Feasibility_Study_Qatar_Ceramic_M by Sutherland Global Services

Case Study and Sample Slides Qatar: Assessment of the Ceramic Sanitary ware Market

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Assessment of the Ceramic Sanitary Ware Market in Qatar Client • A leading GCC-based private equity firm focused on start-ups and mid-markets

Client Ask • The Client was evaluating a proposal from a leading distributor of ceramic tiles in the GCC region to establish a manufacturing facility for ceramic sanitary ware in Qatar. The Client hired SGS for validation of the opportunity, business plan and financials, particularly: – Market size by products in terms of value and volume – Competitive landscape - Market share, pricing and SWOT – Distribution channel and marketing strategy – Costs of production, margins, marketing and sales budget, capex and opex requirements

Sutherland’s Solution • SGS conducted several in-depth interviews with participants in each segment of the value-chain, i.e. manufacturers, distributors and realty players, technical consultants and plant engineers • An exhaustive secondary research was also performed to derive cross-country benchmarks, industry understanding, raw material prices and financial / performance benchmarks

• Benefits to the Client • A detailed report outlining the size of the market, expected growth, major segments and profitability by segment, competition, and emerging market trends • A detailed financial model based on rigorously-tested assumptions was built. The model used insights drawn from primary interviews on issues such as production mix, pricing, expected scaling of production, input / output norms for key raw materials, and taxes. Estimates for working capital requirements among others were factored in based on secondary and primary findings

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Global Ceramic Sanitary Ware (CSW) industry is estimated to grow at 7-8% during 2008-13

$ in billion 2004 Source: XXX

Global CSW Market in Volume

Pieces in mn

Global CSW Market in Value

2008

2004

2009F 2010F 2011F 2012F 2013F

2005

2006

2007

2008

Source: XXX

•

In value terms, the global CSW market had almost reached $X billion in 2008, grown at a CAGR of 4% in 2004-2008

•

In volume terms, however, demand for CSW has increased at a little faster rate, a CAGR of 7% in 2004-2008, reaching around XXX million pieces

•

According to the Turkey CSW 9th Development Plan, demand for CSW is expected to rise 7-8% per year through 2013 on the back of likely continuation of demand for refurbishment in future and also housing demand to be created by the rural-urban population migration

•

Wash basins & water closets together continue to dominate the global CSW industry in both value and volume terms, with a share of more than 50%

•

World-wide leading suppliers of CSW include American Standard, Kohler, Rocha, Sanitec, Toto and Boch

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GCC ceramic sanitary ware industry has experienced doubledigit growth due to robust growth in real estate activities GCC Ceramic Sanitary Ware (CSW) Industry Size â&#x20AC;&#x201C; Value and Volume

2005

2006

2007

2005

2008

2006

2007

2008

Sources: SGS Estimates, Primary Research

GCC CSW Industry, Driven by Real Estate Activities*, Forms a Negligible Part of Total Real Estate Activities

20%

0.3% 0.2% 0.2%

0.2%

0.2% 0.1%

QR in bn

16% 12% 8% 4% 0%

0.0% 2003

2004

2005

GCC Real Estate Activities

2006

2007

CSW as % of Real Estate Activities

2003

2004 GCC GDP

2005

2006

2007

Real Estate as % of GDP

Sources: Global Investment House, IMF, SGS Analysis

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Qatar CSW industry likely to experience moderation ahead due to global recession Qatar CSW Industry Size** – Value

QR in mn

In 2006, this industry witnessed the highest growth due to increased construction activity on account of the 2006 Doha Asian Games

2005

2006

2007

2008

2009F

2010F

2011F

2012F

** Industry size is based on import data sourced from UN Statistics

Sources: UN Statistics, SGS Estimates, Primary Research

Qatar CSW Industry Size** – Volume

Pieces in '000

Total volume has grown at a slower rate as compared to value growth, witnessing an increase in the average price

2005

2006

2007

2008

2009F

2010F

2011F

2012F

** Industry size is based on import data sourced from UN Statistics

Sources: UN Statistics, SGS Estimates, Primary Research

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Medium-priced products segment has the largest share in the CSW industry; growth in commercial projects CSW Industry Segmentation by Price-Point 2008 – XXX MN • Premium products are sourced for luxury-themed projects like premium housing, luxury hotels and premium corporate complexes

Premium 14%

Medium 55%

• Most government-funded projects also source premium products

• Medium is the most popular segment with a 55% market share • Commercial projects (like shopping malls, multiplexes, office buildings, hotels, etc.) prefer to source mediumpriced products

• Medium segment is expected to grow Budget faster in comparison to other segments, owing to the estimated growth in 31% • Budget or mass products are popular in residential projects commercial construction projects • Individual purchases during renovation and repair also fall under this category • A significant proportion of budget products are sourced from China & India

Qatar CSW Industry Size** – Volume Customer Segments

2008 – XXX Mn • Customer segments for ceramic sanitary ware products are broadly divided into residential and commercial construction projects

Residential 25%

Commercial 75%

Office Complex 40% Shopping Malls 20% Hotels 15%

• With commercial projects making up three-fourths of total demand, demand for medium-priced products is expected to rise • Among commercial projects, office complexes form the largest category. This is not surprising as the Qatari government is leaving no stone unturned to position Qatar as one of the important financial centers within GCC

Sources: Primary Research, SGS Estimates

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Distributor cum retailers remain the dominant channel for ceramic sanitary ware product sales

Foreign Ceramic Sanitary Ware Manufacturers

Direct Selling** (X%)

Direct Supply (Y%)

There is no local manufacturer of ceramic sanitary ware in Qatar

They act as a reference point between manufacturers and distributor cum retailers. Top players include Middle East agents

Agents (Z%)

Distributors / Traders / Retailers (A%)

Individuals & Residential Developers (B%)

Private Commercial Developers (C%)

All distributors / traders have their own retail showrooms to sell products directly to customers

Government Projects (D%)

** Only top manufacturers such as RAK, Saudi and Boch sell their products directly to customers. In fact, CCC has its own retail showroom in Qatar Sources: Primary Research

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Distribution cum retail channel for ceramic sanitary ware products is fragmented: top 3 comprise 33% of the market share Distribution cum Retail Channel – Market Share

Other Major Traders: 6%

67%

Nabina Jamco

United Supplies Others

22%

• Nabina, the biggest distributor cum retailer, accounts for 22% of the market share as it is the only seller of RAK Ceramics - the largest selling brand in Qatar • There are around 200 distributor cum retailers (DcRs) in Qatar • Majority of DcRs have an exclusive agreement with manufactures for selling their brands. This means a brand sold through one DcR cannot be sold through other DcRs. For example, Nabina is a sole distributor of RAK Ceramics and Toto

Sources: Primary Research

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Price Level, Distribution Margin and Support from Manufacturer

Price Level

Distribution Margin

Support from Manufacturer

• Average distribution margin for sanitary ware products varies between xx% and xx% • Distribution margin for premium products is higher at xx% to xx%, while budget products have lower distributor margin at xx% to xx% • DcRs receive such double-digit margin even after bearing import duty of xx% on cost price

• Manufacturers don’t contribute financially to promotional activities carried out by distributor cum retailers (DcRs) • Manufacturers offer discount on large orders and also meet distributor cum retailers once in a month to discuss all market / product related matters • Typical credit period provided by manufacturers ranges between 60 days and 120 days

Sources: Primary Research

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Financial Model â&#x20AC;&#x201C; Screen Shots Profit & Loss Statement

Initial Investment

Demand Drivers

Operating Drivers

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Gross profit margin level in the range of 35-40% across the globe Gross Profit Margins • For a ceramic sanitary-ware manufacturer, gross profit margins have remained around 40% but considering the global financial outlook, the same have fell in the range of 35-40% during last couple of years • In addition, rising cost of raw materials and energy has brought the profit margins under further pressure

Source: Company reports

Average Price and Cost per Unit (AAA) Average price (LE/pc) 125

Average cost (LE/pc) 122.7

110.0

108.9 100.7

100

95.8

75 75.5 50

55.0

58.2

61.1

2004

2005

2006

81.0

• For example, AAA’s gross profit margins have reduced by as much as 33%, from 50% in 2004 to 34% in 2008. The same effect can also be observed in leading European manufacturer, CCC. However, the largest manufacturer in the Middle East region, BBBs, has suffered minor loss in gross profit, mainly due to cheaper energy prices • This diminishing gross profit margin effect can be observed In terms of the average per unit price differential between the manufacturing cost and selling price, which have reduced to 41 in 2008 from 55 In 2004 for AAA

0 2007

2008

Source: Company reports

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