and Spain with 85.2 sq. ft. so this shows immense potential in the American market. (Source: Deccan Herald, Corporate Catalyst India, Tile council of America, ctasc.com)

Factors affecting Global Ceramic Tile industry

ECONOMIC GROWTH

CURRENCY VALUATION

FACTORS

INPUT COST OF RAW MATERIAL

INCREASE IN COST OF FUEL

24

The major factors affecting the industry worldwide are as follows:

Economic Growth: The growth in demand for housing is a primary indicator of economic growth. The increase in construction activity in the country is also an indicator of increase of disposable income, which leads to higher demand for new houses or remodeling material for existing houses in both the cases the demand for flooring increases in such period where there is growth in economic activity. Input cost of raw material: The tile industry consumes large quantities of clay. Although clay is easily available, the transportation cost and the escalation of attendant fuel costs adversely impacts the cost at which our industry obtains this raw material. Increase in cost of fuel viz., Petroleum products Oil and Gas: Second major cost for the tile manufacturer is fuel. The recent increase in petroleum costs has not only increased cost of inputs substantially, but has also impacted distribution. Currency Valuations: Currency valuation has a dual impact on the tile industry. It affects, (i) fuel import costs, and, (ii) the devaluation/ revaluation of currencies, also affects the attendant import costs and viability of importing tiles from India or elsewhere.

Major Exporters
China was the largest ceramic exporter during 2008, with exports of US$ 8 billion. Italy, Germany and Spain followed China with annual exports of US$ 6.3 billion, US$ 4.2 billion and US$ 3.9 billion, respectively. The top ten countries together accounted for close to 72% of total ceramics exports during 2008.

Major Importers
United States was the worlds largest ceramic importer during 2008, with imports worth US$ 5.4 billion. US rely heavily on imports of ceramic to meet its domestic ceramics consumption. This is also reflected in its high ceramics trade deficit of close to US$ 4 billion.

25

US is followed by France, Germany and United Kingdom with annual imports of US$ 2.7 billion, US$ 2.6 billion and US$ 2.0 billion, respectively.

MARKETING TRENDS IN THE INDUSTRY:

In these tough economic times, which have affected the whole floor covering industry, now is the critical time for businesses to fully understand their position within their markets and to develop a marketing strategy to take advantage of the current recovery in the residential remodeling market and the future rebound in new residential and non-residential construction markets. Its vital for all of us to know whats going on in the market and understand how the current state of the economy will affect our business and our future opportunities.

Marketing and distribution network

Direct Dealers spread across the country Retail Outlets spread across the country. Marketing Offices across the country. Direct Shop in Shops which help promote and sellproducts to the consumers. Exclusive Showrooms in major cities. Direct Nooks which act as shop-in-shop. Customer helpline service.

26

Advertising strategy for their Brands Build a well known brand in India tiles industry.

Look for a well known celebrity as Brand

Ambassador.

Advertising on T.V. to improve visibility of brand.

Reinforce and stress brand attributes like innovation, fast mover, younger and modern, premium and classy.

A Premium boutique profitability

Pursue a policy of high margins through a presence in high- products. end Target EBIDTA margins can be higher than 15% , Target Return on employed capital can reach 12-13%

Pursue a balance of value and volumes that protects sustainability. and fuel costs,

Pursue a strategy as an effective hedge against interest both outside the companys control.

27

Some of the ways to make marketing strategies effective are as under

Should adopt the widest distribution network model to deliver products to the end user in quickest and most effective way. It would also accelerate the sales. It may include company owned showrooms, franchises, multi-product dealers and sub-dealers. Distribution network should be clearly segregated towards specific product segments. May introduce three dimensional catalogue visual experiences to its customers and also give customer a chance to design product in their own way of choice (customized design specification).

Setting up exclusive showrooms for special products instead of keeping with the regular range. As example, the upcoming product ORVIT-a product in high glaze tiles segment should have an exclusive place to showcase. It would add to the exclusive ambience of the product. More introduction of matching wall and floor tiles.

To grow its institutional business, the company should organize more interactions with architects, developers and government agencies at its dealer outlets. This would serve a dual purpose: it would enable the company to acquire an insight into evolving preferences of some of the most prominent and trend- influencing architects; on the other hand, it helped the company cater to their evolving preferences.

More focus on packaging and product merchandising. It may introduce a specific dedicated team to look after the overall brand equity. They will ensure that all showrooms and dealer display centres were in sync with the Orient profile. Also they will look after the external packing

28

material which creates an eye on look-and-feel, resulting in a holistic branding approach.

More focus on Research and design-development activities to achieve the cost and product design leadership.

EXPORT AND IMPORT SCENARIO

EXPORT India exports ceramics worth approximately US$ 1.4 billion per annum. The main export products are chemical porcelain and insulators, handicrafts, artware and stoneware crockery. The ceramic tile industry has shown a growth rate at about 12 per cent per annum. These are exported to East and West Asian countries. The exports during 2010 amounted to Rs 1000.08 crores. Apart from domestic demand, exports of ceramic tiles from India have also been increasing. From a level of US$ 33.3 million in 2001-02, exports of ceramic tiles from India have gone up to US$ 58.5 million in 2006-07, at a CAGR of 12 per cent. India exports tiles to other parts of Asia, Africa and West Europe. The other main exports of ceramic products consist of chemical porcelain and insulators, handicraft artware and stoneware crockery. Exports of ceramic sanitaryware from India have gone up marginally, from US$ 17.9 million to US$ 20.7 million in the period 2001-02 to 2006-07. Imports have risen rapidly from nearly zero in 2002-03, to US$ 8.8 million in 2005-06. Rapid rise in consumption (production + imports) indicates the strong demand in the domestic market, driven by housing construction boom over the past 5 years. Indias export opportunities for select group of ceramic products. Four different products are identified, namely unglazed ceramic tiles, glazed ceramic tiles, ceramic household articles and ornamental ceramic products. For each of these products, price competitiveness was analysed in different markets, which include

29

the markets of leading importers of ceramic products as well as the major export markets for India.

Unglazed ceramic tiles: Top three importers of unglazed ceramic tiles are USA, Germany and France. USA mainly imports from Italy, Mexico and Spain. Italy alone supplies around 80% of US import requirements of unglazed ceramic tiles. Indias export to USA is negligible. However, with regard to unit price, India is cheaper than European countries and therefore there is a scope to increase exports to USA. Germany is the second largest importer of unglazed ceramic tiles and the country mainly imports from Italy, Netherlands and France. More than 80% of Germanys import of unglazed ceramic tiles comes from Italy and Netherlands. India is not a major exporter to Germany and thus Indias market share is negligible. France, which is the third largest importer of unglazed ceramic tiles has mainly imported from Italy, Spain and Germany. More than 70% of import by France comes from Italy alone. India does not export large volumes of unglazed tiles to France. However, in terms of unit price, Indian tiles are much cheaper thantiles imported by France from European countries. So, there is scope to increase export to France. Indias major export markets consist of Saudi Arabia, UK and Sri Lanka. Around 30% of Indiasunglazed tiles (in value terms) are exported to these countries. In UK, Indias rank was 15 as a major source country partner for import of unglazed ceramic tiles, in 2002. UK mainly imported from within the EU region, especially from countries like Italy, Spain and Germany. With regard to average unit price, India is more competitive than countries such as, Italy, Spain, Germany and Greece. So, attempt could be made to increase Indias export to UK.

Glazed ceramic tiles: Major importers of glazed ceramic tiles are USA, France and Germany. USA mainly imports from Italy, Spain and Mexico. Italy alone supplied more than 44%

30

of US import requirements of glazed ceramic tiles. Spain and Mexico supplied around 20% and 11%, respectively. Indias export to USA is negligible (around 0.2% of US imports). With regard to unit price, India is cheaper than Italy but costlier than Spain and Mexico. France, which is the second largest importer of glazed ceramic tiles, imports largely from Italy and Spain. Italy is the largest exporter, supplying 58% of total import of glazed tiles by France. Spain and Germany are the second and third largest source countries with 24% and 4% shares respectively. Indias export to France is negligible. As regards unit price, the European countries have supplied more or less on similar price to France (around US $ 600 per tonne). Indias unit price in France is more competitive (US $ 400 per tonne) than European exporters and thus there is a scope to increase Indias share in the French market. Indias major export markets consist of Saudi Arabia, Sri Lanka and Qatar. Around 80% of Indias glazed tiles export (in value terms) goes to these four countries. For Saudi Arabia, India was the fifth largest exporter, supplying around 5% of its total import requirements in 2002. Other major exporters include Spain, UAE, Italy and China. With regard to average unit price, Indias price was US $ 200 per tonne, which is second lowest after China. Thus, there is scope to increase Indias market share further in Saudi Arabia. In Sri Lanka, India was the largest exporting country, supplying more than 41% of its import requirements in 2002. Other major exporters include Indonesia, China, UAE and Thailand. With regard to average unit price, Indias price was US $ 2.4 per sq.mt. which is second lowest after China. However, Sri Lanka is not a very large importer of glazed tiles and therefore not much scope for Indian exporters to penetrate in this market further. In Qatar, India is ranked at fourth largest source country for import of glazed ceramic tiles. Other major exporters are Italy, Spain, UAE and China. Currently, India supplies around 10% of import by Qatar, whereas Italy, Spain and UAE jointly exports more than 70%. However, among all the major exporting countries in Qatar, Indias unit price is the lowest. Hence, there is considerable opportunity to increase Indias export to Qatar. Ceramic House Hold Articles:

31

The top three importers of ceramic household products are USA, Germany and Japan. China is the largest exporter to USA, supplying around 56% of US imports. Germany is the second largest importer of ceramic household articles and mainly imports from Czech Republic and China. Japan, which is the third largest importer of ceramic household articles, imports largely from China, UK and Germany. More than 70% of import by Japan comes from these countries. Indias exports to all these countries are negligible. UK is the largest market for Indias ceramic household product exports. Around 60% of Indias export goes to UK alone. In the UK market, Indias rank as major source country partner for import of ceramic household articles in 2002 was 11. UK mainly imported from Portugal, Thailand, and China. With regard to average unit price, Indias price is US $ 2700 per tonne as compared to the unit price range of US $ 1400 per tonne of China and US $ 1700 per tone of Portugal. It was observed that India is not a large exporter of ceramic household products and Indian products are not price competitive in the international market, which is dominated by low priced Chinese products.

IMPORTSImports of tiles have gone up rapidly in recent years, to almost match the level of exports. From around US$ 8.3 million in 2001-02, The value of Indias import was around US $ 50 million in 2002 and India mainly imported from China, Germany and UK. Imports have gone up to nearly US$ 55 million in 2006-07, at a CAGR of 46 per cent. Rising imports indicate the rapid growth in domestic demand for tiles, due to boom in real estate construction. For the year 2010, total imports of ceramics were amounted to 1929.08 crores. The major countries from where India imports ceramics are China, Germany, Spain and U.S.A. US is followed by France, Germany and United Kingdom with annual imports of US$ 2.7 billion, US$ 2.6 billion and US$ 2.0 billion, respectively.

32

33

PROBLEMS AND BARRIERS TO CERAMIC INDUSTRY

Some Concerns For some time now, Indian ceramic tile manufacturers are besieged with the problem of low margin and falling profitability. According to industry sources, one of the reasons behind this scenario is the dumping of vitrified tiles into Indian market by countries such as China, Indonesia, Sri Lanka, Malaysia and UAE. It is estimated that during the year 2003-04, nearly Rs. 100 crore worth of imported tiles were dumped in India. Dumping has become a major issue with Chinas entry into the Bangkok Agreement, which was developed with a view to promote free trade among South East Asian countries. Entry of China in to the Bangkok Agreement would result in large import from China, as under this agreement Chinese goods would attract a duty of 10% as against 15% duty on import from other countries. A recent industry estimate suggests that in the present year the value of dumping from China might increase to Rs. 300 crores. This is expected to reduce the price of ceramic tiles to a great extent and therefore dwindle the profitability of domestic producers further. Another major problem of the industry is the rising cost of manufacturing due to increase in prices of raw materials such as zirconium and titanium. The recent petroleum price hike has also affected the industry, though in an indirect manner. Because of the substantial bulk of the material, transportation of ceramic tiles accrues very high freight element. Rise in petroleum prices increase this transportation cost substantially. However, this could not be passed on to the consumers due to stiff competition from China, UAE and some East Asian countries and this has reduced the margin.

34

REASONS FOR CURRENT CRISIS IN INDUSTRY

PROJECTS DELAYED

GLOBAL FINANCIAL MELTDOWN

BUILDERS FACING DIFFICULTY

RISE IN INFLATION

INCREASE IN CREDIT COST

Other important concerns which hinder industry growth are

Labor problems. Lack of skills among the workers. Non availability of raw materials such as raw clay, firewood, etc. Heavy Competition. No proper marketing channel. Lack of inventions.
35

Some of the key risks affecting a Company are explained below: The instability in the fuel prices due to continuous increase in energy prices in the international market has significantly put pressure on margins. Due to withdrawal of certain export concession by China and the general increase in freight has increased the landing cost of certain raw materials. After the imposition of anti dumping duty on Vitrified tile, dumping is taking place in glazed wall and floor tiles which has put pressure on the domestic tile manufacturers. The amount of anti dumping duty was significantly reduced in April 08 by the Govt. However, it is still prohibitive enough. Therefore, only a few of the Chinese companies who were exempted from anti dumping duty are supplying to companies in India.

To retain skilled professionals is also a cause for concern. However, best HR practices are in place to retain the talent and reduce the attrition. Due to high inflation and tightening of credit by RBI, finance costs may be adversely affected in the coming year.

During the four monsoon months, the industry comes to a standstill. And now when the time has come to resume production, kerosene supplies have become a major headache for the industry. Earlier, these tiles were widely used in rural area as roof covering. But now, these tiles are not used much, affecting the fortunes of the industry. However, small sized decorative roofing tiles have staged a come back. Facing a lot of problems starting from the paucity of raw materials, inefficient processing, drying and firing techniques. Because of these problems most of the industries have already been closed or are in the threat of closure.

36

Threats to the organized sector

Threats

China

Local & un-organized sector

Owing to competition from Chinese players, Government of India restricted imports from China and imposed an antidumping duty of INR 137/Sq.Mt on ceramic glazed tiles in 2009 which is likely to remain in force till 14.06.2014. Any withdrawal in anti-dumping duty would cause stiff competition. The unorganized sector and import of sub standard tiles from China at cheap rates are always threat to the tile industry. The threat perception is, however limited, due to Government of India policies of levying Anti Dumping Duty not only on vitrified but recently on ceramic tiles as well and the high sea freight rates. On our part, our focus on brand building and delivering excellent quality designs along with great customer experience will help us face any future threats.

37

COMPETITIVE ENVIRONMENT IN TILE INDUSTRY

In ceramic tile, there is tough competition among different competitors like H&R Jonson, Kajaria, Somany, Orient, Bell, etc. In the overall profitability rankings, HSIL Ltd was the most profitable company in the Indian market, followed by Nitco Ltd. and H&R Johnson India Ltd. Over a period from 2000-01 to 2008-09, the profits of HSIL Ltd grew at a CAGR of 31%, and that of Nitco Ltd increased by 17% and still increasing. There are different players in the industry as national and regional players. The national players control 65% of the industry with the top 13-14 national players controlling around half the industry. The balance 15% is controlled by smaller brands. The rest of the market (35%) is being controlled by regional players, which are primarily present in Gujarat and are catering to the lower segment of the tiles market.

Some of the major players of Indian ceramics industry are Asian Granito (India) Ltd.

Euro Ceramics Pvt. Ltd. H. & R. Johnson (India) Ltd. Kajaria Ceramics Ltd. Nitco Tiles Pvt.Ltd. Orient Ceramics And Industries Ltd. RAK Ceramics India Pvt. Ltd. SPL Ltd.

38

BRIEF PROFILES
A brief profiles of different players in the market is provided below-

Orient Ceramics Industries Ltd.

Headquartered at New Delhi, Orient was incorporated as a Public Limited Company on 18th May 1977 for the manufacture of ceramic tiles with an installed capacity of 0.4 Million sq. mtrs. per annum which has now grown to 14 million sq. mtrs. Per annum. Mr. Mahendra K. Daga currently heads Orient Ceramics as Chairman & Managing Director with the credo of delivering products of sustained excellence and superior quality. Orients state of the art manufacturing unit at Sikandrabad (Bulandshar, U.P.) is spread across 40 acres of land and conforms to the IS 1375356:1993 of BIS, ISO 10545-1/17 & ISO 13006 specifications. Orient has also been accredited with the ISO 9001:2000 certification for quality control management. Since inception, OCIL has been scaling new heights and has evinced a steady growth rate. OCILs commitment to excellence and quality has earned it a wide and diverse customer base, which spreads across Europe, South East Asia, Middle East and the SAARC countries. It plans to diversify into importing and distributing other building material products. This shall be accomplished through a strong network of over 800 dealers and 2500 sub-dealers spread all over the country.

39

KAJARIA
KAJARIA Ceramics Ltd. (KCL) is the second largest manufacturer (FY09) of ceramics tiles in India and major exporter having global footprint across twenty nations. KCL has an annual capacity of 23.40 million square meters (msm). KCL has two plant, one in Sikandrabad, UP having annual capacity of 9.3msm and another at Gailpur, Rajasthan having annual capacity of 14.1msm producing ceramic-glazed wall and floor tiles and polished vitrified tiles in over 500 designs. KCL is putting up a 6msm brown-field plant in Rajasthan to manufacture high end glazed/polished vitrified tiles at a cost of INR 1,250Mn. This plant is expected to go on stream by 3QFY11 and expected to give additional annual turnover of INR 3bn. This new product launch would be margin-accretive to its current business model. KCL has 17 Office-cum-display centres with distribution network of ~600 dealers and over 6000 sub-dealers on pan India level. With product quality parallel to global standards, KCL sells 70% in retail and 30% in projects (Builders) as against industry average of 50:50.

40

ASIAN TILES:
This company is the result of the dreams of three entrepreneurs, materialized with the grassroots of passion, experience & dynamism With starting a quest for excellence a decade ago, today Asian tiles have blazed a trail in the tile industry. With humble beginning in the field of floor tiles, today it has expanded till the horizon, covering almost each of the aspects of the industry. Supported by vast man power along with mind power, Asian Tiles possesses the strength of over 3000 business associates spread across the nation. Asian is all set to reach the goal of supplying world class product, through a network of 18 depots with display centres & ultra modern plant in the ceramic zone of Sabarkantha, Gujarat, spread over an area of 2, 30,000 Sq. Mtr. and production capacity of two plants is 32300 Sq. Mtr. Per day of tile. Asian has become India's leading wall tile manufacturer in large format size, with the biggest size of 300 X 900 mm, where we provide wall tiles of white body similar to European tiles, with the promise of extremely accurate size control, to add brightness and depth to the glaze.

NEW PRODUCTSHONEY BRINJAL ULTIMA CREMA PERNILO BEIGE EXPORTSAsian Granito exports about 20% of the production to its global customers, spread across more then 12 countries, including the United States, Africa, Gulf & Middle East countries, and this network is growing on and on.

41

H & R JOHNSONS :

H. & R. Johnson (India) Limited is India's No. 1 tile company offering a wide range of wall and floor tile products across various segments v.i.z. Wall, Floor, Vitrified, Exterior and Industrial. The company also has diversified interests in sanitary ware and bathroom accessories. With a vast portfolio comprising of 5 well-known brands in India (Johnson, Marbonite, Porselano, Endura & Milano) the company provides the most innovative products of international standards that is coupled with the best of pre and after sales service. Established in 1958, H & R Johnson (India) is the market leader in the field of ceramic tiles in India. HRJ has consistently maintained its leadership position in the field of tiles over the past five decades. Today, HRJ enjoys the reputation of being the only company in India to offer end-to-end solutions of Tiles, Sanitaryware, Bath Fittings and Kitchens. Under its flagship brand, Johnson, HRJ offers glazed wall and floor tiles, bath products, kitchens, laminate and engineered wooden flooring. Marbonite brand offers a complete range of vitrified tiles, and Endura offers industrial tiles and tiles for special applications like bathrooms / high traffic areas / swimming pools etc. HRJ has recently launched top-end, premium range of products under Johnson Ceramics International brand. HRJ has a strong service network of technicians and engineers spread across the country. This network complements the range of bath products by offering various services like installation, trouble-shooting, repairs, and AMC. HRJ also has a toll-free customer helpline: 1-800-22-7484. HRJ's sales volume for the year 2008-09 was 37 million m2 of tiles and plans to achieve 90 million m2 by 2014-15. Unique growth profile, high brand pull and proven track record are symbolic of our strong performance. We are on a constant quest to make superior products through extensive research. The result is evident in the annual revenue of Rs. 9260 million in 2006-2007. Our sales volume during the year crossed 32 million square meters. At present our revenue target is Rs. 12,000 million with 30% growth rate.

42

EURO CERAMICS:

Part of Euro Group Integral part of the Decorative industry in India. Promoters: Mr. Nenshi Shah: Mr. Talakshi Nandu : Mr. Kumar Shah : Mr Paresh Shah Current Business Profile: Vitrified Ceramic Tiles : 79,971 MTPA. Aluminium Extruded Sections : 1800 MTPA Calcareous Tiles : 45,000 MTPA Sanitary ware : 11,000 MTPA Trading in Wall Tiles through a 100% subsidiary Technology: SACMI (For Vitrified Tiles & Sanitary ware) Quality focus: Vitrified Tiles : ISO 13006. Applied Consumer Services Inc. Florida, U.S.A. VJTI, Mumbai Manufacturing facilities : ISO 9001:2000 certified

43

NITCO TILES:
A foundation laid on innovation. Since 1953.Going beyond the ordinary and leading by example is a common tradition practised at Nitco. No wonder, the company is renowned and revered for its revolutionary concepts, pioneering endeavours and premium products in the construction industry for over five decades.Today, with its rich repertoire in offering unique Floor Tiles, Mosaico, Wall Tiles and Marble, Nitco has gone to become the most preferred name and the ideal choice of millions of house-holds and the real estate fraternity. An avantgarde at the core, the company has continued to pioneer ground breaking innovations in all its offerings. Ceramic Tiles, Vitrified Tiles, Pavers, Imported Marble, Engineered Marble, Intarsias plendours of inlay marble and Mosaico- artistic creations in mosaic rendered in stone, ceramic and marble, for instance. Winning 13 Capexil awards for innovation and design is the perfect testament to all of its achievements. EXPORTSNitco exports approximately 20% of its tile produce. Its expansive network is spread throughout 24 countries, including the United States, Canada, Europe, Africa, Oman, UAE and the Indian Ocean. Winner of 13 Capexil awards for excellence in exports, Nitco has been conferred as the Export House by the Government of India in the year 2002.

44

SOMANY TILES:
In the Indian tiles sector, Somany has achieved a clear leadership position by wholeheartedly adopting forward thinking and an innovative and futuristic approach. Whether ceramic glazed tiles, vitrified tiles, sanitary ware or porcelain floor tiles, Somany prides itself in being at the very forefront of style and quality. From raw material imported from Italy and Spain, to the constant endeavor to be the first to introduce new products in India, Somany has been, and will always strive to be a dynamic leader in its field. It began as a vision of things to come, and is today a trail-blazer that others follow. In 1969 Shri H L Somany incorporated a company called Somany Pilkington's, which later became Somany Ceramics Ltd. It was the power of a dream and the zeal to excel, that drove Shri H L Somany to forge a path of unparalleled success for this company. The dynamic leadership team in Somany not only spans three generations of able leaders, it also brings together their staggering breadth of experience and wisdom. With Shri H L Somany at the helm as Founder, Shri Shreekant Somany as the CMD and Shri Abhishek Somany as the JMD, the company is heading towards an exciting phase of expansion and growth. This core leadership team along with a large team of highly dedicated and talented people is continuously working towards creating more value for all stakeholders. Their commitment to excel in every sphere and to fuel growth in the core as well as new sectors has truly created a powerful vitality within the company, both in mind and spirit. In 1971 the very first unit of Somany started production in Kassar, Haryana. Since then Somany has reached and surpassed many milestones setting-up of second unit in 1981, buyout of all equity shares by Somany's Indian promoters in 1994; achieving Government recognition for its R&D Department in 1996 (a first in the tiles industry); getting ISO 9002 certification in 1998; achieving ISO 14001 for environment friendly facilities, in 1999; ventured in retailing in 2007, joint venture with Keraben under brand name Synergy, got patent for VC technology-a first ever in Indian Ceramics industry and incorporation of HL Somany group.
45

Somany Global flagship retail showrooms are currently located in Delhi, Gurgaon, Ludhiana and Mumbai, Pune and Indore. Many other retail showrooms are about to be opened in leading centres. These showrooms cater to high-end customers and offer imported tiles as well as exclusive Aquaware brand sanitary ware. A large network of Somany display centers are also spread across the country. A wide cutting-edge array of designs and material make up the inspiring Somany range of tiles. Somany strives to bring its customers floor, wall, vitrified, ceramic, porcelain and innovative tiles that are the very latest in the world. Somany prides itself in the sheer variety of design and finish, and constantly looks to bring new and trendsetting ideas into the tile industry. The futuristic patented VC Shield range of tiles from Somany, are the world's most durable floor tiles. Created using the breakthrough, 'Veilcraft technology', that creates a special layer on the tiles that keep them free from abrasion, scratches and stains, these tiles retain the original glaze and finish for years. No wonder then, that these tiles comprehensively outperform ordinary ceramic tiles including PEI grade 5 tiles. Venturing into the burgeoning sanitary ware sector, Somany has already made major in-roads into this market. With its range of high quality products and offerings under the brand name of Aquaware, Somany is focusing on creating a niche for itself in this sector, by bringing in and adopting the latest in design, concept and technology. In the endeavor to bring the very best to customers, we source our raw material from as far as Italy, Spain, and China besides Rajasthan, Uttar Pradesh, Madhya Pradesh and other major centers in the country. Somany has a production capacity of 15.7 million sq mt per annum from its Haryana and Gujarat units. It has always focused on acquiring and leveraging the latest technologies and know-how. A commitment to bring to life new ideas and design innovations is driven by the huge amounts of funds invested in research and development. This has borne fruit in the form of Somany's achievement of establishing the very first Government Recognized In-house Research & Development Centre.

46

GOVERNMENT POLICIES AND INCETIVES

Support of Government to ceramic sector

FDI limit in the real estate and property sector, and the governments thrust on the housing sector through initiatives like the Bharat Nirman and the National Urban Renewal Mission (under which the government aims to focus on 66 select cities) are set to accelerate the growth of ceramic industry. The ailing ceramic industry will get Gas Pipeline within 4 months from Gujarat State Petronet Ltd (GSPL), as part of the proposed state-wide gas grid. Government has established Indian Council of Ceramic Tiles and Sanitary ware (ICCTAS). The goal of this council is To promote sales of products of ceramic tiles and porcelain articles by India in domestic and overseas markets.

There are some local associations like, Gujarat Ceramic Floor Tiles Manufacturers Association (GCFTMA), which represents the unorganized ceramic tiles manufacturers of Gujarat.

By doing research at Ceramic Research Institute in Calcutta, government has suggested to the manufacturers that energy cost, which is about 25% of total cost, can saved by micro processor based control system and variable speed drivers. By this way companies can save 15% of manufacturing cost.

47

Anti-dumping duties on imports from ChinaAt present, ceramic glazed tiles industry in India enjoys the benefit of provisional anti dumping duty of Rs 137 / sqm on imports from China . However, this anti dumping duty is scheduled for review by Ministry of Finance in June' 2010 before final imposition, which will extend this duty for the next five years . Withdrawal of this anti dumping duty is likely to adversely impact the industry, due to higher imports. However, industry expects this duty to be extended for the next five years.

A number of incentives, coupled with the withdrawal of various subsidies by China, have now made it possible for Indian ceramic manufacturers to compete in international markets. The result is that export figures since the beginning of the second quarter have more than doubled, compared with last year's figures. According to figures provided by the customs and excise department, in May the export of sanitary wares touched Rs 1,354 lakh, while figures for July have crossed the Rs 1,400-lakh mark. Figures for the same period last year stood at Rs 650 lakh and Rs 750 lakh, respectively. FDI TO REAL ESTATEIn India, the construction sector is expected to do well mainly due to the fiscal incentives given to the infrastructure development. The housing sector is also expected to grow because of the low interest rates on housing loans. The government's stand on FDI in real estate and single window clearance system has also sparked interest among global private equity players and real estate developers. Further, the PM's announcement to spend Rs 1,740 billion on rural development that entails building six million houses in the next four years should also aid the growth of the tiles industry. This will definitely boost tile industry. On the import duties front, while the tariffs on ceramic tiles is 10%, the inputs used in the production process attract a customs duty of 5%, 7.5% and 10%. China became member of Bangkok Agreement (now known as Asia Pacific Trade

48

Agreement) with effect from 1st January 2004 and ceramic tiles imported form China are eligible for 57% concession on the applied rate of customs duty. Presently customs duty rate on ceramic tiles from China is 4.3% since 1st March 2007, which is less than customs duty on any input for tiles creating an anomalous situation. In the year 2007-08, out of total imports of Rs. 59,965 lakh of tiles under tariff heading 6907and 6908, imports form China were Rs.45,477 lakh.9 VAT The organized tile industry in India has welcomed the governments decision to implement the Value Added Tax (VAT), which will rationalize all other existing tax structures. VAT is also expected to help the organised segment combat the threat posed by unorganized players. The industry was hopeful that it would be implemented at a lower rate of 4 percent and not 12.5 percent as has happened, since it is a direct input cost incurred by the real estate industry. This in turn has increased the overall cost to be borne by the end users. The governments recent decision to allow 100 percent FDI in housing is also expected to give a huge impetus to the building industry as a whole. However, there is an urgent need for the authorities to check the activities of unscrupulous importers of tiles from China via Thailand and Sri Lanka. To compete favourably at the international level, India needs to upscale its production and needs the support of the government in terms of providing the industry with the required infrastructure needed to further boost the growth of the tile industry. Lowering of Excise Duty Along with the factors listed above, gradual lowering of excise duty on ceramic tiles has also helped the industry's cause. This has effectively narrowed the price differential between ceramic tiles and the traditionally popular mosaic tiles. Earlier, the industry was hit by excise duty of 24 per cent which constituted 16 per cent CENVAT and 8 per cent SED. However, since last year, this has been rationalised with the removal of the 8 per cent SED. (Source: The Hindu)

49

Policies for Units other than SSI/Tiny units (Large & Medium Scale Industries) (For industry setting in Andhra Pradesh only) Other than SSI/Tiny units (Large & Medium Scale Industries) means an industry in which the investment on plant and machinery (Productive only) less than Rs 100 crores except SSI Units. 100% reimbursement of Stamp duty and transfer duty paid by the industry on purchase of land meant for industrial use. 100% reimbursement of Stamp duty for Lease of Land/Shed/ Buildings. 100% reimbursement of Stamp duty and Transfer duty paid by the industry on financial deeds and mortgages etc. 25% rebate in land cost in IEs/IDAs limited to Rs.5.00 Lakhs. Power cost will be reimbursed @ Rs.0.75 per unit during the first year of the policy and thereafter for the remaining four years the rate of reimbursement would be so regulated on yearly basis keeping in view of the changes in the tariff structures to ensure that power cost to the industry is pegged down to the first years level. 25% of the tax paid during one financial year will be ploughed back to the units as a grant by the Government towards the payment of tax during next year. Benefit will be available for 5 years from the date of commencement of production i.e. upto 6th year. Infrastructure like roads, power and water will be provided at door step of the industry for stand alone units by contributing 50% of the cost of infrastructure from IIDF with a ceiling of Rs.1.00 Crore, subject to (a) the location should be beyond 10 kms from the existing Industrial Estates/IDAs having vacant land/shed for allotment and (b) cost of the infrastructure limited to 15% of the eligible fixed capital investment made in the industry. 50% subsidy on the expenses incurred for quality certification
50

limited to Rs. 1.00 Lakh. 25% subsidy on cleaner production measures limited to Rs.5 Lakhs. 50% subsidy on the expenses incurred for patent registration limited to Rs. 5 Lakhs. Rationalization of custom dutiesOne of the most important steps in this direction is the rationalisation of the custom duties on finished goods and raw material. Even today, the custom duty on finished goods from China is lower as compared to the duty on raw material. This acts as a major deterrent to the manufacturing of ceramics and vitrified tiles in India, since distributors and dealers can offer the Chinese products at a cheaper rate to the end consumer. Also, we need to make India an attractive manufacturing destination internationally. There is a need to offer incentives in the form of lower tax structures and ease of operation. The measures towards this should also include reduction of import/custom duties on raw materials in-line with other countries in the SAARC region.

51

FUTURE OF CERAMIC TILE INDUSTRY

Prospect of ceramic industry heavily depends on construction activities. In India, the construction sector is expected to do well mainly due to the fiscal incentives given to the infrastructure development. The housing sector is also expected to grow because of the low interest rates on housing loans. The future outlook of the industry also seems to be positive because of the thrust on advanced ceramics, which has high potential in global markets. These products find application in electronics, automotive and aerospace industries. The global market for advanced ceramics is growing and countries like Japan and USA dominate this segment. Of late, Indian ceramic industry is focusing on advanced ceramic products to step up exports. The thrust on advanced ceramics, along with the booming construction activities, is expected to usher in a bright prospect for the ceramic industry in India. The growth in the ceramic tiles sector has primarily been driven by the substantial increase in the upper middle class catchments and increase in the purchasing power of this class. The growing housing construction and replacement market along with the demand for real estate from retail players over the next couple of years in malls, etc., would create a huge demand for the tile industry in the country. In recent times, the vitrified tile and imported Chinese tile segments which offer multiple choices, have clocked impressive growth. For a new entrant, the transition from mosaic or marble requires a basic understanding of the segment which is largely unorganized in nature. The customer needs to be very prudent in his choice given the abundance of cheaper tiles made from inferior materials.

FUTURE OPPORTUNITIES
Mainly depends on infrastructure development and recently there is a tremendous growth in infrastructure sector. The Indian construction industry is expected to grow from $50billion to $180 billion by 2020.
52

In retail segment more than 13 million square feet of development will take place in all leading cities in India with an investment of over Rs.2, 00,000 crores by 2011. Low per capita consumption of tiles in India shows the tremendous business opportunity. Unprecedented growth being foreseen in Indiasresidential, commercial and retail segments A sharp increase in incomes will gradually sharp increase in flooring spendings.

translate into a

Market environment will be catalysed by two realities: evolution of interiors into a status symbol and widening of the market with imported varieties.

REASONS FOR FUTURE POTENTIAL

- Booming economy, general market and stock market doing well - Increased spending on Infrastructure - Incremental demand from industrial projects - Increasing number of nuclear families - Higher real income and higher affordability of disposable income on housing - Tax policy to Housing - Hotel IndustryOver 60000 new hotel rooms over 5 years are in pipeline. - HealthCare According to FICCI-E&Y report, approx.750,000 new beds are required to meet additional demand for inpatient services by 2012. - Apart from above, commercial spaces like Airports, Convention centres, Higher Educational institutions, R&D Labs, SEZs, Sports centres are in pipeline. - Healthy growth in Housing, Retail, Entertainment, IT/ITES, HealthCare, Hotel and Resorts - Housing SectorEstimated 20Mn new units expected over next 5yrs.
53

- Office spaceFive fold increase in office space requirement over next 3yrs. - Retailing- Over 200Mn sft commercial space required by 2012. Organised retail pegged at $6.4bn, to reach to $100bn by 2020.

RETAIL SEGMENT GROWTH DRIVERS

Rising population will increasingly demand more houses Rising population's need for a dwelling has led to an ever-increasing demand for residential units in India. As per the Eleventh Five Year Plan (20072012), India faces a housing shortage of 26.53 mn units primarily in the low and middle income groups. Favourable macro factors are supporting the spurt in the residential sector Increasing per capita income, increased penetration of mortgage finance, rapid urbanisation has fueled the recent demand for housing units. Following this, the residential sector is expected to grow at a CAGR of 18-20%. As per a report published by DB Research, India's residential sector will require about 10 mn new units annually by 2030. Growing urbanisation presents growth opportunity for the real estate sector India has witnessed a rapid pace of urbanisation over the last decade. While the average population has been growing at 1.38%, the country's urban population is growing at an impressive 28%. Currently, Indian cities and towns house 28% of the total population which is expected to touch approximately 570-590 mn (41% of the population) by 2030 This pace of urbanisation presents immense growth opportunity to the real estate space as increased number of dwellings and office spaces will be needed to house the massive spurt in new entrants to the cities.

54

Availability of housing credit has further propelled housing demand Favourable macro economic policies and availability of cheap credit has propelled the growth being witnessed in the Indian housing space. Disbursal of loans to the housing sector increased from Rs 2 trillion in CY06 to Rs 2.9 trillion for CY09, implying a CAGR of 11%. Lowering of housing interest rates from 10% to the current 8.5% complemented by various government schemes are expected to induce the consumer purchases, thus impacting the housing real estate demand positively. Rising discretionary spending is leading to change in spending patterns Rising disposable income has led to a marked change in the spending patternsof the Indian society, which is becoming increasingly consumerist. Discretionary spending in lifestyle and premium products is expected to increase to around 70% of most of the household's annual expense pie by 2025. As per a report be McKinsey, it is estimated that if India continues on this high growth path, India is expected to become the 5th largest consumer market in the world, by 2025, up from its current 12th position. Quadrupling itself, aggregate consumption in India is expected to grow in real terms from Rs 17 trillion in 2005 to Rs 70 trillion in 2025. Tile industry is poised to grow driven by retail consumption The industry has witnessed a sharp increase in the retail demand for tiles since 2006. Rising disposable income has increased the affordability in the hands of customers, who are gradually shifting to costlier lifestyle led living. Growing awareness of the tile usage along with exposure to global trends through electronic media and cheaper travels, has led to the transformation in the concept of tile usage from being a convenient product to a fashion and lifestyle product.

55

INSTITUTIONAL SEGMENT GROWTH DRIVERS Institutional clients or the commercial sector accounts for 40% of the ceramic tile consumer market. Driven by the surging growth witnessed in the commercial office space, organized retail, hospitality and health care, airport modernization, SEZs etc. With increasing thrust on infrastructure, demand from this segment is likely to remain robust.

HOSPITA LITY SECTOR

ORGANIS E RETAIL

HEALTH SECTOR

COMMER CIAL REAL SPACE

56

Commercial real space

The Indian GDP has been clocking an average growth rate of over 8% for last 5 years (2005-09). Backed by the sustained growth in the manufacturing and service industries and India's emergence as the preferred outsourcing hub, the demand for commercial real estate space has strengthened over the last decade. According to a report by Cushman & Wakefield, the commercial market in India is expected to grow at 20-22% over the next 5 years. Sectors such as IT/ITES, BPO, Banking & Financial Services, Pharmaceutical and Telecom are expected to drive this demand especially in leading cities like Delhi, Bangalore, Mumbai, Chennai, Hyderabad etc. The IT/ITeS sector alone is expected to require in excess of 250 mn sq ft of commercial office space by 2012-13.

Organised Retail
Increasing disposable income and rising aspirations has resulted in 25% acceleration in the organized retail market. As per a report by the India Brand Equity Foundation (IBEF), the retail market in India is pegged at US$ 372 bn in 2008, of which the size of organized retail segment is estimated at US$ 17 bn and is expected to reach US$ 175-200 bn by 2016. An estimated 323 mn sq ft of space is expected to be added by 2012. A Cushman & Wakefield report suggests that the overall market share of organized retail is expected to grow from 5% to 15% by 2016.

Hospitality Sector
Strong influx of business travelers, emergence of medical tourism, hosting of common wealth games has led to the re-emergence of India as a preferred tourist destination. Indian tourism industry is expected to grow at a CAGR of 9% over the next 10 years thus catalyzing the growth in the Indian hospitality space. Indian travel and tourism industry is expected to generate revenues of US$ 276 bn by 2018 from US$ 100 in 2008. As per a report by the World Travel and Tourism Council (WTTC), India faces an immediate

57

shortage of 100,000 rooms and only 75% of that requirement is being met by the current projectsin implementation.

Healthcare Sector
Rising treatment costs, changing disease profiles, emergence of India as a medical tourism hub and slow yet steady pace of health insurance penetration is expected to drive.

58

TOP CONSUMPTION COUNTRIES

Source:(ceramic world review)
COUNTRY 2005 (Sq.m Mill.) 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. CHINA BRAZIL INDIA INDONESIA IRAN VIETNAM EGYPT USA SAUDI ARABIA MEXICO SPAIN ITALY RUSSIA TURKEY THAILAND FRANCE GERMANY SOUTH KOREA POLAND UAE MALAYSIA MOROCCO ARGENTIN A COLOMBIA GREAT BRITAIN PORTUGAL UKRAINE SOUTH AFRICA ALGERIA PHILIPPINE S 2,050 443 303 155 153 120 93 303 90 161 303 192 131 169 120 130 132 94 101 70 52 49 44 44 72 51 29 44 33 30 2006 (Sq. m Mill.) 2,450 484 350 148 182 145 103 308 100 164 319 199 151 179 121 120 128 99 102 80 45 52 48 48 75 47 33 48 34 33 2007 (Sq. m Mill.) 2,700 535 397 178 236 210 105 249 110 173 314 199 176 161 120 129 124 110 100 81 53 56 55 53 75 48 47 50 35 37 2008 (Sq. m Mill.) 2,830 605 403 262 265 220 140 197 136 176 240 176 191 129 120 128 112 99 103 96 50 60 59 54 66 50 59 50 37 38 2009 (Sq. m Mill.) 3,030 645 494 297 295 240 180 169 166 163 156 146 139 138 117 113 106 99 93 77 69 66 55 53 50 48 48 43 40 40 % on 2009 World consumpti on (Sq.m Mill.) 35.8 7.6 5.8 3.5 3.5 2.8 2.1 2.0 2.0 1.9 1.8 1.7 1.6 1.6 1.4 1.3 1.3 1.2 1.1 0.9 0.8 0.8 0.7 0.6 0.6 0.6 0.6 0.5 0.5 0.5 %var. 09/08

7.1 6.5 22.6 13.4 11.3 9.1 28.6 -14.2 22.1 -7.2 -34.9 -16.8 -27.3 6.5 -2.5 -11.5 -4.8 0.5 -10.1 -19.8 38.0 9.2 -6.8 -1.9 -23.7 -2.8 -18.6 -14.0 8.1 5.3

59

TOTAL WORLD TOTAL

5,762 6,750

6,456 7,420

6,914 8,060

7,150 8,350

7,374 8,460

87.2 100.0

3.1 1.3

TOP PRODUCTION COUNTRIES

SSS SSSSSS

COUNTRY (Sq.m Mill.) 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30.

2005

2006 (Sq. m Mill.) 3,000 594 340 569 210 608 199 170 265 122 210 139 115 110 75 75 74 54 22 47 64 44 58 21 44 37 53 19 28 28 7,395

2007 (Sq. m Mill.) 3,200 637 385 559 250 585 254 235 260 140 215 130 135 112 75 76 74 60 34 50 67 48 51 27 42 38 50 19 28 30 7,866

2008 (Sq. m Mill.) 3,400 713 390 513 320 495 270 275 225 160 205 130 147 118 85 77 74 60 40 51 59 50 45 39 39 38 40 28 28 32 8,145

2009 (Sq. m Mill.) 3,600 715 490 368 350 324 295 278 205 200 200 128 117 112 90 77 70 56 55 54 51 50 50 44 42 32 32 31 30 30 8,176

% on 2009 World productio n 42.3 8.4 5.8 4.3 4.1 3.8 3.5 3.3 2.4 2.3 2.3 1.5 1.4 1.3 1.1 0.9 0.8 0.7 0.6 0.6 0.6 0.6 0.6 0.5 0.5 0.4 0.4 0.4 0.4 0.4 96.0

% var. 09/08 5.9 0.2 25.6 -28.2 9.4 -34.5 9.3 1.2 -8.9 25.0 -2.4 -1.5 -20.4 -5.1 5.9 0.0 -5.1 -6.7 37.5 4.9 -13.6 0.0 10.4 12.8 9.6 -15.8 -20.0 10.7 7.1 -6.3 0.4

(Sq. m Mill.) CHINA 2,500 BRAZIL 568 INDIA 298 ITALY 570 IRAN 190 SPAIN 609 VIETNAM 176 INDONESIA 175 TURKEY 261 EGYPT 112 MEXICO 196 THAILAND 138 RUSSIA 100 POLAND 108 MALAYSIA 71 UAE 68 PORTUGAL 72 ARGENTINA 48 SAUDI 20 ARABIA MOROCCO 44 GERMANY 62 COLOMBIA 40 USA 61 UKRAINE 20 SOUTH 46 KOREA SOUTH 33 AFRICA TAIWAN 53 SYRIA 19 ALGERIA 28 VENEZUEL 26 A TOTAL 6,713

60

WORLD TOTAL

7,077

7,760

8,252

8,495

8,515

100.0

-0.1

Indian tile industry Statistics

SEGMENTED AS TILE FORMS

Industry market size (mn sqm)

High-end (Porcelain and Glazed) Vitrified Tiles (Glazed and Polished) Ceramic Tiles Upper End Ceramic Tiles Lower End Total market Premium end Segment

FY06

FY07

FY08

FY09

FY10E

FY11E

FY12E

CAGR

4 67 170 62 303 71

5 79 196 70 350 84

5 93 220 79 397 98

6 100 223 74 403 106

7 116 252 80 455 123

8 137 282 86 513 145

9 162 316 93 580 171

16% 17% 12% 8% 13% 17%

FY06

FY07

FY08

FY09

FY10E

FY11E

FY12E

CAGR

Industry size (Rs mn)

High-end (Porcelain and Glazed) Vitrified Tiles (Glazed and Polished) Ceramic Tiles Upper End Ceramic Tiles Lower End 3388 4322 4410 5400 6389 7560 8945 18%

24527

29235

34550

38000

44962

54116

65134

20%

39914 8680

46567 9800

53456 11060

55750 10360

64257 11189

73408 12084

83861 13051

15% 8%

61

Total market Premium end Segment

76510 27916

89923 33556

103476 38960

109510 43400

126797 51351

147167 61676

170990 74079

16% 20%

Industry size (Contribution % in value)

High-end (Porcelain and Glazed) Vitrified Tiles (Glazed and Polished) Ceramic Tiles Upper End Ceramic Tiles Lower End Total market Premium end Segment

FY06

FY07

FY08

FY09

FY10E

FY11E

FY12E

CAGR

4% 32% 52% 11% 100% 36%

5% 33% 52% 11% 100% 37%

4% 33% 52% 11% 100% 38%

5% 35% 51% 9% 100% 40%

5% 35% 51% 9% 100% 40%

5% 37% 50% 8% 100% 42%

5% 38% 49% 8% 100% 43%

Source : Industry, Emkay Research Note : Premium end segment includes - Vitrified tiles + High-end

62

REGIONWISE DISTRIBUTION OF CAPACITY

63

REGIONWISE DISTRIBUTION OF MARKET

64

Department of Commerce

Export :: Commodity-wise all countries

Dated: 30/4/2011 Sorted on values of year 2010-2011
Commodity: 69 CERAMIC PRODUCTS. Unit: S.No. Country 2009-2010 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. U ARAB EMTS SAUDI ARAB USA UK NEPAL KENYA GERMANY MALAYSIA TAIWAN AUSTRALIA IRAQ SOUTH AFRICA SRI LANKA DSR EGYPT A RP FINLAND YEMEN REPUBLC ROMANIA TURKEY QATAR OMAN LIBYA FRANCE NIGERIA IRAN KUWAIT 7,305.77 8,770.18 4,387.45 4,227.67 2,673.38 3,423.60 3,687.18 2,108.83 2,266.13 2,361.32 1,647.90 2,546.83 1,795.21 2,908.90 1,137.34 1,705.25 627.49 2,795.73 2,800.09 1,290.04 463.89 816.09 1,854.60 1,599.02 1,437.07 Values in Rs. Lacs 2010-2011(Apr-Sep) 4,418.37 4,094.83 3,700.58 2,912.76 2,590.45 2,550.90 1,918.04 1,785.44 1,558.25 1,508.56 1,360.26 1,351.86 1,252.05 1,191.22 992.79 976.44 962.89 960.08 916.79 900.25 881.21 859.58 847.05 822.84 707.64

65

26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59.

ITALY SPAIN KOREA RP THAILAND TANZANIA REP INDONESIA SINGAPORE BAHARAIN IS MOZAMBIQUE TUNISIA ALGERIA NETHERLAND SENEGAL ISRAEL KAZAKHSTAN MEXICO UNSPECIFIED GHANA JAPAN JORDAN BRAZIL SYRIA SWEDEN BELGIUM PHILIPPINES CAMEROON CHINA P RP COTE D' IVOIRE BANGLADESH PR NORWAY DJIBOUTI ANGOLA CANADA VIETNAM SOC REP

798.17 815.24 1,823.42 1,410.74 1,096.06 1,595.67 943.89 1,125.91 700.93 57.85 471.12 635.94 700.62 875.97 653.64 612.43 763.78 670.73 652.66 1,018.18 496.06 181.30 432.38 401.48 331.76 443.07 686.33 681.97 322.53 67.55 1,076.11 534.04 417.40 269.97

681.44 653.65 637.51 537.41 535.30 526.90 503.68 500.89 496.65 488.71 485.93 467.84 465.82 450.19 448.77 440.00 438.69 412.37 403.06 392.08 357.18 344.24 344.02 325.56 308.05 306.40 279.97 269.13 243.53 238.17 235.93 226.77 220.64 207.50

66

60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90. 91. 92. 93.

RUSSIA CHILE BHUTAN SUDAN BULGARIA CROATIA MALAWI UGANDA SOMALIA GREECE TOGO MAURITIUS LIBERIA MADAGASCAR PAKISTAN IR SIERRA LEONE ZAMBIA COLOMBIA NEW ZEALAND JAMAICA GUINEA PERU MOROCCO DENMARK LUXEMBOURG CONGO P REP POLAND BENIN NAMIBIA MALDIVES MYANMAR ETHIOPIA FIJI IS LEBANON

534.34 23.62 534.38 498.30 217.97 194.34 108.48 310.21 100.30 346.11 123.63 355.08 521.29 1,341.43 146.63 142.46 223.66 80.76 77.97 189.87 104.79 89.84 530.71 81.43 21.73 138.43 102.20 140.83 292.88 380.81 38.23 10.50 8.33 101.61

203.27 197.01 192.47 186.63 172.23 171.23 167.65 165.28 164.59 160.67 157.24 156.03 140.32 140.05 139.91 126.36 119.26 113.60 110.51 101.20 91.21 89.56 86.45 79.98 76.48 71.84 70.10 66.87 60.36 57.57 53.77 52.03 44.08 40.86

67

94. 95. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. 106. 107. 108. 109. 110. 111. 112. 113. 114. 115. 116. 117. 118. 119. 120. 121. 122. 123. 124. 125. 126.

HONG KONG CYPRUS SEYCHELLES ARGENTINA GAMBIA NEW CALEDONIA MAURITANIA AFGHANISTAN TIS GUYANA GABON PORTUGAL UNION OF SERBIA & MONTENEGRO ERITREA CONGO D. REP. TRINIDAD UZBEKISTAN MALI BOSNIA-HRZGOVIN SURINAME UKRAINE VENEZUELA BRUNEI KOREA DP RP REUNION IRELAND CZECH REPUBLIC PAPUA N GNA GEORGIA BELIZE URUGUAY SWITZERLAND BURUNDI CHAD

112.18 72.95 85.71 78.99 88.92 36.01 43.60 212.39 23.56 63.43 3.12 35.51 1.95 2.26 29.39

40.25 38.21 33.44 33.33 32.31 31.46 27.96 25.57 24.81 23.45 22.95 18.42 18.42 17.70 17.53 16.91

79.29

15.00 14.79

16.30 11.04 9.25 21.16 8.24 6.72 13.18 11.10 18.05 69.45

14.06 11.07 10.81 10.71 10.11 9.90 8.84 8.30 8.12 8.06 7.87

1.44 11.18 2.93 25.59

6.28 5.32 5.10 4.34

68

127. 128. 129. 130. 131. 132. 133. 134. 135. 136. 137. 138. 139. 140. 141. 142. 143. 144. 145. 146. 147. 148. 149. 150. 151. 152. 153. 154. 155. 156. 157. 158. 159. 160.

SLOVENIA BOTSWANA MALTA RWANDA VANUATU REP SAMOA ST LUCIA HUNGARY FR POLYNESIA DOMINIC REP TAJIKISTAN SAO TOME AUSTRIA COSTA RICA GUATEMALA ECUADOR BARBADOS CUBA NIGER LITHUANIA ALBANIA NETHERLANDANTIL SLOVAK REP SOLOMON IS SWAZILAND PUERTO RICO PARAGUAY PANAMA REPUBLIC MACAO KYRGHYZSTAN LAO PD RP LATVIA AMERI SAMOA AZERBAIJAN

23.06 0.03 6.27 9.22 2.62 2.48

4.27 3.47 3.33 3.06 2.62 2.60 2.43

0.24

2.21 1.98

0.12

1.63 1.57

3.82 1.11 2.33 7.41 8.05 0.95

1.50 1.46 1.39 1.11 1.00 0.93 0.64 0.61

36.42

0.10 0.02

2.21 0.07 2.13 0.00 0.00 0.02 0.02 59.34 1.48 0.02 0.20 10.80 59.91

0.01 0.01

69

161. 162. 163. 164. 165. 166. 167. 168. 169.

BAHAMAS COMOROS CAMBODIA BURKINA FASO GUINEA BISSAU GUADELOUPE GIBRALTAR TOKELAU IS ZIMBABWE Total

30.65 3.51 7.83 0.15 0.00 6.02 0.17 1.35 8.69 100,008.60 60,541.11

Imports
Department of Commerce
Export Import Data Bank Import :: Commodity-wise all countries
Dated: 30/4/2011 Sorted on country
Commodity: 69 CERAMIC PRODUCTS. Unit: S.No. Country 2009-2010 1. 2. 3. 4. 5. 6. 7. 8. 9. ARGENTINA AUSTRALIA AUSTRIA BAHARAIN IS BANGLADESH PR BELARUS BELGIUM BRAZIL BULGARIA 240.53 0.30 477.47 117.67 9.57 77.76 4,655.50 Values in Rs. Lacs 2010-2011(Apr-Sep) 5.20 386.72 4,074.30 1.63 568.20 2.46 186.34 117.69 10.19

70

10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43.

CANADA CHILE CHINA P RP COSTA RICA CYPRUS CZECH REPUBLIC DENMARK EGYPT A RP FINLAND FRANCE GERMANY GHANA GREECE GUINEA HONG KONG HUNGARY ICELAND INDONESIA IRAN IRELAND ISRAEL ITALY JAPAN JORDAN KOREA DP RP KOREA RP KUWAIT LIBERIA LIECHTENSTEIN LUXEMBOURG MALAYSIA MAURITIUS MEXICO MOROCCO

143.49 0.05 123,585.47

94.59 48.99 80,070.72 4.20

0.05 682.25 222.03 85.70 29.91 1,801.87 23,006.95 0.02 14.03 0.29 323.67 149.23 2.58 1,283.48 0.57 0.04 103.33 6,243.56 2,558.82 0.08 0.79 377.90 0.75 20.88 424.50 0.34 0.39 2.91 337.60 1,521.57 71.80 211.52 15.55 14.05 1,539.43 45.24 91.80 2.11 783.90 20.91 9.26 70.83 3,086.47 1,130.55 163.35 77.05 330.58 186.10 74.21 59.87 2,357.60 11,669.80 19.62 32.18

71

44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77.

MYANMAR NEPAL NETHERLAND NEW ZEALAND NIGERIA NORWAY OMAN PAKISTAN IR PHILIPPINES POLAND PORTUGAL QATAR ROMANIA RUSSIA SAUDI ARAB SINGAPORE SLOVAK REP SLOVENIA SOUTH AFRICA SPAIN SRI LANKA DSR SWEDEN SWITZERLAND TAIWAN THAILAND TUNISIA TURKEY TURKS C IS U ARAB EMTS UK USA UKRAINE UNSPECIFIED URUGUAY

0.06 34.87 396.61 8.96

0.01

386.90 5.53 18.65

71.68 99.38 3.64 8.98 263.77 227.37 0.37 0.69 2.90 20.74 170.10 1.60

13.85 22.66 13.64 18.80 93.80 91.29

2.65 36.20 178.79 201.99

0.28 53.36 6,814.58 537.15 103.07 538.65 1,431.61 1,674.24 4.23 1,355.63 0.22 1,665.34 2,310.52 5,191.86 287.43 178.38 2.97 540.38 4.88 1,289.64 927.63 3,973.09 12.08 4,336.76 270.53 61.28 288.01 776.59 1,127.87 4.57 789.30

72

78. 79.

VENEZUELA VIETNAM SOC REP Total

3.85 1,087.20 192,908.67

7.04 713.14 123,990.08

73

Research methodologyIn this study the whole ceramic industry has been covered. This study is based on secondary data and analysis of that. The sources of the study are secondary data and website links.

SourcesCompany magazines Government journals Government magazines and publications in this sector. Company websites. Government of India websites Books on ceramics Various previous studies on ceramic industry Website links Other references

FindingsFindings are qualitative in nature and on the basis of that data, recommendations are provided.

74

FINDINGS
China IssueAccording to industry sources, one of the reasons behind this scenario is the dumping of vitrified tiles into Indian market by countries such as China, Indonesia, Sri Lanka, Malaysia and UAE. It is estimated that during the year 2003-04, nearly Rs. 100 crore worth of imported tiles were dumped in India. Dumping has become a major issue with Chinas entry into the Bangkok Agreement, which was developed with a view to promote free trade among South East Asian countries. Entry of China in to the Bangkok Agreement would result in large import from China, as under this agreement Chinese goods would attract a duty of 10% as against 15% duty on import from other countries. A recent industry estimate suggests that in the present year the value of dumping from China might increase to Rs. 300 crores. But anti-dumping duty of 137 Rs. on imports from China will tighten the domestic market and discourage imports. It will create a favorable environment for domestic business.

Extended application of advanced ceramicsAdvanced ceramics (engineering ceramics) is manufactured with highly refined and specially prepared raw materials using sophisticated technology. The inputs for producing this variety are not naturally occurring minerals but those that have already undergone chemical transformation and refinement, prior to their use in a ceramic production. While advanced ceramics find relevance in wide variety of products, their applications could be categorized broadly as Electronics, medical, Energy, Aerospace and Automotives and Military. Advanced ceramics market has been witnessing growth in both traditional and new application areas. Technology innovations have over the years helped make performance and productivity improvements, a key factor instrumental in Popularizing the usage of advanced ceramics in several industries. While research and innovation in advance ceramics continues to reveal unprecedented uses, evidence suggests that the field is much broader than is usually assumed. With Japan and the US taking lead in the field, India is not far behind. Taking cues

75

from the global market, the Indian ceramic industry is now focusing on an exportled-growth strategy. As of now, India produces only about 5,000 tonnes per annum of advanced ceramics whereas, the world market totals approximately 500, 000 tonnes per annum. According to the 2009-2014 Outlook for Advanced Ceramics in India, it is estimated that the latent demand, or the Potential Industry Earnings (P.I.E), for advanced ceramics in India is divided and concentrated across the cities and regional markets of India. The segment is expected to witness a robust growth of 12 to 14 per cent.

Export scenario and potentialIn 2010-11 (April to Sep.), India has exported to 149 countries which is consisting of Rs. 60541.11 lacs. After studying the export scenario earlier, I can state following points with the context of export potential

Demand of Ceramic products heavily depends on a countrys Construction industry The housing sector is expected to grow because of low interest rates on housing loans. So we can target countries with heavy infrastructural development By creating awareness in public about hygiene, we can increase demand of ceramic tiles over marble or mosaic tiles. Ceramics are imperishable products and requires less hassle so it is a plus point to export them.

Import scenarioLooking at the imports, India has imported around Rs. 123990.08 lacs in April-Sep. 2010-11. The reasons behind these imports are- Booming economy, general market and stock market doing well - Increased spending on Infrastructure - Incremental demand from industrial projects - Increasing number of nuclear families

76

- Higher real income and higher affordability of disposable income on housing - Tax policy to Housing

Comparison of export-import After analyzing the export import status of Indian ceramic industry, we can see that imports for the year 2010-11 from April to Sep. exceeding exports by Rs.63448.97 lacs. It provides a sight that on exports not much concentration has been given or domestic sector is not able to compete with local demand. And this may be because of following reasons that ceramic sector is unable to compete demand or import is more than exports due to less production Competition from unorganized sector. Competition from Chinese products. Not much supportive government policies. Less government incentives towards this sector. Lack of export facilities for this sector. Export duties.

Market Players statusComparing the market share and valuewise share of various players in the industry, it was found that H&R Jonson is the largest player in the market after Kajaria tiles. There is a tough competition between the players and with the unorganized sector which is comprising of more than 50% of the total market.

77

RECOMMENDATIONS:
GOVERNMENTAL Should encourage ceramic trade by providing more benefits like incentives. Should provide financial assistance. Should promote export businesses by providing more tariffs and special incentives and offers towards these, and by reducing export duties. Should encourage domestic ceramic business by discouraging import business, and this can done through contraction and expansion of import duties. Should provide favorable environment for the ceramic business by framing suitable policies for this industry

MARKETING:

Should adopt the widest distribution network model to deliver products to the end user in quickest and most effective way. It would also accelerate the sales. It may include company owned showrooms, franchises, multi-product dealers and sub-dealers. Distribution network should be clearly segregated towards specific product segments.

May introduce three dimensional catalogue visual experiences to its customers and also give customer a chance to design product in their own way of choice (customized design specification). Setting up exclusive showrooms for special products instead of keeping with with the regular range. As example, the upcoming product ORVIT-a product in high glaze tiles segment should have an exclusive place to showcase. It would add to the exclusive ambience of the product.
78

 More introduction of matching wall and floor tiles. To grow its institutional business, the company should organize more interactions with architects, developers and government agencies at its dealer outlets. This would serve a dual purpose: it would enable the company to acquire an insight into evolving preferences of some of the most prominent and trend- influencing architects; on the other hand, it helped the company cater to their evolving preferences.

BRANDING:
More focus on packaging and product merchandising. It may introduce a specific dedicated team to look after the overall brand equity. They will ensure that all showrooms and dealer display centres were in sync with the Orient profile. Also they will look after the external packing material which creates an eye on look-and-feel, resulting in a holistic branding approach. More focus on Research and design-development activities to achieve the cost and product design leadership.

79

CONCLUSION
Ceramics industry in India is poised for sustained growth, powered by long term demand for construction. In India, the construction sector is expected to do well mainly due to the fiscal incentives given to infrastructure development. Increase in income levels and availability of a range of financing options for housing is enabling rapid growth in housing construction. At the same time, industry players are gearing up for growth through building capacity and focusingon technology and process improvements. A report, published in June 2008, stated that the growth in demand for ceramic products has been further strengthened by the boom in the Indian real estate sector, which is registering 30 per cent growth per annum, for the last few years. The growth in the hospitality industry and the advent of new malls, commercial complexes and multiplexes also lend support to the growth prospects of this industry.

The low per-capita consumption of ceramic tiles in India, which is currently around 0.5 sq. m per person as compared to 2.0 sq. m per person in countries, like Malaysia, Brazil and China, offers huge growth potential. The industry can reap the benefit of its low cost of production, which is 2530 per cent lower compared to the US and Europe, primarily owing to labour costs. Production of ceramics through conversion from coal-fired to gas/oil fired- furnaces is likely to enhance fuel efficiency and reduce cost as well as ensure better quality and reduction of environmental pollution. Reduction in threshold limit under Zero Duty Export Promotion Capital Goods (EPCG) Scheme would also help accelerate the modernisation process in ceramics industry. Thats why improving capability of Indian players is getting reflected in increasing exports of ceramics. The industry offers a bright picture for existing players, as well as potential investors.

80

References1-GOVERNMENT OF INDIA - Ministry of Commerce & Industry DEPARTMENT OF COMMERCE www.commerce.nic.in 2-Department of Commerce Export Import Data Bank www.commerce.nic.in 3-EXIM BANK: RESEARCH BRIEF Indian Ceramic Industry: Perspective and Export Potential March 2005 EXPORT-IMPORT BANK OF INDIA www.eximbankindia.com 4- Industrial ceramics, Volume 23, Issue 2 - Volume 25, Issue 3 5-CI news, Volume 6, Issues 3-4 6-High-performance ceramics III: proceedings of the 3rd International Conference on High-Performance Ceramics (CICC-3), (Incorporating the First International Conference Workshop on Layered and Graded Materials), Shenzhen, China, May 9-12, 2004, Part 1 8- Global roadmap for ceramics and glass technology By Stephen Freiman, Mrityunjay Singh, Gary S. Fischman, Robert D. Cook 9- T .N. Gupta, Building Materials in India: 50 Years A COMMEMORATIVE VOLUME, page-84-95. 10- The Journal of the British Ceramic Society, Volumes 6-7 11- The international competitiveness of the Italian ceramic tile industry Michael J. Enright, Paolo Tenti 12- Brick and Tile Production: Cleaner Production Fact Sheet and Resource Guide

81

13- Glazing for Concrete Roof Tiles (2000). RAS Technical Bulletin No. 10. SKAT. 14- Energy Conservation in the Ceramic Industry (1994). United Nations Industrial Development Organization (UNIDO). 15- Ceramic industry, Volume 100, Frederick Louis Steinhoff 16- Economic study of ceramic industry in India, 1981, Narayan Singh Bist 17- Progress and prospects of pottery industry in India: a case study ... - Page 19, Keshav Chandra Gupta 1988 18- The Chemical Age: Volume 71 , 1976 19- Ceramic abstracts: Volume 79, Issues 2-3 American Ceramic Society, CERAM Research (Firm), Cambridge Scientific Abstracts, Inc. Internet Database Service 2000 20- Transactions of the Indian Ceramic Society: Volume 39 Indian Ceramic Society 1980 21- Ceramics: Issues 191-202 University of Calcutta. College of Ceramic Technology 22-Transactions: Volume 63 Indian Ceramic Society 23- Surveys of Indian industries: Volume 2 Baditha Srinivasa Rao 24- Transactions of the British Ceramic Society: Volume 69 British Ceramic Society 1970 25- Thermal Energy Consumption In Brick And Tile Industry Author:Subhas Chandra Basu, Vasanthi Menon, K.S. Jagadish, March 1985 26- Patara, Shrashtant: "An approach to technological change in rural shelter for sustainable development"; International conference on sustainable village based development, Colorado State University, Colorado; Development Alternatives, New Delhi . 1993 27-Indian Information: Volume 18
82

1946 page-74-80 28- Indian pottery S. K. Mirmira - 1973 29- rjan Wikander, Archaic Roof Tiles the First Generations, Hesperia, Vol. 59, No. 1. (Jan.Mar., 1990), pp. 285290 30- Michel Kornmann and CTTB, "Clay bricks and roof tiles, manufacturing and properties", Soc. Industrie Minerale , Paris (2007) ISBN 2-9517765-6-X 31-Azulejo Article by Vania Costa in Accessible Travel Magazine, September 2006 33-Canadian ceramics quarterly: Volumes 63-64 Canadian Ceramic Society 34- Annual report, 2006. 35-Journal of scientific & industrial research: Volume 55, Issues 1-6 36-Chemistry: Foundations and Applications | 2004 | Jones, Loretta L. 37- Canadian ceramics quarterly: Volumes 63-64 Canadian Ceramic Society 1994 38- Annual report Ministry of Commerce and Industry, Dept. of Industrial Policy and Promotion, Govt. of India, 2006 - Business & Economics 39-Economic Developments in India : Monthly Update, Volume -87 Analysis, Reports, Policy Documents Raj Kapila & Uma Kapila 40-Progress and prospects of pottery industry in India: a case study ... - Page 19 Keshav Chandra Gupta 1988 41-Economic study of ceramic industry in India Narayan Singh Bist 42-Ceramic abstracts: Volume 76 American Ceramic Society

83

45-Transactions of the Indian Ceramic Society: Volume 39 Indian Ceramic Society 46- Annual meeting, Jakarta, 1st July 2010, World ceramic tiles forum. 47- Tile Edizioni, 2009, Ceramic world review. 48- www.icctas.com 49- Indian Ceramic Industry: Perspective and Export Potential EXIM BANK: RESEARCH BRIEF 50- Market research.com 51- Industrial ceramics: Volumes 15-17

84