Thematic Investing- Water Treatment Industry
Before diving into the financial aspects of the industry as a whole, let’s just us take a brief moment to understand why it has become increasingly essential for companies to specialise in this area.
While a major part of the planet (around 70%) is covered by water only about 1% of that water is fit for drinking while the rest of the 99% is either saline or in the form of glaciers. Thus essentially, our earth does have plenty of water but that is essentially of no use to us for our survival.
Currently, humankind has not been very severely attacked by water scarcity issues. Cape Town is the first major city that could run out of drinking water very very soon. According to studies, Delhi, Chennai, Bangalore, Tokyo, Sao Paulo and London could be among the top cities that are going to run out of groundwater by 2020.
While specifically in the context of our country, NITI AAYOG has underlined that, while 600 million people face high to extreme water stress currently, about two lakh individuals die every year due to inadequate access to safe water, around 3/4ths of the households do not get drinking water at their homes and close to 70% of water is contaminated.
It is clear that water needs are increasing and we have extremely limited sources of water. So, the obvious solution? Used water must be treated to make it reusable and hence the birth of the water solutions industry.
Industry Life Cycle Analysis
According to the United Nations, the extraction of water from freshwater resources is expected to grow by 50% in developing countries and 18% in developed countries by 2025. The same timeline would see approximately 1,800 million people living in a water-scarce region and approximately 65% (Yes, you read the number right) of the global population residing in water-stressed regions. That is every 2 of 3 human beings will face a water crisis in the coming future.
In high-income countries, the amount of wastewater that gets treated is almost 70%, whereas, it is 38% in upper-middle-income countries and a meagre 28% in the lower-middle-income countries. And hence, water solutions companies see a huge potential for growth and the market for such companies could be large in the coming time.
From the graphs presented above, Asia Pacific region seems to have the highest projected growth in the projected period of 2019–2020.
Currently, the companies are in a start-up stage showing a small increase in revenues year over year. But these are expected to see a tremendous growth owing to the increase in the awareness about the water scarcity issues and also due to the increased consumption of water by industries, government and households.
A word about the market
According to an analysis performed on the company profiles of the key players of water treatment technology market, the winning strategies adopted by them constitute product launch, merger & acquisition, agreement & partnership and business expansion.
The water business is largely split between government, industrial/commercial, agriculture and household sectors. The government sector remains the most active in which crores of rupees are being invested across the country to increase water supply through various means. Investments are pouring in the treatment of used water, or wastewater, to create an additional water supply that can be used for non-potable purposes.
According to a Niti Aayog study, thermal power plants in India account for 87.8% of total industrial water consumption in the country. Power plants are the biggest customers of companies providing water solutions, followed by textiles, pulp and paper and FMCG. The key driver of growth is expected to come from Industrial wastewater management systems for the next few decades.
According to a research by BCG research, Industrial process water treatment leads the market by growth, with a CAGR of 6.8%, followed municipal potable water treatment at 6.4% and sewage/wastewater treatment at 6.1%.
Our Recommendation:
This remains to be one of our favourite themes but due to lack of consistent players, we don’t recommend strong buys for any of the stocks in this sector. Out of all the players we recommend a buy on Ion Exchange (India) Ltd.
Ion Exchange (India) Ltd. (IEIL) is a premier Indian company that offers total water and environment management solutions. Supported by a robust infrastructure of ISO 9000 certified manufacturing facilities and the largest after-sales network in the country, the company has a strong domestic and growing international presence. To know more about the recommendation, please mail us at feciitg@gmail.com.
Written by Sukrit Bagaria & Ritvika Nandi
Edited by Jai Kishan Mansukhani
