Price of natural gas, a major cost component for tile manufacturing companies, is soaring and this is a key overhang for Kajaria Ceramics. The company’s share traded flat intra-day on September 29, while it declined 2.5 percent on September 28, closing Rs 28 lower at Rs 1,232, on the National Stock Exchange.
Peers Somany Ceramics, Exxaro Tiles and Orient Bell ended the day in the red, 1-2 percent lower. So far, in 2022, Kajaria Ceramics has declined almost 9 percent.
“According to our estimates, gas cost could be around 60 percent of the total cost of production (it used to be around 35-40 percent earlier). Gas cost was 40 percent of the tile realisation for Kajaria Ceramics in Q1FY23,” Achal Lohade, Consumer Discretionary Research Analyst, JM Financial, said.
India imports close to 55 percent of its natural gas requirements. With Russia escalating tensions and allegedly sabotaging the Nord Stream pipeline, natural gas prices have been soaring as Europe stares at an energy crisis.
In the last two months, Singapore spot gas prices rose 69 percent. Gujarat Gas prices have also surged from Rs 34.2/scm (standard cubic meter) in June 2021 to Rs 64/scm in September 2022.
“Gas prices have increased over the past 18 months, given the rise in crude oil price and rupee depreciation. Within this, Ras Gas price are linked with the three-month average of Brent crude price. Hence, it will see an increase of 9 percent QoQ,” said Lohade.
According to JM Financial’s estimates, gas cost for Kajaria was Rs 59.3/scm in Q1FY23. For Q2, it will be Rs 68.5/scm, and, for Q3, it will be Rs 67.3/scm.
Several players in Gujarat’s Morbi region, popularly known as the ceramic city, have been switching to propane as an alternative to natural gas. But that’s not an option for Kajaria Ceramics.
In the Q1FY23 earnings concall, Chairman and Managing Director Ashok Kajaria explained: “We have no reason to go to propane because what you are seeing today in terms of gas prices is not something which will be there for all times to come. With the kind of volumes we are dealing with, we cannot use propane or LPG. We have to run on line gas.”
Peers Somany Ceramics, Exxaro Tiles and Orient Bell ended the day in the red, 1-2 percent lower. So far, in 2022, Kajaria Ceramics has declined almost 9 percent.
“According to our estimates, gas cost could be around 60 percent of the total cost of production (it used to be around 35-40 percent earlier). Gas cost was 40 percent of the tile realisation for Kajaria Ceramics in Q1FY23,” Achal Lohade, Consumer Discretionary Research Analyst, JM Financial, said.
India imports close to 55 percent of its natural gas requirements. With Russia escalating tensions and allegedly sabotaging the Nord Stream pipeline, natural gas prices have been soaring as Europe stares at an energy crisis.
In the last two months, Singapore spot gas prices rose 69 percent. Gujarat Gas prices have also surged from Rs 34.2/scm (standard cubic meter) in June 2021 to Rs 64/scm in September 2022.
“Gas prices have increased over the past 18 months, given the rise in crude oil price and rupee depreciation. Within this, Ras Gas price are linked with the three-month average of Brent crude price. Hence, it will see an increase of 9 percent QoQ,” said Lohade.
According to JM Financial’s estimates, gas cost for Kajaria was Rs 59.3/scm in Q1FY23. For Q2, it will be Rs 68.5/scm, and, for Q3, it will be Rs 67.3/scm.
Several players in Gujarat’s Morbi region, popularly known as the ceramic city, have been switching to propane as an alternative to natural gas. But that’s not an option for Kajaria Ceramics.
In the Q1FY23 earnings concall, Chairman and Managing Director Ashok Kajaria explained: “We have no reason to go to propane because what you are seeing today in terms of gas prices is not something which will be there for all times to come. With the kind of volumes we are dealing with, we cannot use propane or LPG. We have to run on line gas.”
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