Evaluating India's water sector with a focus on EPC companies

The total Indian water market is ~$14 bn and is estimated to grow at a CAGR of 6.1% and will reach ~19.8 bn by 2030, with ~75% being utilised in agriculture, 7% for drinking water, 4% in industry, and 9% for energy generation.

That said, as we show in the table below, the Water EPC segment is the fastest growing one, with a projected CAGR growth of 9.5% (over 2025-2030), as EPC companies will be laying the foundation stones by building water infrastructure eventually creating demand for other segments.

Source: International Water Association, Central Water Commission, Department of Water Resources, Ministry of Jal Mission

What will drive this growth?

• Changing water practices: The water sector is a fragmented and unorganised industry with top players having a market share of 2-3% at most, with the industry migrating to new technologies and bigger infrastructure industry will become more organised and open doors for bigger players to tap this untapped opportunity.
• Industrialisation: Rapid industrialisation further amplifies the need for efficient water treatment solutions for emerging industries like hydrogen and semiconductors.
• Urbanisation: Rising urban population presents a significant opportunity to address the increasing demand for water management.
• Vast untapped market: India generates 72,368 million litres per day (MLD) sewage, while only ~20,235 MLD is treated (~75% of actual capacity). Due to this lack of sewage treatment facilities, the rest of the groundwater is disposed of directly into water bodies.

With the govt spending ₹1.1 lakh crore on water infrastructure and its modernisation, the industry is set for the evolution of new business i.e. business of water

Below is the list of some key players in the fast-growing EPC segment.

Major players in the EPC business

Source: Screener; *Listed on Sept 23; as on 31st May, 2024

What are the key challenges?

• The biggest challenge is the dependence on the government for funding support which poses the risk of non-implementation of various schemes announced.
• Competition from the unorganised sector.
• Lack of a unified water management policy and Inter-state quarrels about water usage

What’s the insight for investors?

The growing awareness about health and hygiene along with premiumisation trends is setting the stage for establishing another organised sector i.e. the business of water. Further, industrial water demand will rise, as companies in India will produce high-end products like semiconductor chips, which require distilled and treated water. The water sector will aid the growth of companies operating in sectors like EPC, pipes, pumps, valves etc.

Investors should be aware that the water sector is a rising industry, which is mainly dependent on the government. Hence, there are risks associated with the business.