Plastic pipes sector is the least discussed industry in India though it serves two important segments of the economy, that is, agriculture and housing. While irrigation accounts for 47% of the industry demand, water supply and sanitation account for 37%. Rs 30,000 crore plastic pipes industry is dominated by organised sector who account for 65% of the market share and the rest is being held by the unorganised who are fast losing their edge vis-à-vis former due to several administrative and taxation measures taken by the government in recent years. 25 lakh tonne capacity industry is clocking CAGR of 9% over last few years and this pace is expected to further pick up and reach double digit figure in the coming years.
CPVC fastest growing
CPVC with a size of Rs 4,500 crore is fastest growing segment in pipes sector which is used in plumbing and potable water distribution systems. Demand for CPVC pipes is high in residential projects, as these pipes can withstand higher temperature and are more suitable for carrying hot water, eliminating the risk of damage and leakage. However, CPVC pipes in India are still at a nascent stage with volumes of only 150,000 TPA. Interestingly, in past few years this segment has grown at a CAGR of 20% and according to industry experts, this rate of growth likely to be maintained in the coming years too due to increased emphasis given to housing sector.
ADD on CPVC
The Government has imposed anti-dumping duty (ADD) on imports of CPVC resin/compound from China and Korea for five years starting from February 2020. Earlier, the ADD was imposed on provisional basis for six months since August 2019. As a result of change in the duty structure, the share of imports from China and South Korea declined by 6% during Sept-Dec’19 period, which benefitted the larger players with strong margin expansion owing to low cost inventory.
Astral is the leader in CPVC pipes segment, as it is the preferred choice of most builders. While Astral has strong presence in CPVC market, Supreme and Ashirvad Pipes are gaining steady traction in CPVC market. Agricultural pipes segment is dominated by Finolex.
Like all other industries, plastic pipes industry too suffered due to countrywide sudden lockdown. Though the COVID led disruption was limited during Q4FY20, March is an important month for the industry as the channel members start building up their stocks during this month which did not happen this time.
The PVC pipe companies reported healthy volume growth across product categories in the month of January and February. However, COVID-19 pandemic has led to interruption in supply chain caused by abrupt halt in production owing to nationwide lockdown in the latter part of March 2020.
Though lockdown started in March, its impact in the fourth quarter of last financial year was not as much as its likely to be in the first quarter of the current fiscal as whole April and part of May have gone without much operations – both production and sales. Though remaining part of May and whole of June may see some demand, it may not be possible to cover the lost ground. Thus, this fiscal the industry may register negative growth.
Hopefully recovery would be faster
However, the industry and the dealers feel that recovery would be much faster in the industry as compared to other industries, mainly due to demand from irrigation sector. The government has announced stimulus packages in five tranches to fight against disruption of COVID19 and agriculture sector is one of the biggest beneficiaries of this giveaways. The government has announced Rs1tn for Agri Infrastructure Fund for farm-gate infrastructure for farmers, Rs300bn Additional Emergency Working Capital for farmers through NABARD which is likely to benefit 30 mn farmers and Rs2tn credit boost to 25 mn farmers under Kisan Credit Card Scheme.
Push from Affordable housing
Further, affordable housing has aplenty pent-up demand for pipes. Faster pace of urbanisation, increased emphasis on Smart Cities Mission and Swachh Bharat Mission and AMRUT schemes are likely to give big boost to plastic pipes demand in the coming years. Thus, COVID-19 inflicted lockdown and subsequent demand disruption is only a temporary phenomenon and is not likely to alter the long term prospects of the industry.