Plastic pipes have become an integral part of the construction industry, serving a variety of purposes in residential, commercial, private sector, public sector, infrastructure, and irrigation projects. Their versatility and wide range of applications have contributed to their consistent growth and success, outpacing even the growth of the economy.

India is currently experiencing a surge in capital expenditure, with both private and public investments reaching multi-year highs. As a result, the industry is expected to deliver robust growth in the coming years. Despite the challenges posed by the Covid-19 pandemic, the Indian plastic pipes industry has remained resilient, expanding at an impressive annual rate of 10% between FY16 and FY21.

 

The industry was valued at approximately 400 billion to 420 billion in FY21, demonstrating its significant contribution to the Indian economy. Today, the Indian pipes industry is in a much better situation as the capex cycle is moving up and the industry is recouping from the aftershocks of Covid-19. It is expected to deliver higher growth, particularly due to the replacement demand for metal-based pipes.

 

Polyvinyl chloride (PVC) is the third-largest selling plastic commodity in the world after polyethylene and polypropylene. It has several advantages over other materials, such as metal-based pipes, due to its chemical resistance, durability, low cost, and recyclability.

 

Industry estimates indicate that between 2022 and 2027, the Indian pipes industry is expected to grow at about 12% to 13% annually. Growth in the case of organized players is likely to be even higher, with the shift in consumer preferences and other factors allowing the organized market to grab a higher market share.

 

ORGANIZED PLAYERS CAPTURE LARGER MARKET SHARE

Currently, the organized sector commands close to 65% of the market share. Further, segment-wise, UPVC has 57% to 58% share and CPVC has an 80% share of the organized market. Because of the commoditized nature of the industry, most organized players or listed companies have focused on value-added products and high-margin segments like UPVC, which is known for better quality and durability.

The polymer pipes industry is highly fragmented, with smaller and lesser-known manufacturers continuing to share a significant portion of the market. Many players have a low capability to withstand and adapt to economic uncertainty, as well as improve their operations, which can make it challenging for them to compete with larger and more established companies.

Marginal players are struggling due to factors such as increasing awareness, innovative products, effective branding by organized players, improve distribution networks, and fierce competition from integrated players. As a result, organized players are experiencing a surge in their market share, as they are better equipped to adapt to changing consumer preferences and industry trends.

 

In FY10, the organized players had close to 50% of the market share which has reduced to around 32% currently. Implementation of GST, volatile raw material prices, demonetization and covid-19 has altered the  economics of marginal players and because of that the organized players are in a better position. Besides the market share game between the organized and unorganized industry, what is worth noting is that structurally or organically industry is poised to grow higher.

 

GOVERNMENT FOCUS ON INFRASTRUCTURE 

The Indian government has launched several social programmes aimed at prioritizing the development of basic needs to improve the lives of its citizens. Programmes such as “Har Ghar Jal Yojna” and “Jal Jeevan Mission” under Prime Minister Narendra Modi’s government have got very high capital allocation and priority. The primary goal of these schemes was to provide tap water to all rural homes.

 

Jal Jeevan Mission’s effort targets to provide tap water connections to all rural families by FY24 and is a critical action undertaken by the Indian government. The rising demand for potable water in both residential and commercial settings is anticipated to spur a surge in the requirement for plumbing pipes and fittings. Further, the Indian government has taken significant measures to boost economic growth and revive industrial activity, which had hit multi-year lows during the global pandemic.

 

To this end, initiatives like Atmanirbhar Bharat, coupled with the development of infrastructure such as roads, ports, and rivers, have provided a substantial impetus. As a result, there has been a massive surge in capital expenditures in the country, which bodes well for the overall economic  landscape. 

 

he government's increased focus on infrastructure is not limited to social development alone. In fact, the budget for the fiscal year 2023 has allocated a record-breaking amount of nearly 10 trillion towards capital expenditures, marking a substantial year-on-year growth of 33%. This massive investment is set to drive the demand for pipes in various industrial applications such as gas pipelines, water treatment, water resources, and oil and gas.

 

As a result, this heightened capital expenditure is expected to have a cascading impact on the expansion of industries and allied sectors, which will further drive the demand for pipes. The government's focus on developing irrigation infrastructure goes beyond just general infrastructure development. Initiatives such as connecting water bodies, protecting rivers and groundwater, and other measures to enhance water availability and productivity for the agricultural sector will support the application of plastic pipes.

 

In the Union Budget for the fiscal year 2023-24, the Finance Minister allocated approximately 1.25 lakh crore towards this goal. The target for agriculture credit alone is set at around 20 lakh crore, ensuring a continuous flow of capital and funds in the hands of farmers, who will likely invest in enhancing agricultural productivity.

 

CONSTRUCTION SECTOR GROWTH

The construction sector in India remains one of the largest and fastest-growing industries, fueled by the country’s rapid development and growing population. As India continues to build its infrastructure and accommodate its burgeoning population, the need for construction has steadily risen.

Moreover, the country's expanding middle class, rising incomes, and increasing urbanization have also played a significant role in driving higher construction activity.

Therefore, the construction sector in India is poised for continued growth and expansion in the coming years. The residential construction sector in India is currently on an upswing and experiencing rapid growth. In fact, it is estimated that over the next seven years, India will see an investment of approximately $1.3 trillion in housing, resulting in the construction of around 60 million new homes.

 

Between 2008 and 2021, the Indian real estate sector grew at a rate of around 10% to 12% annually. However, the growth is expected to be even  higher in the coming years, driven by factors such as supportive government policies and programmes like Housing for All, low interest rates,  increasing urbanization, nuclear family culture, and strong per capita income growth, which are all creating a huge demand.

 

As a result, the real estate industry is expected to grow at a much higher rate over the next few years than it has in the last decade, potentially reaching a size of $1 trillion by the end of 2030 and growing at a rate of 15% to 17% annually. PVC plastic pipes are widely applicable in various fields such as drain-waste-vent (DWV), sewers, water mains,and water service lines.

 

• In the housing sector, plumbing pipes account for approximately 55% of the total demand for he industry. The PM Awas Yojana has allocated close to 79,000  crores in the budget for the fiscal year 2023-24, which represents a 65% increase compared to the previous budget.

 

• This substantial investment has created a massive market for plastic pipes, and the growth of the housing sector or construction of new houses would translate into robust demand for these pipes. This is especially good news for organized players and companies that have established strong brand recognition and franchise in the market.

 

Companies that operate in the value-added segments would benefit the most from the rising demand. As a result, the outlook for PVC plastic pipes in India is very promising, and the industry is expected to witness strong growth in the coming years.

 

RECOVERY IN DEMAND & PRICES TO SUPPORT STOCKS

During the Covid-19 pandemic, most players in the PVC plastic pipes industry experienced a decline in demand while facing a spike in international commodity prices, particularly for raw materials such as PVC resin that are largely imported in India.

However, the situation has improved significantly with raw material prices having corrected by 50% to 60% and a recovery in demand. As a result, companies in this sector are in a much better position today. With stable raw material prices, they can focus on scaling up their operations, and this has resulted in improved profit margins,supporting earnings growth.

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