Rivers have always been the source of civilisation by bringing water to millions of people who rely on them for drinking water and to irrigate their land. The lack of waste water treatment network has left many rivers in India choked with toxic effluents. Reports estimate that the average annual water availability per capita may decline to 1140 cubic meters by 2050 from around 1500 cubic meters a decade back. The Indian government has risen to the challenge by promoting programmes and projects of river development and rejuvenation.
The government is also supporting programmes for the depleting ground water levels, bringing clean drinking water to rural communities, and continuous piped water supply to cities. Hence, the Indian government has committed investment over USD 240 billion over the next decade for building the water infrastructure. It is also establishing sewage treatment infrastructure for cleaning up the rivers through its Jal Jeevan Mission and AMRIT 2.0 projects. During summer, water becomes a commodity as precious as gold in India.
Our country has 18% of the world’s population but only 4% of water resources and therefore erratic monsoon and intense climate change makes India vulnerable to huge water requirement challenges. Electro Steel Castings Ltd or ESL is amongst the world’s leading Water Infrastructure Solution Provider with its promoters having expertise of over seven decades. The company is the first and has the largest Integrated Ductile Iron DI Pipe manufacturing facility with a capacity of 7 lakh TPA in the country.
Ductile Iron or DI pipe and fittings are best suited for water infrastructure projects. DI pipe is one of the most preferred pipes for water supply and sewage applications across the country. The salient features of a DI pipe is its high tensile strength and pressure-bearing ability and capacity to sustain external static. It is easily adaptable with flexible joints and do not leak with high or low pressure. On the other hand, DI fittings is generally used in the connection with DI pipes of both the flanged and socket ends. The salient feature of a DI fitting is its simple design enabling high installation speed with high dimensional accuracy resulting in proper fitment and faster delivery.
The concept of piped irrigation is catching up very fast in India wherein ESL is a pioneer in setting up the first DI pipe plant and also the premier manufacturer of DI fittings in the country. ESL is working mainly in Water Infrastructure Applications such as drinking water, irrigation, sewage, waste water disposal, and industrial projects. The company posted solid Q2FY24 consolidated financial results with total income growing by 8% y-o-y to Rs 1938 crores led higher sales while EBITDA grew by 86% y-o-y to Rs 319 crores. EBITDA margin expanded significantly due to lower raw material costs backed by economics of scale.
PAT grew by 229% y-o-y to Rs 175 crores for the same quarter and the PAT margins expanded due to strong operational performance and lower interest cost. To tap the burgeoning demand of Water Infrastructure in the country, ESL has already spend a caper of over Rs 240 crores till the current quarter and is undertaking a further caper of around Rs 600 crores till 2025 with an 895000 TPA target plan.
The government’s Jal Jeevan Mission, AMRUT 2.0, and Smart Cities programmes are going to be growth triggers for ESL in the water infrastructure sector. It is expected to ride the water infrastructure expansion plans of the government on the back of having integrated manufacturing facilities, sufficient capacity utilisation, and strong cash flow generation to enhance its profit margins.
Electrosteel Castings Ltd stock currently quoting at around Rs 110 on the bourses is a strong fundamental buy for portfolio investors with a decent 30% price appreciation over the next one-year time frame. Investors can take advice and do proper due diligence from their financial advisors and brokers before buying any stock.