Aniket PujariCracks have deepened in the share prices of listed tile makers.
Slower offtake due to sluggish demand and margin pressure amid industry headwinds signal a tepid finish to FY25. Stocks of Kajaria Ceramics Ltd, Cera Sanitaryware Ltd, Prism Johnson Ltd, and Somany Ceramics Ltd hit new 52-week lows in March, falling 24-32% so far this fiscal year.
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True, these are small-cap stocks, which tend to decline more sharply than large-caps during market corrections like the current one. Still, earnings risks—such as subdued exports—cannot be ignored.
Tile exports for the first nine months of FY25 were muted, falling 14.2% year-on-year, due to a weak demand environment and high freight rates, according to government data compiled by ICICI Securities.
“Freight rates have contracted around 62% since they peaked in July 2024 and are now around 10% below the 10-year average shipping freight rates. This is expected to improve exports out of India going forward, if the external demand environment remains steady,” said the ICICI Securities. report dated 12 March.
Listed tile makers are also grappling with severe pricing and margin pressures, which could ease if exports from Morbi, Gujarat, improve. A BOB Capital Markets report noted that Ebitda across its tile coverage universe fell 11.7% year-on-year in Q3FY25, with margins declining 193 basis points on year to 10.6%—well below the 10-year average of 15%. This was largely the result of weak retail demand and increased competition from Morbi players.
Furthermore, the latest management commentaries on volumes and margins do little to inspire confidence.
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Kajaria now expects 8-9% volume growth in FY25, lower than its initial double-digit target. Somany anticipates mid-to-high single-digit growth, noting that Ebitda margins could improve depending on the demand trajectory. Cera, meanwhile, projects lower single-digit growth, with its management cautioning that challenging market conditions continue to suppress growth, as demand has not recovered as expected.
So, Ebitda margin would take a few more quarters to bounce back to the 15%-17% range.
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Therefore, it is no surprise that several brokerages have trimmed their FY26 earnings estimates for tile makers following a weak performance in Q3FY25. While valuations have become cheaper, they may not be enough to lure investors, as the risk of further earnings downgrades looms if demand and margin pressures persist into FY26.
