Decorative stock: Nitco Tiles

Nitco Tiles is a play on the ongoing construction boom and the changing taste of consumers.

Despite strong competitive pressures in the domestic tiles industry, Nitco Tiles has been able to emerge as one of the largest players. The company, which was the fifth largest player about two years ago, is now the second largest player having a diversified product portfolio and a national distribution network.

Nitco, which mainly makes floor ceramic and vitrified tiles, is now charting a new growth strategy, expanding its existing capacities, investing in real estate and planning to increase exports. It wants to acquire increase its market share as well.

Compared to other developed countries, using tiles in flooring is still new as most Indian households still prefer the traditional stone tiling.

However, this is changing because of higher disposable income, strong demand from the retail and commercial real estate and increasing globalisation. Today, the industry is growing at about 20 per cent a year and is expected to do well.

Nitco is a leading brand with a market share of 15 per cent. It offers a diverse range of flooring solutions such as vitrified and ceramic tiles, and marble. Also, it will now leverage its network of 550 dealers and 5,000 retailers while diversifying into products such as wall tiles, sanitary ware and bathroom fittings.

REALTY TILES

Rs crore
FY07
FY08E
FY09E

Sales
413.1
575
790

OPM (%)
15.2
15
15

Net profit
38
51.75
71.1

NPM (%)
9
9
9

EPS (Rs)
17.1
23.3
32

PE (x)
18.9
13.9
10.1

Besides product diversification, Nitco is also looking at exports to the US and Europe. These are considered to be large markets offering high margins.

�As a part of our strategy to enter into the export market, we are in talks with players in Europe for a suitable acquisition or a JV with an established player,� says B G Borkar, CFO, Nitco.

Considering its long term growth plans, it is expanding its capacities. It will double its ceramic capacity at Alibaug to 24,000 square metre a day by March 2008. It is also creating 8,000 square metre per day capacity for vitrified tiles, which will be commissioned by January 2008.

�We currently outsource about 30,000 square metre per day of vitrified tiles form China. With this new facility our total vitrified tiles capacity will become 38,000 square metre per day,� says Borkar. Nitco, which operates at 100 per cent capacity, will be able generate an additional turnover of around Rs 300 crore from new capacities.

Nitco has grown revenues at about 50 per cent over the last three years. However, as the scale is increasing, it may not maintain this growth from the tiles business alone. It expects the tiles business to grow at 30-40 per cent over the next few years. However, to sustain higher growth in future, Nitco has entered into the real estate business.

The company has formed a wholly owned subsidiary Nitco Realties. It currently has land bank of 1.37 million sq ft area consisting of eight projects in south Mumbai, Alibaug and Thane. These properties are valued at Rs 405.2 crore by Knight Frank. Most of these projects will be completed and start reflecting in revenues by year 2010 and 2011.

Nitco has attracted institutional investors such as Promethean, Reliance Mutual and HSBC. At Rs 323, the stock is trading at a P/E multiple of 13.9 times its FY08 estimated earnings and 10 times FY09 earnings. Nitco Tiles can be a good long-term investment to play on India�s booming real estate sector as a supplier to the sector as well as a developer.

 

Source