Plastic pipes find application in irrigation, residential/commercial real estate construction and water supply & sanitation (WSS) infra development. Though there is no unanimity about the size of the industry, its estimated to be around Rs 35,000 crore. Being a cost-effective way to transport water, pipes will continue to form an integral part of infra development and hence the importance of the industry. The industry has been registering double digit growth during last five years and considering the importance of the sectors its catering to one can expect similar growth in the coming years too. In other words, the industry is likely to cross the half trillion rupees mark in next 4-5 years.
Market share shift
Along with the general growth of the industry, in the last few years the industry has also seen formalisation wherein market share is getting transferred from unorganised sector to organised sector. The share of organized players in the piping industry has increased from 50% in FY10 to 67% in FY21 while that of top-5 players from 22% in FY12 to 37% in FY21. According to Hiranand Savlani, Chief Financial Officer, Astral Limited, the shift from unorganized to organized side is getting momentum and due to second wave and consequent lockdown this process may be further hastened. By consistently investing in branding and Below-The-Line (BTL) activities, organized players have increased plumber/ consumer awareness over importance of quality and adherence to BIS standards in pipes, particularly for residential real estate. According to industry analysts, stringent tax compliance norms due to e-invoicing/GST regulations and stricter adherence to BIS standards, unorganized manufacturers continue to be impacted. Even in FY21, supply-side constraints and raw material cost inflation has hurt unorganized players and worsened their profitability.
Rising raw material prices
Prices for main raw materials for the plastic pipes were in general in an upward move during last few quarters which forced the pipe manufacturers to hike the prices of their products several times during last couple of quarters. Raw Material cost forms 65-70% of plastic pipe industry sales. With crude oil price is on prolonged upward movement, most of the raw materials too have followed the same trend.
Key raw materials for the plastic pipe industry are polyethylene, polyvinyl chloride, chlorinated polyvinyl chloride and PPR made from Polypropylene Random Copolymer plastic. Raw material prices are directly linked to crude oil, and changes in global demand-supply and import-export regulations. Most of industry’s raw materials are supplied either from domestic petrochemical companies or imported. While CPVC is wholly imported from countries like Korea, Japan, China and Europe, nearly half of our PVC requirements are met through imports from Taiwan, Japan, South Korea and China. Similarly, for HDPE, 40-45% of domestic requirement is met through imports from the UAE, Saudi Arabia, Qatar, Singapore and the US.
Unorganised sector faces greater problems
Volatility in international feedstock prices, exchange rate fluctuations, and demand-supply mismatch are key risks faced by players, especially those in the unorganised sector. Players in the unorganised sector are able to pass on the raw material cost inflation to the consumers only partially while the branded manufacturers don’t face such problems as they enjoy established relationships with RM suppliers, have a wide distribution base and a well-recognised brand presence.
Further, unorganized players are increasingly finding it tough to negotiate prices and securing deliveries via cash payments because of the stranglehold of large suppliers or importers which is not the case with organised players. This has further weakened the position of manufacturers in the unorganised sector who are already seeing a migration in market share in favour of organised players.
Organised players disperse their production facilities
Organised players have another advantage (due to their sound financials) of locating their manufacturing facilities near major markets. In pipes, transportation costs play a critical role due to bulkiness of the product. Therefore, proximity of manufacturing plants to RM sources and end consumer markets become very important in maintaining cost efficiencies and improving dealer inventory.
Most of the pipe manufacturers have established positions in the northern, western and southern regions and of late, a few players have started spreading their manufacturing base in the East which is set to emerge as one of the fastest growing regions over the next 3-4 years. Organized players are also focusing on rationalizing/expanding their distribution channel and adding more dealers/retailers in areas wherein they have been traditionally facing competition from unorganized/regional players.
Thus, organised players in the industry are well placed to gain from the emerging growth opportunities in the industry in the long term. In the short term though the prospects are entirely dependent on how soon we will be able to get out of the clutches of COVID-19. “It is difficult to comment on whether the season would get washed out or there would be a postponement I think we can all just hope that it would be a postponement, but I think the bigger play of course is on the plumbing and SWR where we are confident of demand being robust post the lockdown measures being cooled off,” says Nihar Chheda – AVP (Strategy), Prince Pipes. Most of the industry players subscribe to this view.