Opportunities in the

Indian Water Market

U.S. Commercial Service

Deloitte Touche Tohmatsu India Pvt. Ltd. 9th December 2010

The Indian water and water treatment market is estimated at USD 5 bn with the low penetration levels driving growth at about 15%-20%
Water

Water Supply USD 4 bn

85% of Indias urban population and 50% of the rural population have access to safe drinking water

46% of Indias urban population and 12% of the rural population have access to sanitation services

Water Treatment USD 1 bn

Municipal
Demand driven primarily by the need for sewage systems and wastewater management plants that meet the requirements of growing urban population Demand is also fueled by the replacement market for sewer systems which is a necessity in most places

Industrial
Zero discharge systems and wastewater recycling are now common practices in India driven by pollution control norms and scarcity of water Primary targets include textiles, leather, pharmaceutical, chemical and power sectors

Government spending limited when compared to the estimated requirement of USD 5 bn per annum Growing trend of public private partnerships for water and water treatment plants and distribution systems India permits 100% FDI in municipal water and wastewater treatment projects to bridge the gap

Water Significant potential in the long term

2010 Deloitte Touche Tohmatsu

The market is expected to be driven by industrial growth and government initiatives to improve water supply and sanitation
Growth / demand drivers

Public private partnerships

Public private partnerships (PPP) are increasingly looked up as an option to improve infrastructure in India At the national level, the Government of India has laid out a well-defined framework for undertaking PPP projects and have issued guidelines for monitoring PPP projects A number of PPP options have been used including service contract, performance-based service contract, joint sector company to implement and finance the project, management contract for operations and maintenance (O&M) and construction cum build-operate-transfer (BOT) contract

Municipal
Increase in demand for water: The Planning Commission of India has estimated the water demand increase from 710 BCM (Billion Cubic Meters) in 2010 to 1180 BCM in 2050 with domestic and industrial water consumption expected to increase almost 2.5 times. Gap in water supply and sanitation facilities According to the WHO statistics, only 21% of the total population (49% in urban areas and 10% in rural areas) had access to piped drinking water in 2006. Of the total wastewater generated in the metropolitan cities, barely 30 per cent is treated before disposal. Budgetary allocation from the Government and aid organizations: The planning commission has made an outlay of USD 23 bn for Rural Water Supply & Sanitation and USD 17 bn for Urban Water Supply and Sanitation. The World Bank and ADB aided projects are expected to be key demand drivers

Jawaharlal Nehru National Urban Renewal Mission

Number of projects sanctioned
160

Cost of projects sanctioned, USD bn

5

Industrial
No of projects

Increasing environmental awareness and pollution control norms leading to the adoption of zero effluent disposal practices in the treatment of industrial waste and effluent Commissioning of large SEZ and manufacturing park projects, which would require water and effluent treatment plants
3
Source: WHO, Planning Commission, JNNURM

80 2 40 1

Drainage/Storm Water Drainage

Water Supply

Sewerage

Solid Waste Management

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USD, bn

Growth in sectors like power, chemical, petrochemical, textile, leather and, food and beverage

4 120 3

The industry is fragmented and characterized by the presence of few large players and a number of small players
Technological capabilities in the Indian water and water treatment industry have been developed through strategic partnerships with foreign firms and internal investments in research and development

Key Domestic and Foreign Players

Domestic Players Aqua Designs India (P) Ltd. ABC Environ Solutions (P) Ltd. Aireff deTox Incineration Ltd. Doshion Ltd. Driplex Water Engineering Ltd. FontusWater Ltd. Geo Miller & Co. (P) Ltd. Hindustan Dorr-Oliver Ltd. Ion Exchange (India) Ltd. Ions Hydro Pvt. Ltd. JUSCO Ltd. Morf India Ltd. Nuchem Ltd. OASIS Infrastructure & Services Paramount Ltd. Equipment Manufacturers Solution Providers Domestic Players Permionics Membrane (P) Ltd Ramky Enviro Engineers Ltd. Sai Sudhir Infrastructures Ltd. ShivamWater Treaters (P) Ltd. Shivsu Canadian Clear Water Shriram EPC Ltd. SPML Infra Ltd. Sun Enviro Technologies (P) Ltd Techline Green (P) Ltd. Thermax Ltd. Triveni Engineering & Industries Ltd TWIC Ltd. UEM India Ltd. Wipro Water Equipment Manufacturers Solution Providers

Foreign Players Aquatech International Corp Degremont Remondis AG & Co. KG

Equipment Manufacturers

Solution Providers

Foreign Players Siemens Water Technologies VA Tech Wabag GmbH Veolia Water S.A

Equipment Manufacturers

Solution Providers

Source: Intellinet, Deloitte analysis

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The water treatment industry with an annual size of USD 1 bn, is moving from chemical treatment and demineralization technologies to membrane technologies
Water treatment products
Chemicals, filtration and membrane systems account for 88% of total products
CAGR (2003-2009)
Chemicals , 31.4%

40%

Other water treatment, 5.7% Membrane systems , 26.2%

Disinfection equipment and membrane systems have been the key growth areas

30%

20% 29.7% 10% 18.4% 13.4% 4.5% Disinfection Membrane Chemicals equipment systems Filtration

9.5% Other water treatment

0%
Disinfection equipment , 6.1% Filtration , 30.6%

Chemical treatment Demineralization technology

Membrane technology

Existing players in India may not possess the technologies for design of large scale water treatment plants
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Source: Center for International Trade Development, Global Research & Data Services
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Given the context, a number of opportunities exist in Indian market across the value chain of water and waste water treatment
Value chain

Technology, R&D and alliances

Technology /R&D

Domestic players are looking for advanced technologies for water treatment Consultancy services and feasibility studies

Design/Engineering and project management Manufacturing/fabrication, erection and commissioning

Water treatment and waste water treatment for industries like cement, chemicals, fertilizers, food & beverage, paper, pharmaceuticals, power, refineries, sugar, tanneries and textile industries Industrial Sea water desalination for industrial requirements Water treatment facilities, desalination plants and effluent treatment plants to supply water and treat sewage for the large special economic zones Instrumentation and control systems for water treatment plants

Operation, maintenance and services

Water treatment
Domestic, commercial, municipal and industrial applications Industrial applications include cooling water, demineralized water

Waste water treatment

Domestic, commercial, municipal and industrial applications

Components: Equipments, chemicals/resins, membranes, enzymes

Municipal

Participation in public private partnership models for setting up water treatment plants and operation and maintenance of these plants Sea water desalination projects for drinking water

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In the recent past, a number of joint ventures have been created and licensing agreements signed between Indian and foreign companies to jointly tap the market
Collaboration/JV with foreign players Key considerations for new entrants
Access to technology either with in house R&D or technology collaboration

Indian Company
Thermax

Alliance partners
GE Water for ultrafiltration and membrane bioreactor (MBR) technology and Wehrle Umwelt GmbH for treatment of hard-to-treat industrial effluents Butler Manufacturing, Elf Antar SA, Eutech Instruments, Nordic Water Products, Waterleau Agreement with LackebyWater Group to bid for water management projects in the public and private sector Manufacturing Associate Agreement with GE India Industrial Private Limited for manufacturing membrane-based water treatment systems for boiler make-up water, services water and potable water Kemira, Hindustan Dorr-Oliver (HDO) and IVRCL are forming a strategic alliance to serve Indian water treatment markets. The joint venture will include an inorganic coagulant manufacturing facility

Ability to compete as a complete system provider with

engineering and design capability, project management,

manufacturing/fabrication, experience in erection and commissioning of large projects is the key Prior expertise in execution of large projects is key to both government and industrial segments as a pre-qualification in many projects Cost effectiveness of equipment - as the market is driven by highly cost conscious end user. The equipments made in India are estimated to be cheaper by 30% compared to the imported ones BOT (Build, Operate and Transfer ) / BOOT (Build, Own, Operate

Ion Exchange

NAPC Ltd

BHEL

IVRCL

and Transfer) projects which are predominantly offered for PPPs

are cash intensive but provide higher margins in the long run.

2010 Deloitte Touche Tohmatsu

Foreign companies have a variety of models to enter the Indian market, either on a standalone or a JV partnership model

Models for foreign investment in water business

Performance contract with the Government Lease contract of existing infrastructure from Government Building of new infrastructure by the private participant on a BOT basis Water treatment plants for captive consumption Packaged water

Key challenges for investors

Regulated and controlled sector Water, a state subject absence of a uniform policy from a single regulator Revenue model Low water tariffs

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Appendix

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Government policies and regulations

Municipal sector
In India, water supply and sewerage are State subjects with the states empowered to enact laws, frame policies or fix prices of related services. The Union Government only formulates guiding policies, sets standards, and provides technical and financial assistance to the states. Planning and implementation of water development projects is handled both at the Centre and State levels. At the local level urban local bodies are responsible for providing water supply in urban areas, and the Panchayati Raj institutions in rural areas. The Government of India has set up a National Urban Renewal Mission (NURM) as a mission mode project to augment infrastructure facilities in major urban areas. The infrastructure facilities include water supply, sewerage, solid waste management, and urban transport, including roads, etc Government has allowed 100% FDI in the infrastructure sector which includes water treatment systems. The water supply projects are eligible for bank finance and a 10-year tax holiday.

Industrial sector
The government has enacted laws for prevention and control of water pollution Stringent disposal norms for industrial effluents and hazardous waste Water (Prevention and Control of Pollution) Act, 1974 prohibits the discharge of pollutants into water bodies beyond a given standard, and lays down penalties for non-compliance Water (Prevention and Control of Pollution) Cess Act, 1977 provides for a levy and collection of a cess on water consumed by industries and local authorities

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