Following a poor demand for ceramic tiles in 1997, the industry has reduced capacity utilisation to an average of 60 per cent from a previous average of 80 to 85 per cent capacity utilisation.

The industry is likely to witness a major shakeout in the current fiscal with only a few of the larger players surviving, say industry sources.

According to industry reports, there are 32 players in the organised ceramic tiles market, which has a total capacity of around 6,50,000 tonnes per annum.

The organised sector contributes to around 52 per cent of the total production capacity, with the unorganised sector pitching in the remaining 48 per cent. The organised players, who had expanded capacity in 1995 following a boom in the real estate scenario, are now in a financial mess, said a source in the southern ceramics manufacturing sector. The current margins on ceramic tilesare also piteously low adding to the financial burden of these companies.

The squeeze on the margins is compounded by an excise duty structure which charges 25 per cent of excise duty on ceramic tiles which the rest of the ceramic industry including the sanitaryware segment enjoys 15 per cent excise duty.

With the poor realisations, the ceramic tiles manufacturers are not even able to meet the overheads of Inventory has also piled up in the last year, which saw supply overtaking demand by 15 to 20 per cent. The manufacturers have had no option but to cut down on production.

But even this does not offer the industry much respite as manufacturers are now unable to enjoy the benefits of economies of scale, mourned an industry source.

While major players have been adversely affected the scenario for the smaller players is much worse, leading to the closure of many small companies in the organised sector, said the industry source.

The industry is hoping for an offtake in demand to ease the situation.