5 'Har Ghar Nal Se Jal' Stocks to Watch Out For...

The water situation in India is under a lot of stress with a large part of the country feeling the heat.

India's water crisis was flagged up in a global report. It stated India is one of the 17 countries where water stress is 'extremely high'.

There's an exponential growth in water demand due to rise in population, fast-paced urbanisation, and evolving lifestyle.

If we are going by estimates, by 2030, India's water demand is projected to be twice the available supply. This just means that water scarcity in India is only going to get worse.

Of course the government is doing everything it can and has laid out priorities to build better water infrastructure. But is that enough?

In 2019, the government launched the 'Har Ghar Nal Se Jal' scheme (tap water to every household). This initiative aims to provide piped water connections to households by the year 2024.

While launching this, the government went on record to say there will be no cut on the spending in this scheme even if there is a slowdown in the economy.

This push has opened new opportunities for everyone - from pipe and pump makers to construction and cement companies.

As this scheme needs to be completed by 2024, companies are increasing capacity and raising capital expenditure.

Here are the top 5 companies to watch out for as the government readies to complete the ambitious target by the year 2024.

#1 VA Tech Wabag

Va Tech Wabag is engaged in the business of water treatment field. It's a pure-play water technology Indian multinational group.

Its principal activities include design, supply, installation, construction, and operational management of drinking water, wastewater treatment, industrial water treatment, and desalination plants.

The company has state-of-the-art R&D centers that have developed advanced technologies to treat wastewater which can directly be used as the water of potable grade.

Va Tech will play a crucial role in implementation of the scheme as we know the water demand will only go up.

Being a water tech player, the company will participate when source augmentation is required. There are also opportunity for the company in desalination, treating water, and transportation.

In December 2020, the company's management said they received orders worth Rs 6.3 bn in H1FY21.

As of June 2021 quarter, the company had a strong order book of Rs 104 bn, which will only strengthen as Modi government aims to complete the scheme by 2024.

Another water treatment company which will benefit is ION Exchange.

#2 Srikalahasti Pipes

The 'Har Ghar Jal by 2024' scheme is driving demand for distribution pipes like GI, HDPE, and PVC pipes. The demand is set to increase, and pipe companies will be at the front leading charge.

One of the leading players in the ductile iron (DI) pipe industry in India is Srikalahasti Pipes.

DI pipes are used in sewage, wastewater, irrigation, transportation of portable water, etc.

The company was established in 1991 and its key products include DI pipes, pig iron, coke, and cement.

Due to the government's scheme, Srikalahasti Pipes is a big beneficiary in South India. The company had planned capacity expansion from 3 lakh tonnes to 5 lakh tonnes. This would have been completed by March 2021. But the pandemic delayed it.

Srikalahasti Pipes has already approved a capex of Rs 4.5 bn for the above capacity.

Over the past one year, Srikalahasti Pipes share price has gained 60%.

As of June 2021, promoters of the company held 48.15% stake, with no shares having been pledged. To know more, check out the latest shareholding pattern of Srikalahasti Pipes.

#3 Tata Metaliks

Another company which is actively involved in the DI pipe industry is Tata Metaliks.

Tata Metaliks was incorporated in 1990 and is a subsidiary of Tata Steel. It's one of India's leading producers of high-quality pig iron (PI) and DI pipes.

Tata Metaliks is in the process of doubling its DI pipe capacity through a brownfield expansion. Hence, the long term outlook looks encouraging especially if every household in India is to have piped water by 2024.

Its DI pipe business fell 24% this year. This was mainly due to reduced number of days available for production owing to the lockdown in the early part of the year.

Now the business has rebounded strongly with major investments announced by the government. This robust demand was clearly seen in Tata Metaliks order book reaching a level of 16 to 18 months compared to the usual 9 to 12 months.

The company has a 12% market share in DI pipe industry.

Over the past one year, shares of Tata Metaliks have turned into a multibagger, rising 116%.

To know more, check out Tata Metaliks company fact sheet and quarterly results.

#4 Finolex Industries

Finolex Industries is the largest manufacturer of PVC pipes and one of the largest manufacturers of PVC resin in India. It's the only PVC pipes company in India which enjoys backward integration by production of PVC resin with a captive power plant.

Just like DI pipes, the demand for distribution pipes like GI, HDPE, and PVC pipes will drive growth for companies like Finolex Industries.

Finolex is already the largest player in the domestic PVC pipe market and enjoys a strong distribution network of 18,000 retail points, three manufacturing plants, and four warehouses.

The company is debt-free with good financial track record.

With its strong balance sheet, regular capacity expansions and tie up with Lubrizol for (higher margin) CPVC pipes, the company is well set to make the most of the growth opportunities.

Finolex Industries' current pipe capacity stands at 3.7 lakh MT. It's on track to increase the installed capacities of PVC pipes and fittings to capture the anticipated increase in demand.

Over the past one year, shares of the company have gained 117%.

#5 Prince Pipes & Fittings

Prince Pipes & Fittings manufactures CPVC and UPVC pipes and fittings for industrial and domestic applications. It offers piping systems and fittings in the segments such as plumbing, sewage, agriculture, and borewell.

With a huge budgetary outlay of Rs 550 bn in fiscal 2022 versus Rs 115 bn in fiscal 2021, the growth potential particularly for PVC pipe processors like Prince Pipes & Fittings seems promising.

The company enjoys 8% and 5% market share in CPVC pipe and overall PVC pipe segment, respectively. Reporting robust financials since listing, the company has been able to gain market share.

As the industry consolidates, large pipe players like Prince Pipes will be major beneficiaries of the government's scheme.

Prince Pipes and Fittings has had a great run on the bourses since listing in December 2019. It had made a tepid debut, listing at 10% discount to the issue price.

But since then, the journey has been one way.

Shares of the company have rallied a whopping 332% from the issue price of Rs 178 per share.

For the year ended March 2021, the company declared a dividend of Rs 3.50 per share, which results to a dividend yield of 0.5% at the current price.

To know more, check out Prince Pipes And Fittings' dividend payout history.

Apart from the above, there are other participants too, which may benefit like pipe companies Astral Poly Technik and Supreme Industries as well as pump companies V-Guard Industries and Shakti Pumps.

How has the progress been so far?

When PM Modi launched the program in December 2019, about 32.3 m rural households had tap connections. This accounted for close to 17% of rural population.

At that time, the government had five year time to tap the remaining 83%.

The latest update from government's website is that approximately 38.5 m of the remaining 83% households have been connected with piped water connections.

So officially, 70.8 m rural households have tap connections.

If this pace is maintained, the government could achieve its target of connecting all 190 m households by 2024.

As the government focuses more on water infrastructure, there will be mouth-watering opportunities.

Look out for stocks involved in this space as they play a big role in the Rebirth of India.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...