The polyvinyl chloride (PVC) pipes industry is set to score a hat-trick of double-digit volume growth of 10-12% on-year in fiscal 2025 after ~15% and ~24% in fiscals 2024 and 2023, respectively.

Strong demand from end-user industries — irrigation, water supply, sanitation and housing accounting for over 80% of total demand — has been the key growth driver, triggering larger capital expenditure (capex) by PVC pipe makers this fiscal and the next. As capex is likely to be funded through internal accrual, credit profiles should remain stable.

A CRISIL Ratings analysis of 22 PVC pipe makers, accounting for 40-45% of the segment’s volumes, indicates as much.

Says Anand Kulkarni, Director, CRISIL Ratings, “Demand for PVC pipes will remain strong as key end user industries such as irrigation, water supply and sanitation will benefit from continued budgetary allocations towards schemes such as Jal Jeevan Mission and Pradhan Mantri Krishi Sinchai Yojana. The government’s focus on achieving direct water connections to all households will continue considering ~76% of households have direct water connections. Alongside, increasing irrigation coverage is expected to continue over the medium term with irrigation access being at ~54%¹of the net sown area.”

Residential real estate is also an important demand driver for PVC pipes because of plumbing applications. Demand² growth for residential real estate in fiscal 2025 is expected to be at 10-12% over fiscal 2024, especially with mid to premium residences selling well. Healthy budgetary allocation towards Pradhan Mantri Awas Yojana, which focusses on affordable housing will also drive demand.

Healthy volume growth will drive higher operating leverage and alongwith stable PVC resin prices³ (forms 70-75% of the total costs, see chart in annexure) will translate into improvement in operating profitability by 100-150 basis points to 13-14% this fiscal.

Operating margin has been on an improving trend since fiscal 2024 after a sharp fall in fiscal 2023 owing to inventory losses after PVC resin prices fell. The improving profitability and healthy demand prospects enhancing capacity utilisation to over 70% will enable pipe makers to undertake expansion.

Says Jaya Mirpuri, Director, CRISIL Ratings, “PVC pipe makers are expected to incur a capex of ~Rs.5000 crores over next two years to expand their capacity by 20-25%. Most of this is likely to be funded through internal accruals. Further new capacities will commission in a staggered manner and hence are likely to be absorbed by healthy demand. As a result, the balance sheets will remain comfortable and credit profiles stable.”

With no major incremental debt and improving profitability, the ratio of debt-to-Ebitda⁴ ratio is expected to improve to ~0.35 time this fiscal from ~0.45 time in last fiscal.

That said, volatility in PVC resin prices and the impact on profitability will bear watching.

¹ CRISIL MI&A estimates for net irrigated area for fiscal 2024
² CRISIL MI&A estimates for demand in top 7 cities in India
³ Prices of PVC resin, were modest last fiscal owing to slowdown in global housing demand as pipes and fittings account for over 70% of global PVC resin demand.
⁴ Ebitda - Earnings before interest, taxes, depreciation, and amortization