It was around beginning of this year when I did some
concrete work on tiles industry by having meetings/concalls with top management
of Kajaria, Orient, Somany and even ex-CEO of Johnson, the largest unlisted
tiles company in India. My work also included ground work where I interviewed
some 25 dealers across Mumbai to understand ground realities in this market.
My conclusion was pretty negative and I guess rightly so, as
since then Orient Bell is down 55%, Nitco is down 60%, Somany is down 26%,
Kajaria is flat against an YTD return of 10% on Index.
So what makes me write this post now? Well, I am constructing a residential building in Navi Mumbai (www.palaceonhill.com) and went to buy tiles to Turbhe in Navi Mumbai and Vile Parle (East) in Western Mumbai, which are huge tile markets of Mumbai.
My research over the years had given me an idea as to which tiles to buy. So I spent the entire day in the market visiting
many stores from branded ones to local brands of Gujarat (Morbi). The reason why I did not say anything in the
process, and acted as a lay man with no knowledge about tiles, was to use this
experience to reinforce my verdict on the industry.
9 out of 10 dealers tried to push local brands citing the
similar quality and a huge price difference in the two. In most of the cases
the price difference was as high as 100% (Vitrified Digital Tiles).
Margins are very low in selling branded stuff compared to
local brands. On the other hand shops have different local brands so once you
like a particular design (tiles and highlighters); bargaining power of customer
goes down.
Though it’s a product where you cannot make out the
difference in quality by touching or looking at the product, still there is no
loyalty towards brands. It continues to be a commoditized business where only
the price matters.
Adding to the problem is the large number of variables:
There are three kinds of raw materials- Porcelain (the
worst) , Ceramic and Vitrified (the best)
Wall tiles and floor tiles are different both in terms of
size and quality
The digital ones have random design which gives a marble
like look compared to standard ones which are all replica of each other.
Digital ones are way costlier.
There are so many sizes available with no standard pricing-
12’12’’ tiles are cheaper compared to 12’18’’, which are in turn cheaper w.r.t.
24’24’’ (2’2)
Then there are nano and double charge variants which are
protective layers on tiles
Unless you zero-in on a branded product, you just can’t
compare the quotes across dealers (hence dealers are motivated to sell only
local ones)
Each dealer sells you a story (which is true to some extent
and also sounds logical)
“70% of Indian tile production comes from a region in
Gujarat called Morbi. The branded ones like Kajaria, Orient, Somany have tie
ups with these small units for manufacturing. The quality for local ones is
almost same and the price difference is only because of branding and taxes. If
you need couple of extra tiles you would have to buy an entire box of branded
ones but we will give you exact number of tiles you want(own/local brand), plus
we will also take back the extra ones if you are left with some. If there are
broken tiles in the box we will replace those as well”.
So, my conclusion holds the same: I don’t see the demand
moving to organized players in a hurry. It continues to be largely a
commoditized business; hence absence of any re-rating potential. Any branding
activity by these companies is sheer waste of investor money. Current strategy
of opening stand-alone company outlets is also a bad strategy. No wonder Nitco
is in CDR.
