Exxaro Tiles
Profile of the company
The company is engaged in manufacturing and marketing of vitrified tiles used majorly for flooring solutions. It commenced business as a partnership firm in 2007-08 as a manufacturer of frit, which is one of the raw materials used in manufacturing of tiles and has over the years, diversified, expanded and evolved into a manufacturer for vitrified tiles.
Its business operations are broadly divided into two product categories:
Double charge vitrified tiles: Double charge vitrified tiles are tiles that are fed through a press which prints the pattern with a double layer of pigment, 3 to 4 mm thicker than other types of tiles. This process does not permit complex patterns but results in a long-wearing tile surface, suitable for heavy traffic commercial projects.
Glazed vitrified tiles: Glazed vitrified tiles are flat slabs manufactured from ceramic materials such as clay, feldspar and quartz and other additives and fired at high temperatures to ensure high strength and low water absorption. These tiles are coated with glaze materials prior to the firing process.
As on date, the company supply products mainly in 6 sizes. It has 1000 plus designs in its product basket, which are marketed under its brand ‘Exxaro’. Its well-known brand series include Topaz Series, Galaxy Series, High Gloss Series, etc. It focus its research and development efforts on developing products which are innovative and in line with the trends. Some of its key product development highlights include: 1) 3D Effect in Double Charge Vitrified Tiles 2) Replica of Natural Stones in Double Charge Vitrified Tiles 3) High transparent glaze in weight method for glazed vitrified tiles. Further it also supply wall tiles to certain of its dealers wherein it get the products manufactured on outsourced basis. Its integrated model has allowed it to develop insights across the entire value chain right from product design, process development, manufacturing to marketing.
Proceed is being used for:
Industry overview
The Indian Ceramic Tiles industry is highly fragmented in nature, with many small-size family- owned entities. The industry enjoys some inherent advantages such as abundant raw material from indigenous sources, advanced infrastructure and low labour costs. The size of the Indian tiles industry is estimated to be around Rs 35,000 to Rs 40,000 crores in 2019 with exports comprising of close to 35% of the sector revenue. While, domestic sales were impacted, due to Covid-19-induced lockdown, one of the strictest ever lockdowns, imposed in the country, exports remained continued to grow in 2020 which restricted the decline in overall size of the industry to just 10-12% in 2020. Although, there has been concerns of exports declining in GCC countries due to imposition of anti-dumping duty, access to newer markets in Europe and North America due to anti-China sentiments will keep the growth in exports strong.
The sector is highly competitive because of the limited product differentiation and largely unorganised nature of the business. However, the share of organised players is increasing on account of their product innovation, adoption of latest technologies, expanding reach and branding activities. The organised players account for roughly half of the market size, and a few top players such as Kajaria Ceramics, Prism Johnson, Somany Ceramics, Nitco and Asian Granito control the majority chunk of the market. The domestic industry has also now moved on from traditional products such as floor tiles to other value-added products such as glazed vitrified tiles and polished vitrified tiles. Vitrified tiles are ceramic tiles with low porosity. Glazed vitrified tiles have a glazed surface and offers a variety of design, art work and surface textures. These value-added products are witnessing faster growth than traditional products do and are gaining share in the overall product segment.
Pros and strengths
State-of-the-art manufacturing facilities with strong focus on design and quality: The company manufacture majority of its products in-house at its two Units which have a combined installed production capacity of 1,32,00,000 sq.mt. p.a. Unit I is spread over 37,460 sq.mt. whereas Unit II is spread over 1,23,504 sq.mt. Its manufacturing facilities are fully integrated from raw material handling to finished goods warehousing process, and are equipped with latest key machineries such as Kiln, Press, Digital Printing, Glazing line (Unit II) enabling it to manufacture various sizes of products, minimise human labour involvement and achieving cost efficiencies. Its Unit II is one of the single largest plant for manufacturing glazed vitrified tiles under one roof in India. Its facilities are multi-purpose that are designed to allow a level of flexibility enabling it to manufacture various sizes of its products and provide it with the ability to modify and customize its product portfolio to address the changing requirements of customers with minimal future capital investments.
Widespread sales and dealers network: The company’s marketing model for its domestic operations is majorly divided into two parts: 1) Supply of its products through dealer-distribution network 2) Supply of products for infrastructure related projects and to private customers. It has maintained long term relationships with most of its dealers. Its dealer relationships are led primarily by its ability to develop new and trending designs, meet stringent quality and technical specifications and providing better pricing and delivery terms than that of its competitors. As a result, it has a history of high customer retention and has been manufacturing products for some of its customers since commencement of production at its Unit I. Its dealer’s network is aided by its capable in-house sales and marketing team which liaise with the dealers on a regular basis for customer inputs, market demands as well as positioning of its products vis-à-vis products of its competitor.
Wide product portfolio comprising 1000 plus designs: The company has gradually diversified, expanded and evolved its operations from manufacturer of frit (one of the raw materials in its manufacturing process) in 2007-08 to manufacturing vitrified tiles as per the needs of its clients and dealers. It engages in continuous product development and introduction of new designs to keep up with the trends and meet its customer requirements. Maintaining a wide range of designs and offering various sizes of its products in its business provides it with an opportunity to cater to diverse needs of different customer segment and capture higher market share. Owing to its qualitative products and competitive prices, its operating profitability margin is better than its other peers in the Industry, including some of the large players as well.
Experienced management and dedicated employee base: The company has an experienced management team with significant expertise in the ceramic industry. Their individual industry experience enables it to anticipate and address market trends, manage and grow its operations, maintain and leverage customer relationships. Further its employee base includes experienced senior executives, many of whom have been with it for a significant period of time. Its management team and other key managerial personnel of the company, are well qualified with significant industry experience and has been responsible for the growth in its operations. The experience and relationships with various stakeholders that its management team has, have enabled it to extend its operating capabilities, improve the quality of its products, continuously upgrade its processes and designs and achieve its growth in the ceramic industry.
Risks and concerns
Requires significant amounts of working capital: The company’s business requires a significant amount of working capital for smooth functioning. It meets its requirement for working capital majorly through banking facilities or internal accruals. In future, its inability, if any to meet its working capital requirements or inability to renew its existing working capital requirements through banking arrangements can adversely impact its business operations and financial position. The company intends to continue growing by expanding its business operations. This may result in increase in the quantum of current assets particularly trade receivables and inventories. Its inability to maintain sufficient cash flow, credit facility and other sources of fund, in a timely manner, or at all, to meet the requirement of working capital could adversely affect its financial condition and result of its operations.
Industry segments in which the company operate being fragmented: The company competes in ceramic tiles industry on the basis of the quality of its products, price, and distribution. The industry in which it operates is highly competitive. Factors affecting its competitive success include, amongst other things, price, demand for its products, availability of raw materials, brand recognition and reliability. Its competitors vary in size, and may have greater financial, production, marketing, personnel and other resources than it and certain of its competitors have a longer history of established businesses and reputations in the Indian ceramic tiles industry as compared with it. Competitive conditions in some of its segments have caused it to incur lower net selling prices and reduced gross margins and net earnings.
Depends on third party transportation providers: The company rely on third parties logistic service providers, with whom it has no formal arrangement, to provide rail, trucking and other transportation facilities for the transfer of raw materials to its manufacturing facilities and the supply of finished products to its customers. It also depends on sea borne freight in respect of import and export operations. Such logistics providers are arranged on spot basis and in certain cases may not be insured for the full value of the load that they are carrying. These transportation facilities may not be adequate to support its existing and future operations and there may be disruptions of transportation and logistics services due to weather-related problems, strikes, lock-outs, inadequacies in the road infrastructure and seaport facilities.
Derive revenue from operations from both domestic and export sales: The company exports to many countries namely Poland, Bosnia UAE, etc. Consequently, any adverse changes in these economies such as slowdown in the economy, acts of terrorism or hostility targeting these countries, etc. would directly impact its revenues and results from operations. In the event of change in policies or laws in these regions with respect to quality standards, branding or restrictions on usage of certain products, imposition of anti-dumping duties, etc. its financial condition and business operations may be adversely affected. In case of any contingencies in future due to which it is unable to operate effectively in these markets, its results from operations, revenues and profitability may be adversely affected.
Outlook
Incorporated in 2008, Exxaro Tiles is engaged in the manufacturing and marketing activities of vitrified tiles. The company manufactures Double Charge Vitrified Tiles (double layer pigment) and Glazed Vitrified Tiles made from ceramic materials i.e. clay, quartz, and feldspar. Its product portfolio consists of 1000+ different designs of tiles in 6 sizes. Topaz Series, Galaxy Series, and High Gloss Series are some of the well-established products of the company. It supplies its products to large infrastructure projects i.e. residential, educational, commercial, hotels, hospitals, government, builders or developers, religious institutions, etc. It also exports tiles to different countries across the globe i.e. Poland, Bosnia, USA, and others. On the concern side, the company’s business depends on its ability to obtain funds at competitive rates. The cost and availability of capital, amongst other factors, is also dependent on its current and future results of operations and financial condition, its ability to effectively manage risks, its brand and its credit ratings. It competes in ceramic tiles industry on the basis of the quality of its products, price, and distribution. The industry in which it operate is highly competitive.
The issue has been offered in a price band of Rs 118-120 per equity share. The aggregate size of the offer is around Rs 158.40 crore to Rs 161.08 crore based on lower and upper price band respectively. On the performance front, the company’s total income in Fiscal 2020 was on similar lines as of Fiscal 2019 and has decreased insignificantly by 0.02% from Rs. 2,440.06 million in Fiscal 2019 to Rs. 2,439.64 million in Fiscal 2020. Its profit after tax increased by 26.26% to Rs. 112.59 million in Fiscal 2020 from Rs 89.17 million in Fiscal 2019. The company intends to make consistent efforts to strengthen its brand ‘Exxaro’ and enhance its brand visibility by undertaking various marketing initiatives. It aims to focus on increasing its penetration in its existing markets by expanding its dealers’ network. The company intends to continue to invest in its in-house technology capabilities to develop customized systems and processes to ensure effective management control. It continues to focus on further strengthening its operational and fiscal controls.
| Company Name | CMP |
|---|---|
| Kajaria Ceramics | 1032.65 |
| HSIL | 253.15 |
| Somany Ceramics | 725.25 |
| Asian Granito India | 181.35 |
| Cera Sanitaryware | 4600.05 |
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