Tile Industry Gains on Real Estate Recovery, Economic Growth
India’s ceramic tiles industry is set for high volume growth on affordable housing, promotion by the government, setting up of smart cities and increasing the demand for commercial establishments combine to create positive trends for the industry.
The Rs 26,500 ceramic tiles industry is set to witness 9% growth this year as against 3-5% growth last year, according to Ashok Kajaria, Chairman and Managing Director of Kajaria Ceramics. Ceramic tiles are not just used in bathrooms and kitchen from the hygiene point of view but also in walls, interior and exterior for decoration purposes. It has withstood the competition posed by marbles, granites and stones.
The Indian Ceramics Industry ranks at 2nd position in the world and produces around 12.9% of global output. While the global tiles production grew at an annualized rate of 6.3% for the period 2006-2013, tiles production in India grew almost double at 12.0% during the same period. Ceramic tiles that accounts for close to 60% of the total tiles demand in India is expected to grow at a CAGR of 8.7% for the period 2014-2019.”
Amidst the positive trends seen in ceramic tiles industry, here is a review of the main players:
#Asian Granito India Ltd (BSE: 532888, NSE: ASIANTILES) Category: Small Cap
Established in 2000, Asian Granito has emerged as one of the leading players with marketing presence in 50 countries and is counted among world’s 50 most profitable ceramic tiles companies. It is a front runner in design and technology – it has eight ultra modern plants across Gujarat with an area of 3,20,00 Sq mt. It has a distribution network comprising 4000 dealers and subdealers, 150 exclusive dealer showrooms reaching out to all parts of the country,
The company has reported strong H1FY 18 results with net revenue growth of 4% at Rs 500 cr, Net profit of Rs 25.4 cr representing a 41% Y-o-Y growth. The company is led by Kamlesh Patel, Chairman and Managing Director and Mukesh Patel, Managing Director.
On a returns perspective, 10.96% monthly, 13.76% quarterly and 31.59% half-yearly is quite impressive. On financial ratios, return on equity of 9.75%, on asset of 3.60% and net profit margin of
3.66% are lower compared to peers so are the liquidity and cash flow. It is trading at a Price Earnings Ratio of 52.44 indicating higher valuation by market.
On technical charts, Relative Strength Index (RSI) of 67.91 indicates bullishness, MACD has witnessed a bullish crossover and Average Directional Index (ADX) of 36 indicates uptrend and stochastic indicators are also bullish.
Target: 560 Duration : 3 weeks Strategy: Hold/Sell
#Nitco Ltd (BSE:532722, NSE: NITCO) Category: Small Cap)
Headquartered in Mumbai, Nito Ltd established in 1953 by Pran Nath Talwar claims to be the only premium tile brand in India. It has a vast portfolio of floor and wall tiles, marble, mosaic and metal craft. It has 22 offices and a network of 1100 dealers. It exports to Belgium, Netherlands, Muscat, Saudi Arabia, Bahrain, Qatar, Oman, European and African nations. Presently, the company is led by its Chairman and Managing Director, Vivek Talwar. It has won several awards and accolades. It bagged the 20th Rank in dream company to work for category at The World HRD Congress in 2013.
In September quarter, the company has reported a net loss of Rs 9.13 cr while sales fell 20.69% to Rs 133.57 cr.
On a returns perspective, 35.1% monthly, 30.42% quarterly and 74.56% half yearly is impressive and much above Nifty returns while the company doesn’t score well on financial ratios. Return on equity of 1%, on assets of -2.22% and net profit margin of -4.57% is cause for concern so is the liquidity ratio while it fares better on flow ratios.
On technical charts, RSI of 63.55 is bullish, MACD line is also bullish while ADX of 37 indicates uptrend and stochastic indicators are bearish. It is trading above 50 DMA of 94.84. A head and shoulders pattern has emerged on charts and further rise may not go to the previous levels.
Target: 125 Duration : 2 weeks Strategy: Hold/Sell
#Orient Bell Ltd (BSE: 530365 NSE: ORIENTBELL) Category: Small Cap
Orient Bell Ltd was established in 1970’s in New Delhi and is now one of the largest manufacturers of ceramic and vitrified tiles. The company is also the first to manufacture ultra-vitrified tiles in India. It is the 7th largest player in the organised market. It has launched a chain of signature showrooms to display the complete product range.
The company is headed by Mahendra K Daga, Chairman and Managing Director while Madhur Daga is the Managing Director. The company reported a net profit of Rs 11.04 cr in net profit in 2016-17 compared to Rs 6.44 cr the previous year. Earnings per share rose from 4.43 to 7.84. It opened company owned company operated boutiques across the country and 30 franchise boutiques helping professionals and retail customers to drop in enable selection of tiles better. The company has leveraged on its relationships with architects, channels partners and tile experts. It has also done extensive digital marketing campaigns.
It is trading at a PE of 13.13 indicating a very moderate valuation by market. In September quarter, net profit has risen 11.01% to Rs 3.73 cr while sales fell 5.83% to Rs 150.35 cr. On a returns perspective, 20.31% half yearly returns are commendable while it doesn’t fare well on shorter duration investments.
On financial ratios, it doesn’t fare well on return on equity, assets and net profit margin compare dot peers. Liquidity and cash flows are a cause for concern.
On technical charts, RSI of 52.37 is neutral to bullish, MACD has witnessed a bearish crossover and ADX of 21 indicates range bound trading and stochastic indicators are bearish. Chart is witnessing a head and shoulders pattern and waiting for next momentum upward which will be of a lower strength.
Target: 350 Duration: 4 weeks Strategy: Hold/Buy
The tile industry was facing a slow down due to demonetisation and implementation of Goods and Services Tax (GST). The Real Estate Regulation (RERA) Act will offer level playing field for all players in the industry and reduction of GST from 28% to 18% for tiles, reduction in logistics cost and opportunity for inorganic growth will help the tile industry recover fast.
Indian tile industry has been in the forefront of innovation and technology upgradation earning a name in global markets. The highly competitive industry is set to make further inroads into Indian and global markets. Selective exposure in tiles in your portfolio can yield good returns the short to medium term.