Ceramic industry in India and Indonesia

• Ceramic tiles sector and the major players
• Distinguishing parameters for manufacturing of ceramic tiles
• An analysis of the top ceramic players in India and Indonesia

Ceramic tiles have become a vital part of home furnishing and enhancements. These are not only restrained to kitchen and bathroom fittings but currently, ceramic tiles are majorly used for decorative purposes, both internally and externally. The industry has expanded from households to schools, shops, malls, etc. In 2016, the total world ceramic tiles production grew to 14 billion sq. metres.

Interestingly, more than half of the industry is captured by China, with the market share of 57% (production) and 40.1% (consumption), respectively. The remaining half is dominated by other nations. Additionally, 69.1% of the production and 67% of the consumption in the industry take place in Asian countries. Out of this 69.1% of the production more than half ensues in China and the rest of this is in India, Indonesia and Vietnam. In addition to China, which is the largest producer and consumer of ceramic tiles, the two major players are India and Indonesia. India is third biggest in terms of the production and consumption. Likewise, Indonesia is the seventh largest in production and fifth with respect to the consumption.

Top 10 countries, global tile production

The ceramic market in India consists of organised as well as unorganised players in the ratio of 40:60. Hence, 60% of the sector is unorganised and is mostly based out of Gujarat. Indian ceramic industry is majorly dominated by family-owned manufacturers and businesses. These are very big manufacturers and this leads to intense competition in the market. There are 500 family owned businesses and 15 organised manufacturers. A majority of unorganised players exists in Morbi, Gujarat. Moreover, 70% of the production takes place at Morbi and tiles are exported to Africa and the Gulf. Typically, small unorganised companies work with the large players by way of a joint venture and there is mutual contribution of expertise. The performance of Indian ceramic industry depends on cost factors such as power cost, fuel cost and freight cost. The power and fuel cost is similar for all in the ceramic industry, but freight charges affect only those nations which export tiles. The Indian firms have vitrified tiles, digital wall tiles, glazed tiles, porcelain tiles, quartz tiles and mosaic tiles as product types. Significantly, there are two major types of ceramic tiles; glazed and unglazed tiles.

Secondly, the Indonesian ceramic industry is controlled by the domestic players and the trend for tiles is not new in the nation. In Indonesia, 30% of the total demand arises from new property businesses and 70% originates from home repair and renovations. Furthermore, with an increase in the population, the demand for ceramic tiles is also rising. The market in Indonesia is majorly served by small producers, which meet the domestic demand. There are 3 to 4 large players in the market and the number of players in the domestic market is very low. In Indonesia, tiles usage is a symbol of glamour. These are also used for wall decoration as well as for flooring.

Televisory analysed two big players each from India and Indonesia, PT Arwana Citramulia Tbk and PT Mulia Industrindo Tbk (Indonesia), and Kajaria Ceramic Ltd. and Somany Ceramic Ltd. (India). Their capacity, production and utilisation are given below. The Indonesian companies hold a share of around 40% of the total capacity in the nation. However, Kajaria and Somany hold only 15% of the total capacity in India. This shows that the level of competition in India is very intense as compared to Indonesia. 

The Indian ceramic industry is larger than its Indonesian counterpart, but the production volumes and utilisation of the top two players are more in Indonesia. The Indonesian companies are utilising their capacity at approx. 95 to 100 percent.  Whereas, Indian firms operate at a lesser than 90 percent utilization rate.

Demand and supply in both nations

A comparison of the production level shows that both the nations are capable of manufacturing, but there are constraints to demand from the local market. India comprises more players in the ceramic industry in relation to Indonesia.

The distinguishing factor which matters the most is the preference of people for flooring, wall decoration and outdoors. The population in both these countries opt for different choices. India consists of more rural population than Indonesia as shown below, 67% of the Indian population live in rural areas with a mindset of mud flooring. On the contrary, the urban population in Indonesia is more than the rural inhabitants. The demand for ceramic tiles is greater in urban areas than the rural regions. Moreover, the demand for ceramic tiles in Indonesia is huge as people use these not only for indoor purposes but also for decoration. The inclination for tiles is not new in the nation and people use these to display a high level of living standard.

Indonesian ceramics market is influenced by the purchasing power in the country. An evaluation of the GDP per capita for both the countries shows that Indonesia’s GDP per capita is 3604 USD, while that of India is 1723 USD.

In rural India, the demand for ceramic tiles had been traditionally low, but the launch of different programs like sanitation for all by 2019, smart cities, Atal mission for rejuvenation and urban transformation and housing for all by 2022 will increase the demand in the near future.

Cost of production

In Indonesia, there is a slush supply of natural gas, but the challenge is energy distribution. Pipe network is yet to fully develop in the country. This is one of the reasons that manufacturing overheads for Indonesian are more as compared to Indian companies. Secondly, raw material which is used for production is available but is not refined and the high-end facilities are too expensive for manufacturers. It leads to a high import of raw material, which increases the cost of production. In India most of the raw material is purchased from the state of Rajasthan, all types of clay are abundantly available from the area and neighbouring regions.

In addition, roughly 25-30% of the overall cost is affected by the power and fuel costs. Prior to 2013, more than 80% of the players in the unorganised ceramic industry sector in India were using coal gas as the primary fuel for production. This led to low production cost for unorganised players in comparison to the organised ones. In 2013 due to the rising pollution level, the Gujrat High Court ordered a shutdown of the plants using coal gas. Thus, after the coal ban, all players shifted to natural gas and this led to high production cost. But relief came when long-term agreements were signed with the suppliers for the contractual price of natural gas. The pricing formula was linked to JCC (Japan Crude Cocktail).

The cost of goods sold for both the Indonesian firms were 50% of the Indian companies. The cost of goods included a majority of raw material cost as the raw material was imported, this resulted in the increase in production cost for the Indonesian companies. Although the raw material is imported in Indonesia but compared to Indian ceramic industry the cost of goods sold is lesser. 

Labour cost

Ceramic industry is labour intensive, after raw material and fuel, labour cost plays a significant role in the overall cost of production. Additionally, China and India are two nations, where labour cost is lesser than the other countries.

In the above graph, the labour cost per month per person is plotted, it also shows minimum wages for both countries. The graph depicts that the labour cost is higher in Indonesia as compared to India and this is increasing the production cost.

Exports and imports

In terms of exports in the Asian region, India is at the second position with a share of 9.35% and Indonesia is at the third spot with a share of 2.60%. Globally, India is at the fifth position at 3.4%. Indonesia is not part of the top 10 exporting nations. The Indian ceramic industry is very competitive as resources are easily available. India was at the 11^th position in global exports before 2014.

The anti-dumping duty levied on Chinese ceramic tiles by the EU expanded the scope for Indian players in the international market. The Indian government also supported the industry by cutting custom duty on raw material and imposed anti-dumping duty on Chinese tiles.

There are a variety of products on offer by Indian ceramic companies to compete in the international market. There are several types of ceramic tiles available in the Indian market such as glazed, vitrified, unglazed and mosaic. The demand for vitrified tiles, made in the Indian market, is increasing domestically and internationally. Hence, with the demand, the supply of the products has also increased. Imported ceramic tiles do not hold a significant share in the Indian ceramic market. These were there prior to 2013 in form of imports from China but diminished after the Indian government took steps like anti-dumping duty and supported the domestic market. 

Furthermore, the revenue per sq. metres of Indonesian companies is nearly half of the Indian companies. The Indian firms are able to earn commensurate revenue for their high production costs. This is both on account of the high level of differentiation in India and export of tiles from the nation.

The EBITDA per sq. metres is very low for Indonesian companies as compared to the two Indian firms. The real estate market was growing in Indonesia up to 2015 and decreased thereafter. In Indonesia, the raw material cost, selling and administrative expenses, and manufacturing overheads are still rising, which are substantially affecting the EBITDA per sq. metre for the companies. The EBITDA was low up to 2013 for the Indian companies as there were imports of Chinese tiles in the domestic market at a very low price. Thenceforth, the Indian government imposed anti-dumping duty on import of Chinese tiles and thus, the profitability of Indian companies improved.

In conclusion, it can be mentioned that the ceramic companies in Indonesia are managing their utilisation at superb levels with a lesser number of producers, but their operating expenses are eating away the profits. The growth of the Indian ceramic industry has been considerably higher than the industry in Indonesia, especially in the last 5 years and this will continue in the next decade. The Indian ceramic industry is getting more organised and there may be acquisitions of small independent players by large organised firms in the upcoming years.