With the input cost inflation threatening the survival of thousands of unorganized sector players, India’s polyvinyl chloride (PVC) pipes sector is on the brink of consolidation. The government’s mandatory BIS (Bureau of Indian Standard) quality norms have further worsened the economic stability of small and medium enterprises (SMEs) and in turns has helped the organized sector players gain market share.

The prices of all polymers have risen between 7 and 28 per cent during the July – September 2021 quarter. The highest price increase was seen in PVC resin, the primary raw material for manufacturing hard plastics pipes, which reported a jump of Rs 34 a kg during the July – September quarter. The price increase trend continued unabated during the initial weeks of the current quarter also.

PVC prices have moderated a bit of late in November. But, the moderation was insufficient to bring closed units back to operation. SMEs’ low economies of scale and poor creditworthiness have proved to be the biggest impediments in their operational and financial growth. SMEs involved in the PVC pipe manufacturing business, normally survive on credit extended by trade sources and also on the periodic profit they earn. Since the coronavirus (Covid) pandemic spread in India in 2020, SMEs in PVC pipes manufacturing business have continued to bleed despite a recovery in the overall demand sentiment.

By contrast, however, oranised sector players have increased their market share by raising overall sales volumes. In July – September quarter, for example, leading players like Finolex Industries, Supreme Industries and Prince Pipes & Fittings Ltd have reported a sharp increase in their sales volumes. During the same quarter, however, thousands of SME units have faced plant closure.

“We have been able to increase market share on the back of industry consolidation. Given this trajectory, we are moving in the right direction as we continue to strengthen our business fundamentals,” said Parag Chheda, Joint Managing Director, Prince Pipes and Fittings Ltd.

Prince brand PVC pipes manufacture, Prince Pipes & Fittings Ltd, recorded a phenomenal 22 per cent growth in its sales volume to the tune of 42,845 tonnes in the July – September 2021 quarter from its level of 35,412 tonnes reported in the corresponding quarter last year. The company has posted a staggering 132 per cent jump in its sales volume when compared with 18,486 tonnes in the April – June quarter of 2021. Prince Pipes has posted 66 per cent growth in its revenue at Rs 761 crore for the quarter ended September 2021 as compared to Rs 459 crore reported in the same quarter last year.

Another organized sector players Supreme Industries, reported 8 per cent growth in sales volume to 72,480 tonnes for the July – September quarter 2021 as against 66,609 tonnes reported in the corresponding quarter last year. Finolex Industries reported 27.1 per cent jump in its sales volume at 55,453 tonnes in the July – September quarter as against 43,630 tonnes recorded in the same period last year.

“Plastics pipes demand from the housing sector has revived. Supreme Industries has recorded sales volume growth across all segments of the business during April – September 2021 period. In spite of high prices, the demand upsurge looks favourable. However, there has been a shift in demand in favour of chlorinated PVC (CPVC) segment as prices of CPVC pipes have not gone up in tune with the price rise of PVC pipes,” said M P Taparia, Managing Director, Supreme Industries, in a virtual analysts’ conference.

The PVC pipes industry has witnessed a sea change in demand sentiment during the current financial year. The industry reported a demand destruction in the April – June quarter. In the July – September quarter, however, the demand recovered. But, the quantum of recovery was not enough to compensate fully the volume contraction of the first quarter. In the second quarter, however, plastics pipes segment from housing sector has grown by 9 per cent.

“Economic activity has started normalizing from the quarter ended September 2021 supported by pent-up demand, ramp up of vaccination drive, a favourable policy mix and global revival. Our performance this quarter reports robust revenue and EBIDTA increase, due to our focus on volume growth in plumbing and SWR segments, led by the pick up in urban and estate demand, new product launches and sustained demand from tier II and III cities. Several strategic efforts are already underway delivering results. Our goal are set on continuing to drive our three-pronged strategy centering on organic growth, operational excellence and progress aligned to ESG objectives,” said Chedda.

Meanwhile, PVC resin market has gone into a super cycle model which will continue until 2023. Not much new capacity of resin production is coming in the visible future. Both Adani’s and Reliance’s proposed PVC plant are set to commence commercial production in 2024. India today remained dependent upto 55 per cent of its demand on imports. Experts forecast PVC supply to remain tight till 2023.

“We are paying the highest price of PVC in the world. The only comparison we can draw up in terms of high PVC price is Latin America and Turkey where import dependence is very high. Currently, PVC movement across the world is under severe stress due to shipping constraints i.e. container shortage and high freight rates. We can imagine some cartelization in shipping movement also which is contributing to the supply tightness,” said Taparia.

In an unfortunate twist in the unorganized sector, the government in March this year has notified mandatory implementation of the quality norms and ordered PVC pipes manufacturers to register with the Bureau of Indian Standard (BIS) and produce ISI (Indian Standard Institute) marked pipes only from October 12, 2021. The mandatory implementation of ISI marked quality norms, however, was deferred by six months.