Why the building materials boom isn’t flowing evenly through the system
Every bull market needs a clean macro story. And plastic pipes — riding on infrastructure push, real estate revival, and rural water schemes — offer one of the neatest: steady volume growth, premiumisation, and a shift to organised players.
That’s the theory. But FY25 reality looked different. Margins cracked. Earnings dipped. Even top players booked inventory losses. If this was the sector’s structural growth year, investors have every right to ask: where did the operating leverage go?
The short answer: it got flushed down the PVC cycle.
A Sector That Should Be Flowing
On the surface, the long-term story remains intact. India needs pipes — lots of them. For water supply, irrigation, drainage, sanitation, rainwater harvesting, real estate plumbing, and even telecom ducting.
Jal Jeevan Mission alone aims to provide piped water to over 190 million rural households. That means tens of thousands of kilometres of new pipe each year. Add the PMAY housing drive and smart city plans, and the pipeline, metaphorically and literally, looks strong.
But FY25 exposed the cracks in that pipe dream. While industry volumes rose around high single digits YoY, revenues barely moved, and EBITDA for most manufacturers actually shrank.
So what went wrong? Lets find out.
The Inventory Sinkhole
The answer lies in timing and resin prices.
PVC resin, the core raw material for plastic pipes, saw a sharp correction through FY25, dropping by over 10% in some quarters. That’s great for raw material cost unless you’re holding high-priced inventory.
Which is exactly what happened.
Pipe makers entered the year with inflated input costs, built up inventory, and then saw selling prices fall before they could clear their stocks. The result? Margin erosion despite stable or even rising volumes.
To compound it, distributors, still spooked by the price volatility of FY23, were cautious. Many chose to destock. Orders slowed, even when end-user demand held up. This is a sector where a price swing of ₹10/kg can wipe out margins for a quarter. That’s the nature of the beast.
A Business Built on Fragility
Plastic pipes are not like paints or adhesives. They don’t command brand premiums. They don’t have the luxury of advertising-driven demand. And they don’t enjoy high pricing power.
They’re a commodity product in a semi-regulated environment, deeply exposed to global raw material cycles. Most resins, especially CPVC, are imported or linked to international prices. That makes cost structures volatile, and earnings highly sensitive to global shipping and trade dynamics.
Even a small import duty change or global container shortage can ripple through balance sheets.
Not All Volume Is Value
FY25 reminded us that volume growth is not the same as revenue growth. And certainly not profit growth.
Industry-wide volumes may have risen around high-single digits, but price realisations fell due to the resin correction. Margins fell by ~100–150 bps. EBITDA dropped for most players.
Even a well-run, diversified player like Supreme Industries saw EBITDA margins drop to 13.7% in Q4FY25, down from over 16% a year ago. The stock, though still considered a sector bellwether, trades about 31% below its 52-week high.
Astral, known for its brand strength and strong channel network, has corrected nearly 38% from its peak. Despite continued expansion into adhesives and bathware, margin pressure and muted growth in Q4 have kept investor enthusiasm in check.
Finolex Industries, which has high exposure to agri-pipes and rural demand, remains close to 38% off its 52-week high. A weaker rural cycle and lower pricing power have weighed on both earnings and the stock.
Prince Pipes, a smaller but fast-growing player, has also corrected over 48% from its peak, reflecting both margin compression and the market’s caution around adjacency expansion.
The broader point: even quality names haven’t been spared. The market has started to price in volatility, not just volume.
Capital Efficiency: A Quiet Erosion
Return on capital employed, the metric that separates good businesses from merely busy ones, has been steadily sliding for leading pipe makers.
Astral’s ROCE (Return on Capital Employed) has dropped from 29% in FY21 to 20% in FY25. Supreme Industries, once the gold standard with 42% in FY21, now stands at 22%. The sharpest fall, however, comes from Prince Pipes, where ROCE has collapsed from 29% to just 4% over the same period.
This isn’t just about one bad year. It’s a multi-year erosion in efficiency, driven by volatile resin prices, slow payback from adjacencies, and higher working capital lock-ins. For investors, the message is clear: even in a structurally growing industry, capital discipline cannot be taken for granted.
Policy Support vs. Execution Reality
Most brokerage reports cite the government’s infrastructure push as a key tailwind. And that’s true in the long term.
But short term, public procurement is lumpy. Tenders get delayed. Payment cycles stretch. And product specifications often change. For private players, selling to the government may boost top line but not always margins.
GST at 18% on CPVC products remains a cost burden for end users. And with rising competition, companies can’t always pass this on.
Moreover, many state schemes rely on L1 pricing, favouring the lowest bidder. That often crowds out high-quality, branded players, or forces them to match unviable price points.
The Adjacency Bet: Too Much, Too Soon?
One trend that accelerated in FY25 was diversification.
Several pipe companies have entered bathware, adhesives, water tanks, paints, or even sanitaryware.
On paper, it makes sense as they use the same dealer network, same supply chain and sell more SKUs.
But reality is trickier.
Each of these categories has entrenched players. Adhesives is dominated by Pidilite. Paints by Asian Paints. Bath fittings by Jaquar and Hindware. Without heavy marketing spends or channel incentives, gaining share is slow and expensive.
Worse, for investors, this means capital gets diverted. Margins are diluted. And complexity goes up, often without commensurate returns.
In FY25, many players reported rising employee costs and marketing spend, largely tied to these adjacencies. But it’s not yet clear if this investment will pay off.
Are Valuations Getting Ahead of Themselves?
Despite the operational challenges, plastic pipe stocks still trade at lofty multiples. Many are 30–75x PE band.
That’s expensive, especially for businesses with such raw material sensitivity and modest pricing power.
Much of the optimism comes from FY26 hopes: that margins will rebound, that resin prices have bottomed and that demand will remain steady.
But these are big assumptions.
If crude prices rise, or global shipping costs spike again, resin prices could bounce back. If rural demand slows for any reason distributor restocking could remain cautious. If government payments are delayed, working capital cycles could stretch.
In short, this is not a one-way story.
What Should Investors Watch?
If you’re looking to invest in this space, it’s important to separate narrative from numbers. The story of urbanisation, sanitation, and housing is attractive. But the operating metrics are cyclical.
Here’s what matters more than ever:
- Margin resilience in falling resin cycles
- Working capital discipline — especially in government orders
- Return ratios after diversification bets
- Volume growth that actually translates to EBITDA growth
- Valuation sanity relative to cyclical risk
Just because a product is critical doesn’t mean the business is immune.
Final Thoughts: Don’t Mistake Flow for Force
Pipes are core to India’s infrastructure agenda. But this isn’t a paint or FMCG business with steady pricing power and linear growth. It’s raw material heavy, working-capital intense and prone to restocking shocks.
The smarter investors here won’t chase momentum. They’ll wait for margin clarity, for adjacencies to prove their worth, and for valuations to reflect execution risk. Because in plastic pipes, not all volume is value — and not all growth is durable.
Disclaimer:
Note: We have relied on data from www.Screener.in throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Manvi Aggarwal has been tracking the stock markets for nearly two decades. She spent about eight years as a financial analyst at a value-style fund, managing money for international investors. That’s where she honed her expertise in deep-dive research, looking beyond the obvious to spot value where others didn’t. Now, she brings that same sharp eye to uncovering overlooked and misunderstood investment opportunities in Indian equities. As a columnist for LiveMint and Equitymaster, she breaks down complex financial trends into actionable insights for investors.
Disclosure: The writer and his dependents do not hold the stocks discussed in this article. The website managers, its employee(s) and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary.