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Jal Jeevan Mission (JJM) – Walking the talk

The Central government has released Rs60bn to 15 states for implementation of the JJM in FY22 for tap water connections in rural areas. This is the first tranche of the four to be released this financial year. The states will have to match similar contribution from their side. The budgetary allocation for JJM has seen a quantum jump from Rs115bn in FY21 to Rs500bn in FY22 (link). In addition, there is also Rs269bn assured fund available under the 15th Finance Commission led grants to Rural local body for water & sanitation, matching state share and externally aided projects. Hence the total investment can easily be above Rs1trn p.a. till FY24. This quick release clears the air on actual spending as against high allocation made in the Budget. With investments in materials (namely PVC pipes and fittings / HDPE pipes and fittings, plastic taps, etc.) estimated at 10-12% of the total outlay, incremental demand (c.8% of Rs1trn, i.e. Rs86bn) for plastic pipe industry works out to be as high as 25% of the existing industry size, which seems a big opportunity in itself. Advantage PVC pipe processors: Supreme Industries (SI), Prince Pipes and Fittings (PPF), and Astral Poly Technik (ASTRA).

Budget allocation increases led by successful tap connections in last one-anda-half years:

Post release of the operational guidelines for implementation of JJM (rural) 2024 on 25th Dec’19, despite covid pandemic, by end of FY21, about 40.8mn rural households have been provided with new tap water connections. Thus, now tap water supply is reaching about 73mn rural households, i.e. more than 38% of rural homes of the country. This shows the commitment of all the states / UTs to deliver on 'speed and scale' even during the time of adversity. With budgetary allocation under JJM (rural) now increased to Rs550bn vs Rs115bn allocated in FY21, this is likely to offer strong business potential for PVC pipe processors in particular.

Huge opportunity in North, East and North-East under JJM (rural):

The number of households yet to be provided tap water connections are approximately 118.2mn. If one looks at region-wise breakup, then, the biggest opportunity lies in the East and North-East regions (33%) and next will be North (30%). If one combines North, North-East and Central regions, then, it will be at 74%. Hence, it makes sense for plastic pipe players to open a plant in eastern India, while West has the least opportunity with only 6% of the tap connections pending. Supreme Industries has announced second plant while Astral will open its first plant in next one year into eastern India with greenfield capacity

Jal Jeevan Mission (urban) launched in Union Budget FY22 on top of JJM (rural):

Finance minister, in the FY22 Union Budget speech, announced the launch of Jal Jeevan Mission (urban) with an aim to: a) provide tap water connections to 28.6mn urban households in 4,378 urban local bodies, and b) liquid waste management in 500 AMRUT cities. The ambitious mission will be implemented over the next five years with an outlay of Rs2.87trn – implying an additional allocation of Rs574bn per annum. This will incrementally generate demand for PVC/HDPE piping systems while creating the supply infrastructure in the earmarked urban local bodies.

Ongoing industry consolidation presents big opportunity for branded players:

The ongoing and sustained industry consolidation in PVC pipe segment has led to weakening of competitive intensity for the large organised players. With regional / unorganised PVC pipe makers facing survival issues post covid due to increasing working capital requirements, burgeoning inventory losses and their inability to source PVC resin, we may witness a decent pie of the above demand being met by large organised players as well. We thus expect large PVC pipe players to be the major beneficiaries in this regard.

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