Lanka Tiles to export porcelain mosaic tiles with Rs. 200 m investment

Chairman Dhammika Perera	Lanka Tiles Managing Director Mahendra Jayasekera

• Forms key JV with Chinese firm for technical expertise and US agent for sales support
• Move made in light of US imposing anti-dumping duty on Chinese imports
• First Made in Sri Lanka shipment by April 2020
  
   

Lanka Tiles Plc is to invest Rs. 200 million as part of a key strategy to export porcelain mosaic tiles with foreign collaboration. 

It has entered into a tripartite agreement with Foshan Shiwan Yulong Ceramic Ltd. of China and Benjamin Malloy of Dallas, Texas in the US for this purpose. 

With the technical assistance of Foshan Shiwan Yulong Ceramic Ltd, Lanka Tiles will convert its present idle capacity of 2,000 m2 per day to manufacture porcelain mosaic tiles for export.

Lanka Tiles Managing Director Mahendra Jayasekara said the agreement was signed in the wake of Washington imposing an anti-dumping duty on ceramic and porcelain products of Chinese origin reaching the US. 

“This new tariff regime has created opportunities for other manufacturers of similar products to increase exports to the US,” he added.

Lanka Tiles envisages around Rs. 100 million in sales revenue for the company within the next two-three years from the sale of porcelain mosaic tiles in both the export and local markets.

“Under the agreement, shipping will start by April 2020. Further, the agreement is based on standard commercial terms that apply to similar arrangements where technical and sales support is extended by a third party,” Jayasekara added.

In the company’s FY18/19 Annual Report, Lanka Tiles Chairman Dhammika Perera had stressed the need to look beyond the domestic market as capacity enhancement coincided with a contraction in the domestic construction industry. 

“Currently exports amount to a mere 3% of our total sales and in order to grow we need to grow our presence in established markets and also focus on developing new markets. Trade tensions between China and the US, together with bilateral trade agreements, may create opportunities that need to be seized. Encouragingly, we have observed renewed interest from these markets and we are working to convert these leads into tangible orders,” he added. 

In the first six months ended 30 September 2019, the Lanka Tiles Group’s export sales amounted to Rs. 64.6 million, down from Rs. 128 million a year ago. In FY18/19, its exports were Rs. 218 million, up by 26% from the previous year. It exports to over 20 markets. Local sales were Rs. 3.3 billion, unchanged as in the first half of FY18/19. Its overall production capacity is 14,500 m2.

Last year Lanka Tiles invested Rs. 2.2 billion in enhancing its production capacity with the ability to manufacture a wider range of tiles in terms of design and size. 

“With this capacity enhancement, we have become the single largest tile manufacturing facility in the county and are geared to be on top of evolving global trends. We will continue to grow our contract manufacturing capabilities in India as we have identified this as a key area for potential growth while combating the intense competition coming from low-priced imports,” noted Perera in the Chairman’s Review of Lanka Tiles’ FY19 Annual Report.

Reflecting the weak demand and decrease in productivity due to trial runs for new designs and sizes, Lanka Tile’s profit after-tax for the year ended 31 March 2019 amounted to Rs. 528 million, reporting a decline of 47%. The company had to shut down the old kiln during the year to install a new kiln with larger capacity and this too had an adverse impact on productivity. Growth of 14% in revenue to Rs. 7 billion was achieved mainly through volume growth, which exerted pressure on margins. Finance costs increased by 1.4% as capital expenditure was funded by debt, further impacting the bottom line. In the long term, this trend is expected to reverse as loans get repaid, supporting bottom line growth.

On a more positive note, Lanka Tiles asset base grew by 36% to reach Rs. 11,906 million as its gears up for growth through new product and market developments.