Gas prices may shut 20% Morbi plants: Somany says

Why this matters for India’s tile industry

Rising natural gas prices linked to the war in the Middle East are likely to speed up consolidation in India’s tile manufacturing sector, according to Abhishek Somany, Managing Director and CEO of Somany Ceramics. In an interview at the company’s Noida office, Somany said higher energy costs are forcing inefficient plants to shut, particularly in Morbi, Gujarat, which is India’s largest tile manufacturing hub. He estimated that about 20% of India’s inefficient tile plants could shut in the coming years. For Morbi alone, he put the base at around 850 plants and projected that 20% could shut. The comments come at a time when the sector is also dealing with labour constraints, uneven demand, and pressure from discounting in parts of the market.

Somany’s shutdown estimate: 20% of Morbi’s 850 plants

Somany said rising gas prices are pushing consolidation across the tile industry, with inefficient manufacturers finding it harder to operate profitably. He estimated that 20% of Morbi’s roughly 850 tile plants could shut, implying about 170 units. He also said he believes 70 to 80 plants have already shut in Morbi, and more could follow if the cost environment remains tight. In his view, the only way for inefficient plants to survive is to set up new plants. But that upgrade path is becoming more expensive due to imported equipment costs and logistics. The expected result, he said, is that production could increase overall but become more consolidated among fewer, stronger players.

Energy costs and imported equipment: why smaller players are vulnerable

Natural gas is a key input for ceramic manufacturing, and Somany described it as the company’s biggest raw material. He said gas costs have been broadly stable on a quarter-on-quarter basis, within a range of plus or minus ₹3 per quarter, even as war-driven price risks remain in focus. Still, he linked the consolidation trend to increasing gas prices and higher costs of maintaining or upgrading plants. He pointed to European machinery as a major cost factor for expansion and modernisation, saying equipment largely comes from Europe. He cited the euro at around ₹110, alongside higher freight costs, making new plant setup more expensive. That combination, he argued, raises the bar for smaller operators that need capital investment to stay competitive.

Morbi’s near-term operating picture: labour shortage and ramp-up

Beyond energy, Somany described operational friction in Morbi due to labour availability. He said Morbi faced a major labour shortage, and that, at the time of the discussion, roughly 60% to 65% of Morbi was up and running. He added that he believed the figure could reach about 85% by the end of the month, with more units returning to capacity. This matters because Morbi’s utilisation levels influence domestic pricing intensity and inventory movement across the distribution chain. Somany also indicated that Morbi shutdowns can follow seasonal patterns around Janmashtami, while adding that the current situation had “a little extra” shutdown effect because exports, Morbi’s biggest revenue generator, were hit.

Somany’s operations: PSU gas sourcing and fuel mix

Somany said the company did not face gas shortages or shutdowns that impacted the Morbi region for about 40 days. He attributed that stability to sticking with Indian public sector suppliers rather than shifting to spot-priced propane or LPG. He cited sourcing relationships with GAIL in the north, GSPCL in the west, and IOC in the south. The company also uses a mix of natural gas, propane, and biofuel across plants, and said it is using biofuels “to the maximum.” On pricing exposure, he said the north plant is insulated from Henry Hub price spikes due to diversified gas sourcing. He also said recent Gujarat price changes had minimal impact, with an average gas price of about ₹44 per SCM expected to edge down to around ₹42 to ₹43.

Demand signals: housing pipeline, large-format tiles, and commercial build

Despite supply-side stress in parts of the industry, Somany said he remains optimistic about demand prospects. He cited a strong real estate pipeline and a rise in adoption of large-format tiles. He also pointed to sustained growth in commercial construction as a supportive factor. Separately, he said domestic demand has improved, with better walk-ins and dealer feedback. But he also acknowledged the market has seen pressure from Morbi’s domestic push, with material that was earlier aimed at exports being diverted into India due to higher freight costs. He maintained that this did not affect Somany’s pricing directly because he described that material as inferior quality, but said it did affect dealer psychology and stock holding.

Max plant losses: trajectory and timeline to breakeven

Somany said the company is facing challenges in stabilising its Max plant, and losses are expected to continue into FY27. However, he indicated an improving path, saying the Max plant’s losses are expected to reduce significantly from about ₹26 to ₹27 crore this year to below ₹10 crore next year. He said the plant is anticipated to reach breakeven in about 18 months. He also indicated the possibility of a profit situation in FY27-28. He added that losses from the Max, Amora, and Acer plants affected consolidated numbers. The company’s capacity utilisation, he said in a separate discussion of FY25, declined by 8 percentage points to about 81% from 86% in FY24, while he put the industry at 70% to 75%.

Prices, exports disruption, and the Morbi discount overhang

On pricing, Somany said the company does not expect prices to fall further. He said Somany’s prices declined by 2% to 3% last year, while the industry average decline was around 10% to 15%, and prices are likely to remain stable this year. On exports, he pointed to a slowdown for Morbi-linked exports, and in another context said ₹6,000 crore worth of exports were disrupted, leaving surplus capacity searching for domestic demand. Somany also said exports are a minuscule part of Somany’s revenue and are not more margin-lucrative than India for the company’s mix. He said Somany exports mid-end and upper-end products, unlike Morbi, which exports a larger share of low-end and mid-end tiles.

Policy asks: GST on gas and enforcement against tax evasion

Somany highlighted two policy priorities. First, he urged that natural gas be brought under the ambit of GST, saying the current system breaks the input tax credit chain and raises costs. Second, he called for stricter enforcement against tax evasion and under-invoicing in Morbi, saying market-level distortions hurt compliant players. He framed both issues as necessary for a level playing field, especially as the industry moves toward consolidation. In his view, smaller unorganised players are shutting because their business models are no longer viable amid cost volatility and weaker export absorption.

Key figures at a glance

Market impact and what investors should track

Somany’s comments point to a cost-driven shakeout that could reallocate market share toward larger, more compliant manufacturers. If shutdowns deepen in Morbi, near-term supply patterns could shift, even as Morbi ramps utilisation back toward 85% as labour availability improves. For organised players, the key watchpoints remain energy procurement strategy, ability to pass through costs, and execution on plant stabilisation, particularly the Max plant’s targeted loss reduction and breakeven timeline. Investors will also watch whether policy changes such as bringing gas under GST gain traction, and whether enforcement on under-invoicing in Morbi increases. On demand, the company’s stated confidence rests on real estate activity, large-format tile adoption, and commercial construction, alongside reported improvement in walk-ins and dealer feedback.

Conclusion

Rising gas prices, higher freight, and expensive European machinery are tightening the economics for smaller tile manufacturers, and Somany expects this to accelerate consolidation, with about 20% of Morbi’s plants at risk of shutting. Somany Ceramics says it avoided recent gas-related disruptions through PSU-linked sourcing and a diversified fuel mix, while continuing to manage plant-level performance issues such as the Max unit’s losses. The next signals for the sector are likely to come from Morbi’s operational ramp-up, policy movement on GST for natural gas, and whether export conditions and freight costs stabilise enough to ease domestic oversupply pressure.