In a bid to protect its bottomline and margnis from gas price volatility, ceramic and tile maker Orientbell Tiles is looking to tap into alternative energy sources even as it buys “lower cost” power from exchanges.
The Russian invasion of Ukraine has led to a jump in energy costs. Crude has breached the $100 per barrel mark and gas prices have gone up by over 50 per cent y-o-y.
Gas consumption accounts for close to 30–35 per cent of operating costs for the ceramics and tiles industry including Orientbell Tiles while the power basket which considers freight cost is over 35 per cent of the company’s operating expenses.
Prabhudas Lilladher, the brokerage firm, said while commenting on Q3 results of Gujarat Gas — a major industrial suppliers — that any resolution to the Ukraine crisis will ease gas prices. It added that there is strong downstream demand across ceramics, agro-chemicals and the pharma sector.
According to Himanshu Jindal, Chief Financial Officer, Orientbell Tiles, the company is already buying power from the exchanges (IEX) rather than taking it from the grid.
“Gas price volatility is a concern at the moment. And geo-political tensions have only increased prices. We are seeing 10–15 per cent benefit by buying power from the IEX versus taking it from the grid. Talks are on for securing alternative sources. But there has to be consistency in the sources before we can get them on board. This is apart other cost control measures like ensuring minimum process losses and so on,” he told BusinessLine.
Product re-engineering is also on to see that energy consumption at the time of making is lower.
Sustaining EBITDA margins
Jindal said, the company was able to sustain EBITDA margins between 10-11 per cent in the last few normalised quarters by implementing 10-12 per cent price increases over the last 9 months to offset the impact of increased energy and other costs.
Random price hikes at this juncture could also spook demand which is just returning to organised players as units in Morbi (in Gujarat) — the country’s ceramic and tiles manufacturing hub — continue to focus on the export market.
In Q2 and Q3, the markets were “conducive” for a price hike and remained buoyant despite the announced hikes; any further increases would largely depend on market dynamics apart from underlying inflationary cost trends.
“In Q3 (the quarter ended December), realisations improved by 17 per cent, driven by a mix of price hikes and improving demand because of better product mix. Roughly 25–30 per cent of improved realisations came on the back of a better product mix,” Jindal added.