RAK Ceramics Q2 profit falls amid construction slowdown

Abu Dhabi-listed RAK Ceramics expects to shore up operations in Iran and India after it posted a 24 per cent year-on-year drop in second quarter net profit.

Net profit touched Dh65.3 million in the three months ending June 30.

The drop was attributed to a slowdown in the construction sector in the Arabian Gulf region and geopolitical instability in its export markets.


The group’s net revenue dropped 5.9 per cent year-on-year during the second quarter to Dh756.5m, attributed to a decline in non-core revenues, which dropped 30.2 per cent to Dh96.1m. Core revenue decreased 0.9 per cent to Dh660.6m.

Its core business includes tiles, sanitary ware, tableware and taps and faucets.

The company is expected to face around 5 per cent drop on its top-line this year because of sluggish demand in Saudi Arabia, according to Nour Eldeen Sherif, an equity analyst at Cairo’s MubasherTrade.

Saudi Arabia contributed 18.5 per cent to the RAK Ceramics’ tiles business and 6.5 per cent to the sanitary ware business last year.

“We also see operational deficiencies in India and the decline in revenue from non-core business contributing to the fall,” he said.

Revenue in India fell 27.9 per cent year-on-year to Dh73.6m during the second quarter.

“In India, a new chief executive has been appointed and over the coming months we will be building an experienced team to strengthen our Indian operation,” said Abdallah Massaad, the group chief executive at RAK Ceramics.

The company also wants to expand its manufacturing operations in Iran. It fully acquired its Iranian business last August, which was financed by the World Bank when it started in 2003.

“Iranian operations are on hold until the company can provide financing facilities for its plant in Iran, but the banks are too shy to deal with the banking sector there,” Mr Sherif said. “Once this issue is handled, we expect operations to gradually recover as the Iranian ceramics market is huge and promising.”

Volumes are expected to stay low this year in the Iranian plant with use rates at 19 per cent, he said.

The company posted a 4.6 per cent year-on-year revenue growth in the UAE during the second quarter to Dh165.4m. The UAE market contributed 24 per cent to the tiles division revenue, and 31 per cent to the sanitary ware division revenue last year.

A pickup in the construction sector in the run-up to the Expo 2020 is expected to boost RAK Ceramics’ performance next year in the UAE, said Mr Sherif.

“The company’s bottom line will remain under pressure if the company does not manage to exit its non-core business units,” he said.

RAK Ceramics exited some of its non-core investments last year, such as RAK Pharmaceutical.

The company declined to comment on Ras Al Khaimah government’s recent position on Khater Massaad, who was the chief executive of RAK Ceramics between 1991 and 2012. This week, the Ras Al Khaimah government warned that the former chief of the RAK Investment Authority could face further charges in a US$1.5 billion embezzlement investigation.

RAK Ceramics operates 10 plants in the UAE, and one each in India, Bangladesh and Iran.

Shares of RAK Ceramics remained flat at Dh3.20, but are still up from Dh2.95 a year ago.

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