Volume worries for plastic pipe makers, but long-term growth story intact

Organised players to score market share gains over unorganised peers

Organised players in the plastic pipes sector, which was severely hit by the pandemic, may witness some revival in the next few quarters. They are likely to be aided by healthy agriculture sector demand, steady profitability, and market share gains over unorganised players.

While demand in the seasonally strong March quarter was hit by the lockdown, it has picked up since then. This was on the back of improving farm income (rabi harvest), higher government spend on the rural sector, and a normal monsoon.

While companies reported weak volume growth in Q4 on account of Covid-19, margins improved due to better product mix and price hikes. Volume growth in the near term is expected to improve, led by rural demand.

Among the major listed players, Finolex Industries has the highest exposure to the agriculture segment, with 70 per cent revenue contribution, followed by Supreme Industries (25-30 per cent) and Astral Poly Technik (6-7 per cent).

 

 

Barring the agriculture segment (largest end-user segment), demand from other segments like plumbing and infrastructure has been weak.

Jefferies, in a recent report, indicated that agri-pipes were witnessing good pre-monsoon traction and operating at a high utilisation rate. This was despite demand for construction pipes being weak — caused by projects in urban and tier-1 centres being delayed by the lockdown extension and migrant labour issue.

Analysts expect a pick-up in most segments, following the monsoon. Though near-term volumes — barring the agri pocket — are expected to be weak, larger players will likely gain market share.

Close to 40 per cent of the plastic pipes segment is accounted for by unorganised players, which may lose out due to cash flow issues, funding constraints, and regional presence.

Most analysts expect the consolidation trend to gather pace, given the severe liquidity issues in the unorganised segment.  

While the near-term outlook remains weak, analysts at JM Financial believe the long-term growth story remains intact, given the shift from metal to plastic pipes, value-added products, as well as varied end-user requirements.