We expect exports to contract by ~8-10% in FY2025, mainly due to the impact on India’s two major exports hubs — USA (owing to likely imposition of ADD) and Europe — given the continued sluggish residential markets.
The decline could be even sharper if the Red Sea crisis persists for a prolonged period. India’s ceramic tiles export to Europe and the Americas has been impacted in recent quarters because of the increase in logistics cost, thus affecting competitiveness. While freight rates have eased sequentially, the logistics cost remains higher on a YoY basis and, hence, continues to impact the export demand.
Demand from the domestic market remains resilient in the backdrop of a favourable outlook for the real estate sector. Consequently, the overall revenue growth of the sector is estimated at 7-9% for FY2025e, primarily supported by domestic demand, whereas exports are likely to remain a drag in the near term. The share of domestic revenues is relatively higher for larger entities compared to small/mid-sized ones, as large entities enjoy pricing flexibility owing to their strong market position.
Notwithstanding the expected contraction in exports, the revenue is likely to grow by 7-9% on a YoY basis in FY2025e, aided by growth in the domestic residential estate sector. ICRA expects industry capex to moderate from 8-9% of operating income (FY2023 and FY2024) to below 7% in the current fiscal, as the tiles companies shift their focus towards improving operating efficiencies and capacity utilisation. The industry’s operating margins are expected to remain flattish at ~11-12% in FY2025, as operating leverage benefits and moderation in input costs are offset by intense competition and supply overhang pressure on realisations.
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