India's largest retailer of tiles and sanitaryware says 50% of demand is back in just 15 days— shares of Somany Ceramics rose as much as 9%

• The shares of Somany Ceramics rallied as much as nearly 9% on May 21.
• Reports suggest that demand of tiles has not been hit as hard as feared.
• More importantly, the cash crunch and lack of production is squeezing the smaller, unorganised players from the market.

The shares of Somany Ceramics rallied nearly 9% on May 21 after one of the India's largest retailers of floor tiles reportedly said that the COVID-19 disruption has has not been hit demand as hard as feared. More importantly, the cash crunch and lack of production is squeezing the smaller, unorganised players from the market.



The return of the buyers

"Demand has been better than anticipated (50% versus 10% expectation) since their showrooms opened back on 6th May," an Edelweiss report dated May 18 said. What's better, people who come to the shops are more likely to buy than ever before — conversion rate is up to 80% compared to 50% earlier. The report rated Somany Ceramics as 'Buy'.

Edelweiss' findings were based on the inputs from Lakshmi Ceramics, India's largest retailer of tiles and sanitaryware based out of Tamil Nadu. "Tier-2 and tier-3 cities are better placed than metros with less number of cases and limited labour availability issues. Furthermore, demand from the retail segment (~70% of their sales) is likely to remain healthy as individual home buyers/owners are eager to complete the construction of their homes, whereas projects are likely to suffer from liquidity squeeze and labour shortages," according to the Managing Director Muthuraman.

This could be a morale booster for builders too who have been hit by a sharp slump in demand for residential housing. However, it is also possible that people are opting to renovate homes instead of buying new ones given the rising uncertainty over future incomes.

The unorganised manufacturers are getting pushed out of the market

While there have been no changes in credit terms so far, branded players such as Kajaria Ceramics, Somany Ceramics, and Nitco are offering cash discounts to receive payments. Smaller, unorganised players who form the biggest chunk of the manufacturing in this sector do not have that luxury. "Dealers/distributors are finding these schemes attractive and they are making payments to branded players on priority at the expense of unorganised players," the report added.

This will allow companies Somany and Kajaria to capture more customers from the unorganised sector, which makes for nearly half of the entire market, according to a CARE Ratings report last year.

Even competition from China will be at bay for a while. "Bigger architects used to go for China/Italy for purchases of premium-end tiles, but that is now ruled out for year or so. So, even the top-end of demand is likely to be catered by domestic players," Muthuraman told analysts.

All in all, a crisis may be turning into an opportunity for India's branded ceramic industry, which is the third largest in the world after China and Brazil.

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