Indian Pipe Industry – Size, growth drivers, players and returns analysis

Dec 2018
By Akash Desai | akash.desae@gmail.com | https://www.linkedin.com/in/akashpdesai/

Why should you invest in the Indian pipe industry?

• Pipe consumption in India has increased from 1.3 M tonnes in 2013 to 1.8 M tonnes in 2018
• Of the total demand, 65% originates from the agriculture sector and 35% originates from construction (housing/plumbing) sector
• Demand for pipes will continue to grow at 14–15% p.a., adding ~ 0.3 M tonnes new demand every year driven by

1. Shortage of 19 M houses in urban India and 29 M houses in rural India (1 unit of house in urban India consumes 100–150 kg of
pipes and in rural India consumes 50–75 kg of pipes translating to demand of 0.25 M tonnes of PVC for the next 20 years)
2. 55% of the agricultural land is yet to be irrigated. Out of 142 M hectares of agricultural land, only 45% is irrigated, with the
reduction in small water bodies, farmers are required to source water from far-flung places driving demand for pipes (assuming
this adds another 0.2–0.3 M tonnes of PVC demand)

(0.3 M tonnes — Assumed 50% probability of potential demand of 0.5 M (0.25 M from housing and 0.3 M from agriculture). Also,
this estimated growth is in line with growth mentioned by various research reports)

• In anticipation of this demand, organized players have already built capacity, thereby, the realization of this demand will drive
capacity utilization of organized players to 90–95% from existing 55–60% resulting in operating leverage and higher ROCEs
• Also, in the pre-GST era, organized sector’s contribution increased from 46% to 60% between 2013 and 2018 and in the post-GST
era, with price difference converging between organized and unorganized players, it can be cautiously assumed organized sector’s
contribution will increase to 75–80% by 2023
• Based on trends witnessed in developed economies and the way developed economies have evolved, it can be fairly assumed that
infrastructure growth accelerates once a country’s GDP crosses USD 2,000 GDP per capita. India will be crossing USD 2,000 GDP
per capita in FY 2019
• With positive macros driving assumptions, the following is a broad analysis of how organized players will grow
• Industry demand over the next 5 years growing at 13% CAGR will increase to 3.3 M tonnes (1.8 M MT + (0.3 M MT X 5 years)), of
which organized sector will contribute 75%, resulting in the organized sector growing at 18% CAGR

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Indian Pipe Industry – Size, growth drivers, players and returns analysis
Dec 2018
By Akash Desai | akash.desae@gmail.com | https://www.linkedin.com/in/akashpdesai/

*Also added sensitivity analysis to understand returns if the effective capacity utilization by organized players is between 75% to 95% by
2023

• This 18% growth will translate to growth in capacity utilization of organized players as per their respective contribution in the
organized segment

• Two companies that stand out are Astral pipes and Apollo pipes who have grown at a CAGR of 15%+ over the last 5 years. However,
based on historical growth and ROCE profile, Astral has been trading at 30x+ 1 year forward EV / EBITDA. On the contrary, Apollo
pipes under stealth mode has not only been growing at 15%+ CAGR but have also delivered 28–30% ROCE (except in FY 2018
where the company expanded its capacity leading to significant capex)

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Indian Pipe Industry – Size, growth drivers, players and returns analysis
Dec 2018
By Akash Desai | akash.desae@gmail.com | https://www.linkedin.com/in/akashpdesai/

• Apollo pipes, New Delhi based company develops, manufactures and sells a range of pipes under the APL Apollo brand name
in India

1. Primarily offers uPVC and CPVC pipes

2. Started in 2000 with a capacity of 3,000 MTPA and has now scaled to 85,000 MTPA (50,000 MTPA added in last 5 years and was
operating at 70,000 MTPA in FY 2018)
3. Kick-started from north India (Capacity of 60,000 MTPA), Apollo pipes has now expanded to west India with manufacturing
capacity in Ahmedabad (Capacity of 25,000 MTPA) and will launch manufacturing capacity in Raipur (Capacity of 30,000+
MTPA)[1] to strengthen presence in south and east
4. The company has grown under the realms of MD, Sameer Gupta, SRCC alumni who is supported by the homegrown senior team
5. Apollo pipes current product portfolio is ~1000+ and has plans of increasing to 2000+ in the coming years
6. It has adopted cash & carry model with its distributors which have increased from 53 in 2013 to 120 in 2018
7. The company claims to deliver products within 48 hours of order placement (key differentiator for customers)
8. Gross margin has improved by ~530 bps in last 2 years driven by increase in utilization and economies of scale, of which 100 bps
impact can be seen in EBITDA margins (potential of EBITDA margin improvement by 100–300 bps)
9. Apollo can potentially deliver an IRR 28–29% in the next 24–30 months

[1] Plant location updated from Bangalore to Raipur in the latest Dec 2018 Investor presentation. However, I have assumed the company’s
plan of adding incremental capacity continues

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Indian Pipe Industry – Size, growth drivers, players and returns analysis
Dec 2018
By Akash Desai | akash.desae@gmail.com | https://www.linkedin.com/in/akashpdesai/

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Indian Pipe Industry – Size, growth drivers, players and returns analysis
Dec 2018
By Akash Desai | akash.desae@gmail.com | https://www.linkedin.com/in/akashpdesai/

Appendix

Competitor’s analysis

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Indian Pipe Industry – Size, growth drivers, players and returns analysis
Dec 2018
By Akash Desai | akash.desae@gmail.com | https://www.linkedin.com/in/akashpdesai/

Appendix — Financials of Astral Pipes

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Indian Pipe Industry – Size, growth drivers, players and returns analysis
Dec 2018
By Akash Desai | akash.desae@gmail.com | https://www.linkedin.com/in/akashpdesai/

Appendix — Financials of Finolex Industries

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Indian Pipe Industry – Size, growth drivers, players and returns analysis
Dec 2018
By Akash Desai | akash.desae@gmail.com | https://www.linkedin.com/in/akashpdesai/

Appendix — Financials of Supreme Industries

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Indian Pipe Industry – Size, growth drivers, players and returns analysis
Dec 2018
By Akash Desai | akash.desae@gmail.com | https://www.linkedin.com/in/akashpdesai/

Plastic Pipe Industry