IL& FS Water taps nascent market, aims to triple portfolio
4 min read . Updated: 11 Aug 2014, 12:07 AM IST
PremiumInfrastructure firm specializing in water and wastewater projects seeks to expand its portfolio to $1 billion by the end of the current fiscal
Mumbai: IL&FS Water Ltd (IWL), an infrastructure firm specializing in water and wastewater projects, is targeting to expand its portfolio to $1 billion, or around ₹ 6,000 crore, by the end of the current fiscal, according to a top company official. IWL is a wholly-owned subsidiary of Infrastructure Leasing and Financial Services Ltd (IL&FS).
The company, which develops, finances, operates and maintains water and waste water projects will target to almost triple its current portfolio of around ₹ 2,000 crore in 2014-15, said Sameer Vyas, managing director at IWL.
“The water market is growing. It is uncertain but it is still growing," Vyas said in a telephone interview.
At present, IWL has five projects in its portfolio, which it operates through joint ventures (JV) and special purpose vehicles (SPV). Among these is a JV with the government of Tamil Nadu, a special purpose vehicle (SPV) formed to develop the Tirupur Water Supply and Sewerage project, and an SPV to develop the Paradip Refinery Water Supply Project for Indian Oil Corp. Ltd.
The company has further identified opportunities in various segments of the water and wastewater sector like bulk water supply, industrial water reuse and effluent treatment, urban drinking water distribution, urban sewage management and desalination.
At a time when infrastructure companies are struggling to complete projects in core sectors like roads, power, and ports, among others, many are sharpening their focus on non-traditional sectors such as water and solar energy. The growing demand for water treatment and related infrastructure is also attracting investors to the sector.
According to a 21 July report by Barclays Research, the current market size for water supply and sanitation is $6 billion and is expected to reach around $10-12 billion per annum by 2016-17, as per Planning Commission estimates. “We see demand being driven by five major segments—fresh water supply, waste water management, water recycling and reuse, desalination plants and equipment (pipes, pumps, irrigation equipment)," the Barclays report adds.
To tap into this demand, many large corporates have strengthened their presence, including Larsen and Toubro Ltd, Thermax Ltd, Ramky Infrastructure Ltd, Praj Industries Ltd and VA Tech Wabag Ltd to name a few.
Among domestic companies, VA Tech Wabag, a pure play water company, is the market leader in the country in terms of revenue, the Barclays report says. For the year ended 31 March 2014, the Wabag had a revenue of ₹ 2,239 crore and an order book of ₹ 5,354 crore, according to the company’s annual report.
Recent initiatives by the government may also push investment in the sector. The Union Budget 2014 has proposed to provide safe drinking water through community water purification plants in the next three years to 20,000 habitations affected with arsenic, fluoride, heavy and toxic elements, pesticides and fertilizers.
“The growth push has to come from the government of India," says Vyas. Like the National Highways Authority of India is set up for the road sector, someone has to take charge of water too, he added.
Vyas believes that although private players are ready to invest in the sector, the government needs to play an important role in making such projects bankable.
According to Vijayraghavan Swaminathan, assistant vice-president, research at Spark Capital Advisors (India) Pvt. Ltd, although the water market is nascent at present, the opportunities are huge.
“The water companies will not only take the water treatment capex, but they will also take the operations and management (O&M)," he said. The biggest driver will be government spending, he added.
To be sure, even other companies are bullish about the sector.
Gajanan Nabar, managing director and chief executive officer at Pune-based Praj Industries Ltd, said that though not much action is seen in the sector right now, indications from the government have been positive. “There is a lot of debottlenecking happening on the environmental clearances front; so, that will help a lot of projects that are stuck. And once that happens, we should see more investments in this sector as well," Nabar said over telephone.
The company is also making small acquisitions in the technology space to help it provide niche solutions for the water industry. In 2012, it bought a 50.20% in Mumbai-based Neela Systems Ltd, which provides water treatment and modular process systems for biotech, pharmaceuticals, life sciences and cosmetics industries.
“Right now, we are in a position that all the investment needed is done and when the market turns the corner, we will be able to reap the benefits," Nabar added.
Although there is an opportunity in this sector and new players including some Japanese companies are showing interest, the nature of these projects is more challenging than others, said Vishwas Udgirkar, senior director at audit and consultancy firm Deloitte Touche Tohmatsu India Pvt. Ltd.
“There is a higher risk in these projects since it involves local governments and municipalities and there are no regulations and structures in place," he said.
The financial strength of local governments is also important and issues like drinking water are socially sensitive which adds to the challenges, he added.
