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Plumbing business attracts new players

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In last couple of years, plumbing pipe manufacturing business has become favorite destination of several companies. While brands like Ashirvad and Astral and Supreme are strengthening their position in the market through expansion, new players like HIL are entering the market. And marginal players like Skipper have some ambitious growth plans too.

Mad rush to set up new capacities and expand the existing capacities are not without any reasons. According to a survey done by a research agency, current market size of plastic pipes is around Rs 8,500 crore which is expected to almost double to Rs 16,000 crore in next five years. Ambitious government programmes and growing middle class population with growing income are cited as some of the reasons for expected fast paced growth prospects of the industry.

During the last two years, the central government has announced several schemes and incentives in the budget which will have a positive impact on the real estate, infrastructure and agriculture sectors which in turn will contribute to the robust growth of Indian plastic piping industry. Under the scheme of Pradhan Mantri Awas Yojana (PMAY), the government has set an ambitious target of housing for all by 2022. In order to achieve this goal, the government has to build 20 million houses in urban areas and 40 million houses in rural areas during 2015-22.

Further, in October 2014 the government launched the Swachh Bharat Mission (SBM) to reduce or eliminate open defecation through the construction of individual, cluster and community toilets. Considering the amount of new construction involved, requirement for pipes is going to increase considerably.

Implementation of GST, an ambitious and forward looking indirect tax reform, also may change the way business being transacted in the country. In India, plastic piping industry has sizeable presence of unorganised sector who have a market share of 40%. Suppliers in unorganised sectors have the price advantage as they usually sell products without paying tax. This scenario has changed after the introduction of GST and playing field has been evened out between players in organised and organised sector. Whatever, price advantage suppliers in unorganised sector enjoyed has narrowed down substantially after GST came into play. When there is not much price difference between the product sold by suppliers in unorganised sector and organised sector, people will naturally prefer branded and higher quality products which in turn facilitate the manufacturers in organised market to increase their market share at the cost of those in unorganised sector.

Introduction of RERA might have impacted growth real estate sector. But that is only in the short term, believe the pipe manufacturers. In the long run, they believe RERA will benefit the industry. RERA will ensure that only realtors with long term interest will remain in the industry and discourage the fly-by-night operators. Long term players will always have quality as the foremost factor in their business which in turn force them to go for quality branded building products including plumbing pipes. Locational advantage which the unorganised sector enjoyed may no longer hold water thanks to GST which ensures free movement of goods all over the country.

Positive news emerging from the plastic piping industry has enthused many players. For example, Astral has chalked out expansion plans in its various units which are nearing completion. Astral would be manufacturing fast moving fittings at the southern plant at Hosur. The expansion is also going on at Ahmedabad plant at Sartaj where capacity of PVC, CPVC, compounding and also borewell column pipes are increased. Valves manufacturing capacity at Dholka plant is being expanded. All these plans are in advanced stage of completion and by June 2018, the company will add another 40,000 tonnes piping capacity which will take its overall capacity to around 1,80,000 tonnes.

Supreme Industries is already in the midst of implementing its Capex programme involving a Capex of Rs 450 crore. The company has already spent Rs 260 crore in 2017-18 and the remaining amount will be spent during the current fiscal. The company has around 4.02 lakh tonnes capacity which will go up by 10% after expansion. Also, pace of conversion, from PVC to CPVC pipes, is accelerating with CPVC pipes witnessing faster growth.

HIL is the new entrant into the segment and the company is very bullish about its prospects in the piping business. The company is already a prominent player in roofing industry with wide network of distributors. The company wants to use its network and brand name to expand its product portfolio by entering piping business. After completing its capex programme the company will have a decent installed capacity of around 16,000 tonnes. The company is also spending considerable sum on advertising and publicity to improve the brand recall value.

At present, Skipper is a marginal player in the industry with a market share of less than 1%. However, during last two years the company has aggressively added to its capacity which has increased five folds to 51,000 tonnes. Skipper has also tied up with Sekusui, Japan for the manufacture and marketing of CPVC Pipes under the brand name of Skipper Durastream.

Though pipes are used for both plumbing and irrigation purposes, most of the manufacturers in the industry are concentrating on plumbing pipes segment. According to them margins are less in in the irrigation pipes business due to intense competition. Also, to capture irrigation pipes market rural penetration is required which is an uphill task. Astral considers it as a marginal business and will concentrate mainly on plumbing business due to attractive margins. Initially, Skipper’s 90% of the piping business used to come from irrigation sector which now has come down to 70%. The company wants to bring it further down to 50% in the coming years.

However, on the raw material front situation is not so encouraging with polymer prices becoming very volatile. Polymer prices have moved up by more than Rs 5 per kg in the first quarter of this calendar year. On the other hand, CPVC resin/ end product prices have been steady. Going forward, polymer prices will be dictated by the prevailing crude oil price which is showing an upward trend.

All said and done, the manufacturers in the industry in general are upbeat about the prospects of the industry in the coming years. Good demand should help the industry to pass on any raw material price hike to the consumers. According to them demand for the product is insatiable, at least in the short to medium term.

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