Home Industry Trends Tile manufacturers may go slow on restarting their operations

Tile manufacturers may go slow on restarting their operations

Indian tiles manufacturing industry is on a roller coaster ride since last few years. The industry has seen many adversities during last few year but has been able to survive because of its ability to find opportunities even in such situations. Even COVID-19 was a blessing in disguise for the industry as the pandemic forced the GCC to postpone ADD on Indian tiles (now it will become operational from June 2020 instead of December 2019 as was earlier decided). Yes, lockdown was disruptive as it came all of a sudden and now it will be interesting to see how the industry will manage the recommencement of operations.

Restarting Operations a Challenge

It’s true that the government now wants the business community to get back to their business because longer the delay (in recommencement) harder it will be to restore normalcy. So, the government is approaching all businessmen to restart the operations, even on a smaller scale, at the earliest.  However, the tiles manufacturers, those who are operating from Morbi, are waiting for some financial help from the government. According to the industry people, it will be challenging for the ceramic industry players to start operations without financial assistance from banks/NBFCs. Fortunately for the industry, various public sector banks in the Morbi district have shown interest to provide financial support to players to loosen working capital pressures. But, according to the industry sources, more than Rs 1,000 crore of working capital has been stuck in the distribution chain since mid-March 2020 and that industry participants do not expect payments from distributors in the near future, even after the nation-wide lockdown ends. The industry wants this deadlock be broken to ensure that operations after the recommencement would go on smoothly.

Meanwhile, most of the industry players have applied for the permission to restart the operations and majority of them have received permission for recommencement of operations. However, that doesn’t mean that everyone in the industry is eager to restart the operations.

Clearing Inventory is Primary Concern

With the supply chain likely to take some more time to restore operations to full scale immediately and the fact that the manufacturers are holding finished-goods inventory to the tune of 20 to 50 days, primary concern of the tile manufacturers will be to clear the inventory at the earliest. Once the inventory starts moving, they will be comfortable to take up further production.

Revival of Real Estate Industry

The dependence of ceramics industry on new real estate construction need not be reemphasised. Revival of real estate sector and full-scale commencement of real estate construction at the ground level are pre-requisite for tiles industry to carry on its operations in an orderly manner. The tiles industry feels that real estate construction activity will take 6-9 months to normalise due to labour shortage, raw material shortage, logistic disruption and the upcoming monsoon season. Above all, the next festive season is 5-6 months away from now and hence for the tiles industry, there is no hurry to start operations at present, unless the conditions become favourable to it.

Migrant Workers’ Issue

Another important issue in restarting the operations is that of migrant labourers. According to an estimation nearly 100,000 labourers from Odisha, Uttar Pradesh, Madhya Pradesh and Rajasthan are stuck at plants in Morbi and may want to visit their hometowns once the transport facility becomes available. Once these labourers move to their hometowns, they may not come back immediately. In that case, it would become difficult for the Morbi tiles manufacturers to restart operations immediately. Also, plant maintenance activity for 6-7 days would be unavoidable prior to the start of manufacturing operations. In such cases, it would be difficult to visualise operations starting before June.

Since the clarity on demand side is blurred, tiles manufacturers prefer to follow wait and watch principle at least for next few weeks. By then it is expected that pricing by the main gas supplier will also become clearer. The main gas supplier, Gujarat Gas, has not reduced the gas price substantially though international market for natural gas and crude oil has become very weak. Any reduction in the natural gas price, will be an added incentive for the Morbi tiles manufacturers to restart the operations.

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