Plastic pipes industry is passing through one of the best times in its history. It is one of the few industries to recover first and fast from the lockdown blues. This was achieved even when the real estate industry was down in dumps and migrant workers had moved out of the construction sites. Indeed, robust rural demand aided by increased income good Monsoon came to the help of the industry. With metro and other major cities crawling back to normalcy and demand from real estate picking up, the plastic pipes industry saw its demand momentum continuing even post festive season.
Budget cheers up the industry
And the budget 2021-22 has ensured that good days will continue for some more time and may be for some more years. The Budget has laid special emphasis on water supply which is a good news for the industry. While the allocation for the existing programmes has been increased, new programmes have been announced thus bringing cheers to the industry.
Besides sharply increasing the outlay on Jal Jeevan Mission (JJM) / National Rural Drinking Water Mission (NRDWM) to Rs 55000 crore for FY22 (Rs 11,500 crore allocation in 2020 budget), Finance Minister Nirmala Sitharaman in Union Budget 2021-22 announced the launch of Jal Jeevan Mission (urban) with an outlay of Rs2.87 lakh crore to be implemented over the next 5 years. Jal Jeevan Mission (urban) aims to provide tap water connections to 2.86 crore urban households in 4,378 urban local bodies and will also make provision for liquid waste management in 500 AMRUT cities. The ambitious mission will be implemented over the next 5 years with an outlay of Rs2.87 lakh crore which means the government will have to make an additional allocation of Rs57000 crore per annum. This will create additional demand for plastic pipes in the designated cities and towns.
On the other hand, the government has restructured and subsumed the erstwhile National Rural Drinking Water Programme (NRDWP) into Jal Jeevan Mission (JJM) to provide functional household tap connection to every rural household by 2024. The scope of work under the mission includes creation of in-village supply infrastructure for tap water connection, reliable drinking water source development, retrofitting of complete and ongoing piped water supply schemes, etc.
Main players are adding capacity
Meanwhile, the leading pipe manufacturers are already increasing their capacity. For example, Astral is setting up Greenfield pipe manufacturing unit in Odisha with a capacity of 20 KMTPA with an investment of Rs 50 crore. Also, the company is expanding valve portfolio at its Dholka facility. Also, its fitting manufacturing capacity is expected to commence production soon at Hosur. Prince Pipes’ Telangana plant has commenced production of fittings from January 2021 with an initial fittings capacity of 4000 tonnes and the company plans to add pipe and fitting capacities based on the demand situation. Finolex Industries has planned a capex of Rs 150 crore in FY 2022 to increase its pipes capacity by another 30,000 tons. Supreme Industries is putting up a new piping system plant at Odisha and a plant in South India. During the current financial year company’s capacity will go up to 7 lakh MTPA.
Formalisation of industry gaining pace
Currently, the unorganised segment accounts for 30-35% and predominantly caters to irrigation and plumbing sectors that have low quality requirements. Historically, organised players have enjoyed major chunk of market share in the plastic pipes industry as the raw material is procured from petrochemical majors, unlike in the case of other home décor segments like tiles, plywood, etc., where the supply chain is largely unorganised making tax evasion easier. Introduction of GST regime along with e-way & BIS implementation, formalisation has gained further pace in recent years. Going ahead, pace of formalisation is expected to be hastened further due to the worsening financial position of small fragmented players.
Covid-19 is likely to trigger further liquidity challenges for small regional players and accelerate shift towards large branded players. Further, large branded players’ sustained focus on marketing, expanding distribution network and launching innovative & branded products will result in their revenue growing faster vis-à-vis small regional players.
Pipes are no longer a commodity
Further, there is a transition taking place regarding the way pipes are being positioned in the market. In fact, within the plastic pipes industry, the plumbing segment has successfully transitioned from a mere commodity product to a household brand. Though pipes constitute a minuscule part of overall cost of the real estate project, brands now play a pivotal role in decision making and leading brands like Astral, Supreme, Ashirvad, among others, enjoy brand premium.
The domestic plastic pipes and fittings industry clocked a healthy 11% CAGR over FY14-19 rendering it the fastest-growing segment in the home decor industry. Under-penetration of PVC products in India and rising substitution of metal pipes with plastic pipes, add more attraction to the sector. With the recent budget announcements, the sector may not only be able to maintain the current growth rate but also may add few more points to its growth rate in the coming years.