The results are impressive considering that apart from Kajaria Ceramics and a couple of other players, no company could seriously ward off the competition from unorganised sector. The excise duty of 25 per cent still favoured the unorganised sector as most of them do not pay excise, taking advantage of the fact that their sales are under Rs 30 lakh. They float different companies to take advantage of the anomalies in the excise duty laws.

The operating margins have dropped by only a couple of percentage points to 26 per cent in 1997-98. This fall in operating margins has been due to the rise in the price of natural gas by around 10 percent, which being one ofthe major inputs, adds to around 1.5 per cent rise in expenditure. This rise could not be passed on to the consumer, because of the sluggish business conditions.However, net margins have taken a severe beating. These have fallen to 10 per cent last year from the 15.5 per cent in 1996-97.

The fall in net margins is due to higher interest and depreciation. Interest cost has risen from Rs 8 crore to Rs 13 crore, primarily because the company has fully drawn the loan of Rs 31.75 crore from IFCI. The commissioning of new plant having a capacity of 70,000 tonnes at Bhiwadi, in Rajasthan in March 1998 has added to the depreciation.Though the company believes the government move to construct 20 million houses and tax holiday for approved housing products will push demand, it is unlikely to happen in the near future.The additional supply of 70,000 mt could strain the realisations from sales. Even on the operating front, the approximate 10 per cent rise in natural gas prices every year till year 2000, wouldcontinue to hamper the operating margins. Hence, the profit margins at Kajaria will continue to remain under pressure.