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Ceramic and Sanitary-‐ware Industry: Focus Morbi June 2016

Ceramic and Sanitary-‐ware Market Investment

Report: Focus Morbi 2016

The heart of the Indian ceramic industry is at Morbi, Saurashtra, commanding about 70% of the market share of all ceramic products in India with 459

operational industry units.


Ceramic and Sanitary-‐ware Industry: Focus Morbi June 2016

Contents Section 1: Overview of the Indian Ceramics and Sanitary-‐ware Industry ......................................................... 1

Ceramic Tiles: Top 10 Global Producers .................................................................................... 1

Ceramic Tiles: Top 10 Global Consumers .................................................................................. 2

Global Ceramic Tiles: Top 10 Exporting Countries and Importing Countries ............................ 3

Ceramic clusters across India .................................................................................................... 4

Indian ceramic tiles market segmentation ................................................................................ 4

Indian Ceramics Market: Organized vs. Unorganized and Break-‐up of tiles by demand ........... 5

Indian Ceramics Market: Segmentwise growth, 2009 vs. 2013 ................................................. 5

Government initiatives will play a critical role in driving Indian ceramics, sanitary-‐ware and bathroom fittings industry ......................................................................................................... 6

Ceramic Tiles Market: Distribution System in India ................................................................... 6

Key Highlights of the Indian Ceramic Tiles Industry .................................................................. 7

Major players of the Indian Ceramic Tiles Industry ................................................................... 9

Indian Sanitary-‐ware and Bathroom Fittings Industry ............................................................... 9

Industry growth rate: Indian Sanitary-‐ware and Bathroom Fittings ........................................ 10

Ground level research of Indian sanitary-‐ware industry ......................................................... 11

List of major players: Indian ceramics tiles, sanitary-‐ware and bathroom fittings .................. 12

Section 2: Gujarat’s Ceramics and Sanitary-‐ware Industry: Why Saurashtra ................................................. 13

Key factors which make Morbi in Saurashtra, the next big destination in international ceramics and sanitary-‐ware arena ..................................................................... 14

Strategic reasons which have shaped Morbi in Saurashtra into a major global ceramics and sanitary-‐ware hub ............................................................................................. 15

Make in India and Saurashtra’s Ceramic Tiles cluster ............................................................. 16

Live Market Updates 17

Key conclusions for Ceramic and Sanitary-‐ware businesses looking to enter Saurashtra ....... 18

Annexures: Key Business Contacts for Prospective Ceramics and Sanitary-‐ware Businesses looking at Saurashtra ....................................................................................................................................................... 20

Annexures: List of Prominent Indian and International Ceramics and Sanitary-‐ware Exhibitions / Trade-‐shows .............................................................................................................................................................. 21


1 | Ceramic and Sanitary-‐ware Industry: Focus Saurashtra January 2016

Section 1: Overview of the Indian Ceramics and Sanitary-‐ware Industry

Ü Based on industry sources, global ceramic tiles is likely to reach 18,154.1 million square meters by 2018

signifying a CAGR of 8.9% over 2012-‐18. Ceramic Tiles: Top 10 Global Producers

(In Million Square Meters)

Ü In 2013 world tile production reached 12 billion sq. mtr. -‐ up 6.4% over 2012.

Ü Asia produced 8,315 million sqm – up 8.4% over 2012.

Source: Ceramic World Review



Ceramic Tiles: Top 10 Global Consumers

(In Million Square Meters)

Ü The break down in consumption of ceramic tiles by geographical area is very similar to that of produc-‐tion.

Ü In Asia, the consumption of ceramic tiles was maintained at 65.5% in 2013.




Global Ceramic Tiles: Top 10 Exporting Countries and Importing Countries

Top 10 Exporting Countries Top 10 Importing Countries

Top 10 Countries with Highest Per Capita Consumption of Ceramic Tiles


Ü Huge potential in Indian tiles market owing to low per capita consumption.

Ü Unlike India, globally tiles

are used extensively out-‐doors (paving, claddings, external facades etc.)



Ceramic clusters across India

Indian ceramic tiles market segmentation

Based on industry sources

MSM = Million Square Meters



Indian Ceramics Market: Organized vs. Unorganized and

Break-‐up of tiles by demand

Indian Ceramics Market: Segmentwise growth, 2009 vs. 2013

Ü Structural shift in consumer preferences to better value proposition. Vitrified tiles to drive profitability improvement especially for branded players.

Based on industry sources



Government initiatives will play a critical role in driving Indian ceramics,

sanitary-‐ware and bathroom fittings industry

Ü Focus of the Modi Government on infrastructure to create exponential business opportunities for

companies in the ceramic tiles and sanitary ware Industry.

Ceramic Tiles Market: Distribution System in India



Key Highlights of the Indian Ceramic Tiles Industry



Third largest and amongst fastest growing Rles

market -‐ India

• Indian ceramic fles sector, despite being the third largest fles market, is growing at the fastest pace amongst top five markets in the world. Indian ceramic fles industry is 748 million sq. mtr. as of March 2014. Industry size is Rs. 21, 500 crore as of March 2014. • The growth of Indian fle sector of 14% CAGR over CY08-‐CY14 is more than twice the world average CAGR of 6.9% over the same period. Per capita consumpfon of fles in India is lowest among the top five countries, providing immense potenfal for growth.

Favourable country demographics

• The key catalysts for rising consumpfon of ceramic fles in India are second largest and young populafon (median age of 25.5 years in 2012), rising disposable income and increasing urbanisafon. • Consumerism is likely to fuel the demand for ceramic products, which are discrefonary in nature. Tier-‐2 and Tier-‐3 cifes are likely to lead the demand growth and urban / metro cifes will add with replacement demand.

Expected recovery in real estate

• Based on Cushman and Wakefield's report, the total housing demand across India is likely to be 88.78 mn units by 2017 owing to urbanisafon and increasing populafon. It expects 2015 to be the inflecfon year for commercial real estate sector, as demand is likely to surpass supply due to expected improvement in the Indian economy. • The report esfmates Indian hotel inventory to increase by over 65% by 2017 and approximately 22 mn. sq. k. of new mall supply to be added to the top eight cifes by 2015 across India.

Rising compeRRon

• Lured by the demographic profile and improving prospects of housing and construcfon sector, many foreign companies are entering the Indian ceramics sector with a view to leverage the opportunity. • RAK Cermics, leading global player in ceramic fle sector, is expanding and growing at 50% over the last two years. • Monalisa Tiles, the third largest fle manufacturer in the world, is venturing into India with an inifal investment of US$ 25 million and plans to open 15 stores in FY15.

Asset Light Strategy – Key to grow faster with

profitability

• Tiles being a volume play, expansion is inevitable. To leverage the current opportunity and tackle with surplus capacity situafon, most companies are going slow on organic expansion plans and are eyeing to partner with unorganised sector which consftutes ~50% of the total sector. • For organised players, the cost of capacity expansion is reduced and the already available capacity enables immediate revenue generafon lowering the payback period. For unorganised players, there is a ready market for their producfon as organised players are recognised by their brands.



Major players of the Indian Ceramic Tiles Industry National brands control around 50% of the Industry

Ü From Jan. ’14 to Oct. ’15, India exported vitrified tiles worth Rs. 13.73 billion (US$ 208.98 million) and

glazed tiles worth Rs. 43.02 billion (US$ 654.76 million). à Brazil (31.2%) and Saudi Arabia (18.1%) are the two largest buyers of vitrified tiles from India. Saudi Arabia is the largest buyer (36.9%) of glazed tiles from India.

Indian Sanitary-‐ware and Bathroom Fittings Industry Ü As of 2015, India’s sanitary-‐ware and bathroom fittings industry is estimated to be valued at a

combined Rs. 8,000 crore, which was Rs. 6000 crore two years ago. à Sanitary-‐ware segment repre-‐sents one third of total revenue, whereas bathroom fittings represents two third of total rev-‐enue.

Ü The industry has grown nearly 25% in the last couple of years. à With a growth rate of nearly 13%, the

sanitary ware and bathroom fitting industry is projected to be valued at approximately Rs. 10,000 crores by the year 2017.

Ü Today only 47% of the total population in India has access to sanitation facilities.

Ü The organized segment in the sanitary and bathroom fitting industry comprises of nearly 55%.

H & R Johnson (India)

Ü Balance of the industry is repre-‐sented by other regional brands/unbranded players pre-‐sent in Morbi, Saurashtra and Himmatnagar regions of Gujarat.

Ü From Jan. ’14 to Oct. ’15, India imported vitrified tiles worth Rs. 7.9 billion (US$ 121.07 million) and glazed tiles worth Rs. 1.62 billion (US$ 24.66 million). à China is the largest supplier of both vitrified and glazed tiles to India accounting for 96% and 65.7% of imports respectively.

Based on industry sources *estimated



Ü As per the census 2011 data, 19% of urban homes in India do not have a toilet and this emphasizes on

the tremendous growth potential this segment have.

Ü The projected revenue level for 2017 may be achieved sooner than estimated if the government successfully implements its Swachh Bharat Abhiyaan, wherein crores of rupees would be spent in the construction of new sanitary facilities in rural as well as urban areas across India.

Industry growth rate: Indian Sanitary-‐ware and Bathroom Fittings

Source: Nitin Khurana’s report from the Lal Bahadur Shastri Institute of Management, New Delhi



Ground level research of Indian sanitary-‐ware industry




List of major players: Indian ceramics tiles, sanitary-‐ware and bathroom fittings




Section 2: Gujarat’s Ceramics and Sanitary-‐ware Industry: Why Saurashtra

o AML for Antique Marbonite Pvt. Ltd., Morbi, Gujarat o AGL for Asian Granito (India) Ltd., Sabarkantha, Gujarat o CGT for Coral Gold Tiles Pvt. Ltd., Morbi, Gujarat o CGL for Coral Granito Pvt. Ltd., Morbi, Gujarat o CTL Cengres Tiles Ltd., Dist. Mehsana, Gujarat o ECL for Euro Ceramics Ltd., Kutch, Gujarat o GCL for Gokul Ceramics Pvt. Ltd., Rajkot, Gujarat o HRJ for H & R Johnson(India) A Division of Prism Cement Ltd.,

Dewas-‐MP, Kunigal-‐Karnataka, Pen-‐Maharashtra, Karaikal-‐Pondicherry, Baddi-‐HP

o KCL for Kajaria Ceramics Ltd., Sikandrabad-‐UP, Gailpur-‐Rajasthan, Mobi-‐Gujarat

o MCL for Murudeshwar Ceramics Ltd., Karaikal-‐Pondicherry, Hubli, Bangalore-‐Karnataka,

o OGL for Oracle Granito Ltd., Sabarkantha, Gujarat

o OCL for Orient Ceramics & Indus-‐tries Ltd., Sikandrabad, UP

o OVL for Jaxx Vitrified Pvt. Ltd. (Formerly Ozzy Vitrified Pvt. Ltd.), Morbi, Gujarat

o RAK for R.A.K Ceramics India Pvt. Ltd., Samalkot, AP

o RGL for Regent Granito (India) Ltd., Himatnagar, Gujarat

o SGL for Senso Granito Pvt. Ltd., Rajkot, Gujarat

o SCP for Sentini Cermica Pvt. Ltd., Krishna, AP

o SIC for Silica Ceramics (P) Ltd., West Godavari, AP

o SCL for Somany Ceramics Ltd., Bahadurgarh-‐Haryana, Kadi-‐Gujarat

o SVP for Simpolo Vitrified Pvt. Ltd., Morbi, Gujarat

o SJT for Spectrum Johnson Tiles Pvt. Ltd., Rajkot, Gujarat

o STL for Sunshine Tile Co. Pvt. Ltd., Rajkot, Gujarat

o SWC Swastik Ceracon Ltd., Dist. Mehsana, Gujarat

o UCL for Umiya Ceramic Pvt. Ltd., Morbi, Gujarat

o VGL for Varmora Granito (P) Ltd., Rajkot Gujarat

Morbi in Saurashtra, Gujarat is the heart of the Indian

ceramics and sanitary-‐ware industry serving as India's largest manufacturing hub

of ceramic tiles and sanitary-‐ware.



Ü As seen from the map above, the Saurashtra region of Gujarat is the national hub for ceramic tiles and

sanitary-‐ware market in India, with production concentrated in Morbi, Wankaner, Thangadh, Bam-‐anbor, Himatnagar and Shapar-‐Veraval areas of Rajkot and Porbandar districts. à Morbi in Saurashtra is the nerve centre of the Indian Ceramic Tiles and Sanitary-‐ware Industry and is witnessing a struc-‐tural shift via exclusive tie up with Branded Ceramic Tile Players.

Morbi in Saurashtra – Mecca of Indian Ceramic Tiles and Sanitary-‐ware Industry

Key factors which make Morbi in Saurashtra, the next big destination in international ceramics and sanitary-‐ware arena

600



Strategic reasons which have shaped Morbi in Saurashtra into a major global

ceramics and sanitary-‐ware hub

Ü Morbi (Saurashtra) produces 70% of India’s gross ceramic production and 5% of the world's needs.

Ü There are around 600 ceramic units with production worth Rs. 40 billion (US$ 610.54 million) annually.

The main products are ceramic tiles, vitrified tiles, digital tiles, floor tiles, glazed wall tiles, luster wall tiles, sanitary ware, porcelain tiles, spartek tiles, glaze tile, roofing tiles and mosaic tiles. Morbi's ceramic factories belong to small and medium scale units which together comprise the largest ceramic

production in India.

Ü National Highway 8-‐A between Morbi and Wankaner is

flanked by all the industries related to ceramic tiles and sanitaryware manufacturing. à Since 2012 the road between Pipli & Jetpar village has been rapidly growing with many new digital tile plants. A large number of small-‐scale ceramic pottery manufacturing units are also located around Thangadh.

Ü The shadowed polygonal region of Saurashtra (As seen in the image on left) between Jetpar, Thangadh, Wankaner and Morbi forms the world's 2nd largest ceramic tiles manufacturing zone.

Ü These units also cater to export markets including Europe, Middle East, Sri Lanka, Bangladesh, Asian, African and Latin American countries.



Make in India and Saurashtra’s Ceramic Tiles cluster

Morbi has created more jobs than ANY other unorganized industrial cluster in India in the last

decade.

Rapid growth of Saurashtra's ceramic

fles and sanitaryware cluster has promoted micro

level entrepreneurship.

Excess producfon has led to the

decrease of ceramic fles being imported from China. Thus

promofng domesfc products in India (self-‐reliance).

MAKE IN INDIA



Live Market Updates

Ban on coal based gasifier plants in Morbi; structurally positive for India’s Ceramics and Sanitary-‐ware

industry Ü Gujarat Pollution Control Board (GPCB) had banned the use of coal-‐based gasifiers in Morbi in October

2013 and ordered to run the plants on Liquefied Natural Gas (LNG). Since Morbi is the hub of unorganized market players this has resulted into the decrease of the competitiveness of the unor-‐ganized players as the usage of LNG increased their costs by ~30% to 35%. à This ban has been a boon in disguise by bringing the unorganized and organized players to a level-‐playing field.

A coal-‐based gasifier in operation

Ü As informed by a few industry members who were a part of the meeting the shut-‐down will create an

artificial demand for Morbi’s wall tiles both in the Indian and overseas market and hence the factories will become viable to produce wall-‐tiles again.

Ü Another reason being because of the new factories which came up in the last one year and started to offer wall-‐tiles at unbelievably low prices which was not good for the overall health of industry. To curb this practice this bold decision was necessary.

Ü This ban has also forced many unorganized players to tie-‐up with organized players as it enables higher capacity utilization and sales growth. Simultaneously it has reduced the need for organized players to go for Green-‐field / Brownfield expansions. à This is has led to the creation of a structurally positive environment for the ceramics tiles and sanitary-‐ware industry as a whole, with the organized segment benefiting in particular. This might also lead to the organized segment growing at a higher pace than the industry in the coming years, increasing their share going forward.

Shut down of production during November-‐December 2015

Ü Around the 13th of October, 2015, the industry associa-‐tions of Morbi’s ceramic and sanitary-‐ware industry wall tiles had an informal meeting and decided to stop produc-‐tion (shut-‐down) only of wall-‐tiles until 10th December 2015. So most of the factories will not produce wall-‐tiles from 10st November to 10th December 2015.

Ü Apparently this seems to be a bold decision considering the slow market the industry has witnessed globally since more than a year now. à But this is also one of the few reasons the industry has decided to shut production for a full 1 month.



Key conclusions for Ceramic and Sanitary-‐ware businesses looking to enter

Saurashtra Ü Saurashtra’s region around Morbi (i.e. Wankaner, Dhuva, and Thangadh) is a virtually untapped

ceramics and sanitary-‐ware zone. It is India's most promising ceramics production hub with scores of innovative and enthusiastic tile and sanitary-‐ware manufacturers, all of which represent key future sales targets for equipment, raw materials and service suppliers. The pace of production capacity growth in this region has been explosive and this trend is set to continue for the foreseeable future.

Ü Though Morbi is not the source of raw material anymore. It has built a solid ecosystem for ceramics and sanitary-‐ware production, which makes low-‐cost production with world class technology possi-‐ble. à The community of Patel factory owners is a tightly knit network. Most of them are co-‐owners in multiple factories. So the utilization and sharing of resources (Logistics, labor, production knowledge, and vendors) is highly efficient and cost-‐effective. Also now all the raw-‐material vendors, logistic service suppliers, machinery/plant consultants/fabricators are based in Morbi. There's a huge network of traders who are based in Morbi apart from the hundreds of retailers/showroom owners and traders from across India and even outside India who visit Morbi.

Ü The vicinity of Morbi city with major ports (such as Kandla and Mundra) also lowers down the

transportation costs and thus helps exporters of ceramics from the region. The region will surely be one of Asia's key driving forces over the next 10 years.

Ü By installing industrial gas lines in the polygonal cities of Saurashtra between Jetpar, Thangadh,

Wankaner and Morbi, GSPC (Gujarat State Petroleum Corporation Ltd.) has fueled the growth of Indian ceramic tiles and sanitary-‐ware segment. Gas is the key cost driving factor in production pro-‐cess of ceramic and vitrified tiles. GSPC’s gas line has ensured continuous supply of this important input.

Ü Morbi also has offices and representatives from globally renowned Italian & Spanish tile machinery

manufacturers and design studios who provide technical assistance and training to tile manufacturing companies. à For example, Calabria, a leading Italian company has set up its office in Morbi to provide after sales service to its customers. Manufacturing units in Morbi have set up digital printing and other technically advanced machinery which has led to production of improved quality ceramic tiles and sanitary-‐ware across India and the neighboring markets.

Ü Ceramic tiles being a volume play, expansions are inevitable. Greenfield and Brownfield expansions

need investment in capital expenditure and a longer time period for the capacity to establish and begin production. à To leverage the current opportunity and tackle with surplus capacity situation, most companies are going slow on organic expansion plans and are eyeing to partner with unorganized sector which constitutes ~50% of the total sector.



Ü In addition, Greenfield expansions are turning expensive due to rising land prices, rising power, fuel

costs and gas shortage problems. Most of the largest and leading industry players including international ones such as RAK, Kajaria, Somany, HR Johnson, Asian Tiles and NITCO are entering into JV’s with unorganized players (~50% of the industry) to take advantage of the already available capacity in the industry. à For all these industry leading players, the cost of capacity expansion is reduced and the already available capacity enables immediate revenue generation lowering the payback period. Also most of the unorganized players are based at Morbi, which is nearer to the consuming markets, reducing logistics cost. à For unorganized players, there is a ready market for their production as organized players are recognized by their brands, resulting in higher capacity utilization which enables better return on investment. Going forward, many top players plan to enter into more JVs to increase their capacities and thereby improve their profitability.

Ü The industry case of Somany Ceramics is best illustrative of continuous capacity expansion fueling growth within Morbi’s ceramic and sanitary-‐ware cluster as seen below:

Somany Ceramics: JV acquisition cost details Acquisition Cost

Capacity Cost per

MSM* JV Company Stake Period Location (msm) (Rs Mn) (Rs) Product Vintage Tiles Private Ltd 26% Oct-‐11 Morbi, Gujarat 2.65 50.0 72.6 Polished Vitrified Tiles Commander Vitrified Private Ltd. 26% Apr-‐12 Morbi, Gujarat 2.65 32.5 47.2

Polished / Glazed Vitrified Tiles

Amora Tiles Private Ltd. 51% Aug-‐13 Morbi, Gujarat 2.45 100.0 80.0 Ceramic Wall Tiles Vicon Ceramics Private Ltd. 26% Aug-‐13 Morbi, Gujarat 2.10 50.0 91.6 Industrial Vitrified Tiles Acer Granito Private Ltd 26% Aug-‐13 Morbi, Gujarat 2.10 51.1 93.6 Polished Vitrified Tiles

*MSM = Million Square Meters The company has entered into five JVs which are located at Morbi, Saurashtra. All the JVs entered are for value added products including polished vitrified tiles, glazed vitrified tiles and industrial vitrified tiles. However, the effective cost of acquisition of these JV capacities is in the range of Rs. 45 and Rs. 95 per msm. à This is far lower than its current owned capacity of ~Rs 211 per msm, generating better returns on investment. Capacity expansion through JV’s is likely to be the preferred route of expansion for Somany Ceramics going forward.

Ü Morbi in Saurashtra now has all characteristics of a world-‐class ceramics and sanitary-‐ware hub enabling highly scalable, cost-‐efficient production, parallel to the world’s largest ceramics manufactur-‐ing hub in China's Guangdong province.



Annexures: Key Business Contacts for Prospective Ceramics and Sanitary-‐

ware Businesses looking at Saurashtra

Industry Associations and Government Bodies Name of the Organization

Contact Person

Designation Contact Details

Morbi-‐Dhuva Glaze Tiles Association

Nilesh Jetpariya President

First Floor, 1-‐Real Plaza, 8-‐A National Highway, Morbi-‐363642, Gujarat(INDIA) Tel: 91-‐2822-‐244053

E-‐mail: [email protected] http://www.ceramicassociation.com/index.php

Gujarat Granito Manufacturers Association

K.G. Kundariya

President



Gujarat Ceramic Floor Tiles

Manufacturers Association

Prafulbhai Detroja President



Sanitary Wares Manufacturers Association

Kiritbhai Patel

President



Indian Council Of Ceramics Tiles & Sanitaryware (ICCTAS)

Ashok Kajaria Chairman

4th Floor, PHD House, 4/2 Siri Institutional Area August Kranti Marg, New Delhi – 110016

Tel: 91-‐11-‐26964238 E-‐mail: [email protected]

http://www.icctas.com/

Chemical and Allied Products Export

Promotion Council (CAPEXIL)

Ramesh K. Mittal Chairman

"Vanijya Bhavan", , International Trade Facilitation Center, 3rd Floor,

1/1 Wood Street, Kolkata-‐700016 Tel: 91-‐33-‐22891721/22/23/25

E-‐mail: [email protected] http://www.capexil.com/

Federation of Ceramic Industries

Sureshbhai P. Sompura President

Anchor Sanitaryware Pvt. Ltd., Tarnetar Road, Thangadh. Gujarat (INDIA) Mobile: 91-‐9825218117

http://www.ceramictownthangadh.com/

Rajkot Chamber of Commerce and

Industry

1st Floor, Centre Point, Karansinhji Main Road, Rajkot – 360001

Tel: (91)-‐281-‐2227400 / 500 E-‐mail: [email protected]

http://www.rajkotchamber.com/



Annexures: List of Prominent Indian and International Ceramics and Sanitary-‐ware Exhibitions / Trade-‐shows

Domestic Exhibitions / Trade-‐shows

Name of the Exhibition / Trade-‐show

Location Website

ET AceTech Multiple locations

across India http://www.etacetech.com/

Inside -‐ Outside Mega Show Multiple locations

across India http://www.insideoutside.in/exhibit-‐with-‐us

Indian Ceramics Ahmedabad, Gujarat http://www.indian-‐ceramics.com/

Ceramic Asia Ahmedabad, Gujarat http://www.indian-‐ceramics.com/

International Exhibitions / Trade-‐shows

The BIG 5 Show Dubai https://www.thebig5.ae/

CEVISAMA (also known as Feria Valencia) Spain http://cevisama.feriavalencia.com/en/

CERSAIE Bologna, Italy http://www.cersaie.it/en/

market & investment report on ceramics & sanitaryware

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