Over 25 ceramics manufacturing units closed in Gujrat, Gujranwala

RECORDER REPORT

FAISALABAD: More than 25 Ceramics Manufacturing Units have been closed down in Gujarat and Gujranwala districts during the current year 2011 due to fuel and energy shortages, primitive methods of manufacturing, inability to assemble and deploy intellectual, human and financial resources effectively, lack of vision for growth, limited perception of business requirements and restricted funding sources.

In a survey report conducted by International Finance Corporation of World Bank Group with the cooperation of State Bank of Pakistan and Owners of the Ceramics Industry, it was pointed out that this sector does not experience seasonal fluctuations and is fairly dependent upon business conditions. The business suffers from lack of technology and good quality raw materials which affects the quality of the product to great extent.

Therefore, Ceramics Industry has a heavy reliance on their suppliers and most of the businesses rely on more than five suppliers according to our primary survey.

According to Pakistan Ceramics Manufacturing Associations, the businesses in Ceramics Industry approach their customers, which are retail shops, by paying personal visits and arrange agreements. Most of the businesses have pre-selected retailers to whom they sell their products. Only about 10 percent have their own retail shops.

Survey disclosed that around 56 percent businesses have no fixed asset requirements as majority of them face issues related to availability of power and supply of gas, which are considered major constraints for growth. However, these businesses show a high requirement for working capital/overdraft requirement. The remaining 44 percent require fixed asset from which majority require finance for machinery and equipment.

Ceramics Industry is generally underserved with respect to financing and banking products. The businesses operating in the segment are hesitant to obtain financing and to have a closer and long-term relationship with banks and financial institutions due to lack of awareness, survey pointed out.

According to IFC survey, working capital is dependent upon payment terms offered to customers and received from suppliers. Ceramics sub-segment operates on payment from retailers and wholesalers and in some instances they export directly to international market. As evidenced from primary research, 61 percent of businesses have payment terms offered to customers and received from suppliers are within one month, overall indicating a short working capital lifecycle. Half of the businesses in this segment do not prepare formal financial statements. However; Ceramics Industry owner do prepare single entry records and/or cash registers for bookkeeping purposes. About 44 percent of them claim to prepare financial statements from which only 5 percent get their accounts audited from chartered firms. Owners/managers keep track of accounts themselves, their lack of accounting knowledge and experience presents a constraint for preparation and keeping an organised track of cash movement.

As per research findings, none of the business owners in the segment had carried out a formal assessment of their financial positions with regards to capital invested, business assets employed, annual revenue, income and expenses. The information gathered was an estimate provided to us by the interviewees.

Business owner's reluctance and non availability of proper accounting records presents an issue for calculation of segment's benchmark financial ratios. Devising from the information attained in the course of primary research, the indicative ratios will be an estimate at best and cannot be utilised to assess an accurate position of the individual businesses operating in the segment.

Conclusively it can be said that there exists an ample demand for good quality ceramics and glass products and can compete well in international markets. The existing scenario provides ample opportunities for entry into this business.

According to survey, funds are mostly managed by the owners themselves, mainly required for business assets and working capital, which are mostly fulfilled by their own personal savings, or borrow from friends and family or cash flows from the business. Among the fixed assets, finance requirements mainly centered on machinery and equipment of the business.

Survey mentioned that ceramics industry requires good quality raw material for the manufacturing of its products. However this means purchasing the raw material for higher cost than the average which adds serious cash flow problems to the business. Working capital financing can provide the SMEs in the segment with further room for growth with by allowing them to purchase new merchandise when a new vehicle or motor cycle model arrives in the market.

Unavailability of international standard machines in the ceramics sub-segment poses a grim picture for its future growth at local and especially at international level.

Pakistan's ceramic sub-segment can be divided into two major categories; roof tiles and sanitary ware. Roof tiles is a fairly organised sub-segment and has gained popularity, especially with the lower income segment of the population due to their low cost, durability, easy installation and maintenance as compared to concrete roofs.

Demand for construction remains constant throughout the year. However, construction activities slow down in some parts of the country where weather is extremely cold in winters. Ceramics sanitary wares and tiles are essential consumer items in the urbanised areas of the country. With rapid urbanisation and new construction, the demand for tiles and sanitary wares has increased manifold over the last three years. It is however a relatively unorganised sub-segment and is dependable on the quality of raw material available to it.

According to Pakistan Ceramics Manufacturing Association, ceramics industry has been unable to meet foreign and local demands due to slow manufacturing process and shut down of many units. The industry consists of small, medium and large corporations involved in the manufacturing of the ceramics. The annual capacity of large enterprises vary largely to 2,000 Sqm and above, while in the SME enterprises, annual capacity ranges between 800 Sqm and below.

There are seven ceramic tile manufacturing industries with installed capacity of 22 million Sqm per year and production of 18.7 million Sqm per year. The production figure has risen from 10.6 million Sqm in 2003-04 to the 18.7 million in 2009-10, depicting significant potential for further growth.

Poor quality of raw material and old techniques involved in production has seriously affected exports as well as imports of ceramics. The unavailability of international standard machines also led to inferior production quality and low capacity. Furthermore due to non-availability of gas supply, the industry is barely able to meet its local demands.

Commenting over the future prospects, IFC survey revealed that the ceramics sanitary wares and tiles are essential consumer items in the urbanised areas of the country.

With rapid urbanisation and new construction, the demand for tiles and sanitary wares has increased manifold over the last three years. Manufacturing units in the sub segment are densely populated in Gujranwala and Gujrat areas due to ready availability of raw materials. Demand for ceramic products is predominantly dependent upon economic activity, which drives the income levels of potential customers. Most businesses are family owned with members of one family serving different functions of business. Underlying issues inherent to the sub segment include; Inconsistent demand; Fuel shortages; Primitive methods of manufacturing; Inability to assemble and deploy intellectual, human and financial resources effectively; Lack of vision for growth; Limited perception of business requirements and restricted funding sources.

Businesses in the ceramics industry are widespread throughout various locations in rural and urban regions in the country.