Plastic Products Sector: Growth outlook remains strong

Plastic Products Sector: Growth outlook remains strong

Here's a performance breakdown of one of the most vibrant sectors in the Indian equity market.

Over FY22, the Indian plastic products sector witnessed a steep recovery in volumes, mainly on the back of a sustained rise in demand. Despite the supply chain disruptions, the country’s plastic exports in FY22 thrived, experiencing vibrant growth. India’s plastics exports which have typically hovered in the range of USD 9-11 billion for the past several years, jumped sharply to USD 13 billion in FY22, recording a healthy YoY growth of 30%. Encouraged by this stellar performance, India’s Commerce and Industry Minister Piyush Goyal has set an export target of USD 16 billion for the current financial year and USD 25 billion for the financial year 2024-25.

Domestic demand for plastic packaging of food and beverages has seen a significant surge owing to the pandemic. Higher awareness of hygiene, as well as enhanced procurement of disposable and packaged items for reducing the chances of viral infections, has revitalised the segment. India is becoming a preferred hub for the packaging industry and plastic packaging is among the high-growth industries. In India, the fastest growing packaging segments are laminates and flexible packaging. PET is produced in huge volumes and a majority of the demand in the country is satisfied by domestic production. According to a report by ChemAnalyst, PET resin demand is projected to grow at a CAGR of 6.75% from 2022-2030.

The domestic plastic pipes and fittings industry reported decent growth at a CAGR of 10-12% between FY14 and FY19. It is expected to reach over Rs 500 billion by FY24, growing at a CAGR of 12-14%. India is recognised as a plastic hub in the world because of its cost-effective production, cheap labour, low cost and easy availability of raw materials. The growth outlook for the plastic products sector remains strong, fuelled by the government’s focus on expanding areas under irrigation and increasing urban infrastructure spending which shapes demand for water supply and sanitation along with affordable housing projects in urban, semi-urban and rural areas.

Outlook

Big players in the sector are optimistic about the demand environment and expect pipe realisations as well as volumes to witness high growth in the coming quarters on the back of price hikes due to rising PVC prices, favourable product mix, distribution expansion and rising demand from segments such as plumbing and soil, waste and rain (SWR). Also, a recent study by CRISIL estimates that the operating profit of pipes and fittings manufacturers are expected to witness sustained demand from government initiatives in water sanitation.

In recent quarters, well-established pipe companies such as Astral, Supreme Industries and Prince Pipes and Fittings have been vigorously focusing on technological innovation and diversifying their product mix into plastic storage tanks as well as composite and industrial pipes which is assisting in the expansion of the addressable market while ensuring sustainable long-term growth. This can become a distinct growth driver for these companies in the long run.

Over the last two years, several small and regional unorganised players in the pipes sector have been severely impacted by unprecedented volatility in PVC prices, significant raw material procurement and working capital constraints. This has created an opportunity for sectoral consolidation. Hence, large organised manufacturers with country-wide facilities are expected to take full advantage of this consolidation and grow their market share over the next couple of years.

Financial Highlights

Astral, the market leader for CPVC pipes in India, reported strong financials for FY22. The company’s net sales for FY22 rose by 38.34% while operating and net profit soared ~18% each. Time Technoplast hit a home run reporting a whopping 81.61% growth in net profit for FY22. Net profit for Finolex Industries and Jinal Poly Films exhibited healthy growth on an annual basis of 45.90% and 51.27%, respectively. Other top outperformers of the sector include Cosmo Films, Mold-Tek Packaging, Shaily Engineering Plastics, Xpro India and Nahar Poly Films. Kingfa Science and Technology (India) was the top performer among the pack with operating and net profit for FY22 skyrocketing by three and five times, respectively.

On the whole, this sector has registered robust growth on an annual basis across the metrics of net sales and profit after tax. The aggregate top-line of the sector registered an impressive growth of 29.87% from Rs 48,540.92 crore in FY21 to Rs 63,040.42 crore in FY22. Cumulative operating profit for FY22 stood at Rs 10,855.30 crore, up by 14.07% from Rs 9,516.08 crore in FY21. Profit after tax for the sector surged 37.61% from Rs 4,792.80 crore in FY21 to Rs 6,595.43 crore in FY22.