euro ceramics ltd Management discussions

The Management at Euro Ceramics Limited is pleased to present the Management Discussion and Analysis Report which provides an insight of the Companys business, Industry structure, developments, outlook, opportunities, concern areas and performance of the Company with respect to the operations and other relevant information. This Report forms part of the compliance report on Corporate Governance.

Global Overview

Financial Year 2017-18 has been advantageous for the Global economy with a notable rebound in global trade. The global economy grew at an average of 3.7% (2017) as compared to 3.2% (2016), and is expected to accelerate to 3.9% in 2018 and 2019. Investment recovery in advanced economies, continued strong growth in emerging Asia, a notable upswing in emerging Europe, and signs of recovery in several commodity exporters are some of the key drivers behind strengthened growth. Although the global economy saw good growth, there are risks emerging from increased protectionism and trade tensions between major economies and from geopolitical developments in North East Asia and the Middle East.

Persistence Market Research digs deep into the global ceramic tiles market and offers a comprehensive forecast and procures some key information through organized market research. The report, "Ceramic Tiles Market: Global Industry Analysis (2012 2016) and Forecast (2017 2025)" gauges the market and predicts the future demographics and changes of the market. The report reveals that the residential segment will govern over and above 66.9% market share and it will heave at a CAGR of 10.0% during the forecast period (2017 2025)

It is anticipated that growth in ceramic tiles market could vary in co-relation with the construction industry. Increasing residential construction requires indoor and outdoor wall covering with ceramic tiles. Rising population will significantly boost construction needs, in turn increasing demand for ceramic tiles. Furthermore, increasing commercial construction is expected to drive the global ceramic tiles market. Increasing construction in Middle East countries is expected to upsurge demand for ceramic tiles. Asia Pacific is anticipated to dominate the global ceramic tiles market owning to positive outlook for construction industry in major markets such as India, China, Australia and New Zealand.

Industry Overview

India has witnessed a major economic reform in terms of tax regime with introduction of Goods & Service Tax (GST) from July 1, 2017. This tax regime, being at the elementary stage, is expected to result in improvement in logistics and faster movements of goods on one side and indirect tax reforms on the other side. The revitalisation of global economy continued during the financial year 2017-18 and the global economy ended with a lower benchmark owing to fears of trade work between developed economics.

The investors confidence in this volatile environment was reflected by being bullish and taking an advantage of the correction phase of capital markets during the year under review. And thus, the business growth has experienced good flow. Infrastructure, high end architectures coupled with real estate development is a must for maintaining such sustained growth and hence is on the highest priority of the Government making it to be the focal point for our economy. Increasing per capita income resulting due to all round economic high per capita spending affects the sale and off take of our products and we foresee a prosperous future ahead. The Industry strike witnessed during the year for reduction of GST Tax rates had a positive end with demand and purchases being rebounded.

The Indian tiles industry has been on a growth trajectory for the past few years and its capacity addition keeps increasing along with additions to the varieties like wall tiles, floor tiles, and vitrified tiles. As Governmental policies transform into on ground realities (which have already started in a small way), they promise to open the floodgates for business opportunities, especially for the Indian tiles sector, over the medium term. India is the third largest tiles market in the world. While the global tiles production grew at an annualized rate of 6.30% for the period 2006-2013, tiles production in India grew almost double at 12% during the same period. Ceramic tiles that accounts for close to 60% of the total tiles demand in India is expected to grow at a CAGR of 8.70% for the period 2014-2019.

Growth Drivers

The ceramics industry is a high-energy intensive sector and its demand in India and abroad is growing due to various factors. The key factors that are affecting increased tile off-take in India are as follows:

Urban housing shortage: According to the whitepaper, Indian Housing Industry by research and consultancy firm RNCOS, it is expected that the shortage of urban housing across the country will increase to an estimated 3.41 Cr units by 2022, mainly on the back of a demand-supply gap and rising levels of income among the working class seeking to purchase houses. Besides, migration of working class people from rural to urban areas is also generating the demand for affordable housing. Between 2015 and 2031, Indias pace of urbanisation is likely to increase at a compounded annual growth rate (CAGR) of 2.10%, which is estimated to be almost double of Chinas growth rate.

Increased spending: Aggregate consumer expenditure is likely to increase from Rs. 45 trillion in 2010 to nearly Rs. 150 trillion by 2020, a more than threefold increase in 10 years. This will be accompanied by an increase in affluent and aspirer households from 48 million to more than 100 million in the same time period.

Governmental initiatives: The ambitious Swachh Bharat enterprise intends to build 6 Cr toilets covering 4,041 statutory towns by 2019. The periodic maintenance of this infrastructure will catalyze demand for tiles. The Housing for All programme proposes to build around 6 Cr homes by 2022 4 Cr in rural India and 2 Cr in urban India. Under the Smart Cities programme, the Central Government has selected 20 cities to launch its large-scale urban makeover plan. It proposes to invest . 50,802 Cr. on these cities in the first phase of an ambitious plan to set up 100 smart cities.

Indias low per capita tiles consumption 0.5 sqm versus global average of 1.4 sqm.

Potential in the rural market: Only 4% of Indias rural population lives in houses with tile flooring and 63% lives in houses with mud flooring, entailing a huge opportunity for the tile industry.

Export Potential: The vitrified tiles market is one of the most dynamic in the world in terms of the kind of demand it generates. There is high demand for both high quality-high priced tiles and at the same time there is demand for economical and cost effective products. The market is currently in the growth stage of the life cycle and it is not expected to saturate in the near future. But as the market progresses a continuous shift is expected in marketing and distribution activities. As the market witnesses increasing competition alongside the rise of the substitutes, suppliers will be forced to look for innovative ways to sustain market conditions. Significant growth across all the countries in the region means vast opportunities for growth. It is, however, important to identify fast growth markets which offer abundance of growth potential.

Boom in Real estate demand: With boom in the real estate sector, the ceramic tiles market is expected to see further growth in the coming years. The report also notes the expanding production and consumption patterns of ceramic tiles in India, which is now the third largest producer in the world. With the introduction of modern technology in designing and manufacturing, the market has opened up new segments such as 3D tiles, germ-free tiles and artistic designer tiles.

SWOT Analysis


• State of the art manufacturing facilities

• Emphasize on Quality Products

• Established Brand

• Infrastructure and Locational Advantages to Plant

• Retained trained and skilled Human Resources


• Liquidity Crunch and shortages of Working capital

• Low Capacity utilization affecting the cost.


• Expected boom in Real Estate sector

• Demand from housing, commercial sector

• Increasing infrastructure and development.

• Governments initiative for basic sanitation with Swachh Bharat Abhiyan, make in India, Housing for All, Interest subsidy etc

• Industrialization and Urbanization

• Export Opportunities


• Changing technology

• Brand recall due to low spending on branding and sales promotion

• Competition from New entrants and established players

Future Outlook

Indias economy is well placed to grow at a robust pace over the next five years owing to strong domestic consumption and increase in Government spending on infrastructure. The implementation analysis and review of Goods & Service Tax (GST) mechanism will further simplify the supply chain and improve the operating environment and will act as an additional driver of consolidation at all levels market.

The Company is alert and in touch with the ground realities of the business dynamics and is confident of increasing its market share in all the spheres emerging as a leader in its segment. The overall business outlook for the Company is promising with improvement in the economic environment. Efforts towards optimisation and higher operational efficiencies are continuing. The Company examines the possibilities of revival to grab the attractive opportunities.

Risk & Concerns

For sustainable development in the global market one must be ready for some level of uncertainty. Greater the uncertainty the higher is the risk and to mitigate such risk the Company has adopted various risk management policies. The risk management function is integral to the Company and its objectives include ensuring that critical risks are identified, continuously monitored and managed effectively in order to protect the Companys business. Some of the possible risks identified by the Company are loss of consumer, branding, slower demand risk, technology obsolesces and for mitigating the said risks a formal reporting and controlling mechanisms is in place which ensures timely information availability and facilitate proactive risk management. These mechanisms are designed to cascade down to the level of the managers so that risks at the transactional level are identified and steps are taken towards mitigation in a systematic manner.

Opportunities & Threats:

There are diverse opportunities in Marble & Tiles industry due to large scale investment in Infrastructure, modern day architecture, interior designing, construction reforms and real estate activities. The constant growth of the Industry has escalated the demand for marbles and tiles substantially both in domestic and international markets.

Further, the World is indeed becoming a Global city. Your company believes that niche opportunities exist in the Global arena which, if exploited, would yield positive results. The company has accordingly built a business model tapping these opportunities and is also aligning its strategies to utilize opportunities in the domestic market. Your company deals in special range of Sanitaryware & Marbles having exquisite textures, designs and colors for which the overseas and domestic markets, both are very demanding.

The increasing growth in construction sector has escalated the demand for marbles sanitaryware and tiles both in domestic and international markets. Your Company has the necessary expertise and flexibility to quickly adapt to the changing market condition and capture the growth in sales leading to growth for the Company.

Internal Control

The Company has adequate internal control system in place which is necessary for business efficiency and safeguarding assets of the Company. It is in commensurate with the size of the Business as well as complexities of the Business and reasonable to provide the financial control and operational control. The Management of the Company is responsible for ensuring that Internal Financial Control has been laid down in the Company and that controls are adequate and operating adequately.

Internal audit is carried out by the external professional firm of Chartered Accountant and Audit Committee reviews the same on regular basis to ensure its effectiveness.

Human Resource, Health and Safety and Environment :

The Company endeavor towards building a strong bonding with the employees and to try to develop a healthy work atmosphere with its transparent policies. It has maintained a cordial relationship with the employees and keep motivated them by exposing them to different roles, assigning tasks and skill development and rewards for the improvisation.

The Company has policy for Safety. It believes in Safety at the first. It conducts program for health and safety awareness among the employees. The Company has also taken initiatives for clean and green environment by planting trees, using ETP plants for proper discharge of waste and reusing waste heat and water. As at March 31, 2018, the Company had strength of more than 120 employees.

Financial Statement Analysis:

Key Financial Information

During the year the Company primarily generated revenue from its marble division. Regardless the sanitaryware division being sold during the FY 2016-17, the Company still earned revenue in the current FY by utilizing the division for undertaking trading activities. The Vitrified Tiles, Wall Tiles and Aluminum Section plants were non operative during the year due to shortages of working Capital. There was no business from Realty Division.


Net sales from continuing operations, for the financial year 2017-18 were Rs. 1,935.44 lakhs against the previous years net sales of Rs. 1,069.08 lakhs, recording an increase by Rs. 866.36 lakhs.

Export revenue contributed around 2.34% in the total revenue during the year against 4.82% of previous year, showing a decrease in export sales. The total export turnover for financial year 2017-18 was Rs. 45.19 lakhs against Rs. 51.51 lakhs in the previous year.

Other Income of Rs. 142.06 lakhs during the financial year 2017-18, comprises of Interest on fixed deposits kept as margin money, rental income, profit on sale of fixed assets, foreign commission received and liabilities /provisions no longer payable written back. The other income for the year was decreased by 60.02 lakhs compared to previous year.


The total expenditure for the continuing operational business were at 5,373.09 lakhs in financial year 2017-18 as against Rs. 4,476.36 lakhs in the previous year, increased by 896.74 lakhs on account of purchase of stock-in-trade accounted in the sanitary division and cost of material.

Staff Cost for the financial year 2017-18 was of 351.60 lakhs, lower by 72.62 lakhs, compared to previous years cost of 424.22 lakhs, due to reduction in number of employees.

During the year Purchase of stock in trade was of Rs. 168.15 lakhs, against Rs. 13.03 lakhs of previous year, drastically increased by Rs. 155.12 lakhs due to trading activities of sanitory goods.

In cost of production the second major cost is Power and Fuel cost which amounts to Rs. 175.20 Lakhs in the financial year 2017-18 against Rs. 159.34 lakhs, due to increase in power consumption cost.

Finance Cost:

The Companys finance cost for the financial year 2017-18 was 44.14 lakhs, against 54.90 lakhs of financial year 2016-17, which mainly consist of interest on some of the borrowings, interest on late payment of statutory dues, bank charges and some foreign exchange fluctuations.


There is no change in the rates of Depreciation in financial year 2017-18. The Company has provided the depreciation of Rs. 1,971.88 lakhs for the financial year 2017-18 against the previous years Rs. 1,969.44 lakhs, based on estimated useful life of the fixed assets, for the continuing business assets.

Exceptional Item

During the year the Company has sold some of the land parcels and proceeds were used in repaying the debt of the Company. The profit from such sale of land parcels is considered as exceptional item. The total gain from such sale was 831.11 lakhs, shown separately as exceptional item in financial reporting for the year 2017-18.

Sources of Funds:

Share Capital:

There is no change in the capital structure of the Company during the financial year 2017-18.

Reserves and Surplus:

The Reserves and Surplus as at March 31, 2018 was negative at Rs. 11,274.33 lakhs, against negative Rs. 8,372.34 lakhs of previous year, increased by Rs. 2,901.99 lakhs, due to net loss incurred by the Company during the current financial Year.

Long Term Borrowings:

The long term borrowings are increased by Rs. 66.12 lakhs as on March 31, 2018 on account of deposits and loans regrouped.

Application of Funds:

Fixed Assets:

The Net Block of fixed assets stood at Rs. 17,152.89 lakhs with net reduction by Rs. 2,112.21 lakhs on sale of some of the properties during the year.

Investment and Long Term Loans & Advances:

There is no change in the carrying value of the Investment as at March 31, 2018 amounting to Rs. 134.10 lakhs.

Long term loans and advance were reduced marginally by Rs. 63.64 lakhs, from Rs. 4,846.33 lakhs as at March 31, 2017 to Rs. 4,782.69 lakhs in as on March 31, 2018.

Current Assets & Current Liabilities:

Current Assets of the Company as on March 31, 2018 was Rs. 8,323.31 lakhs, decreased significantly by Rs. 1,991.73 lakhs due to decreased in Inventories and Trade receivables.

Current Liabilities of the Company as on March 31, 2018 was Rs. 33,404.71 lakhs against Rs. 35,184.58 lakhs as on March 31, 2017, reduced substantially by Rs. 1,779.87 lakhs on account repayment of debt of secured lenders, pursuant to settlement arrangement with them.

Cautionary Statement:

Statements in this management discussion and analysis describing the Companys objectives, projections, estimates and expectations may be forward looking statements within the meaning of applicable laws and regulations. Actual results may differ substantially or materially from those expressed or implied. Important developments that could influence Companys operations include global and domestic financial market conditions affecting the interest rates, availability of resources for the financial sector, market for lending, changes in regulatory directions issued by the Government, tax laws, economic situation, significant changes in political and economic environment in India, applicable statues, litigations, labour relations and interest costs and other unforeseen events, if any.