Edelweiss: Every drop counts

Non-availability or irregular supply is expected to drive industries to look at recycling of water for sustainability. Water recycling requires only incremental investment to enable the treated waste water to be re-used/recycled by the industry rather than discharge it. Researchers believe that if every source of waste water is carefully monitored in an industry, it will be possible to segregate easy to treat waste streams from the difficult to treat streams, thereby recycling easily treatable wastes instead of combining all waste together for a final “end of the pipe” treatment. The overall cost of treatment could come down substantially and also the amount available for re-use/re-cycle would increase substantially if this approach is made standard practice.

DesalinationDesalination refers to the wide range of processes designed to remove salts from water of different qualities. Desalted water can be used for a wide range of purposes, including providing potable fresh water for domestic and municipal purposes, treated water for industrial processes, and emergency water for refugees or military operations. Basically, there are two major technologies for desalination viz., the thermal process (based on natural hydrologic cycle) and the membrane process (based on natural biological process). The earliest plants were based mostly on the thermal evaporation technology; however, since 1970 more plants were installed using membrane technology. Both the technologies have their pros and cons. Membrane technology can desalinate both sea water and brackish water, it can remove organic contaminants and requires lower capital costs and energy than thermal systems. However, thermal systems can produce water with much lower salt content than membrane systems (typically less than 25 parts per million (ppm)) compared to less than 500 ppm in membrane systems.

Desalination in India Water from desalination has not been a major source of supply in India till now. A recent announcement of a 150 MLD desalination plant in the Kutch region has been the biggest plant in the country and there has been no plant even close to this size in the country. The various desalination projects in the country are given in the table below:

It may be noted that all the projects, except for Rajasthan, have been in the coastal region, wherein the cost of sourcing water, discarding the brine, and thereby the overall operating cost tends to be low compared to a hinterland region. Also, regions where desalination has been planned or executed are amongst the high water stress regions of India. Further, all the capacities are being installed by central/state governments; only a few small plants have been installed by private entities for captive use.

Although the cost of desalination has dipped in recent years, it is still an expensive water supply option. The proponents of desalination believe that the cost will reduce in the years to come. However, with rising energy costs unless there is new technology in place, the same appears to be unlikely in the near future. The future cost of desalinated water will be more sensitive to changes in energy prices than other sources of water. Also, with the current technology, low cost desalted water can be generated in coastal areas with a dedicated power plant. Environment issues associated with desalination cannot be ignored. Desalination in India looks to be a distant proposition in the absence of any regulatory push or government incentive (in the form of subsidies, whether capital or otherwise).

We prefer… We prefer plays on urban water demand and water treatment and recycling space compared to irrigation, given the increasing investment in urban renewal and improvement in environment consciousness of corporate India. Further, we believe EPC players in the irrigation space have low entry barriers with high working capital requirement. However, given the sheer size of the irrigation sector as compared to urban water demand and water treatment and recycling, it is likely to result in higher growth for companies addressing the irrigation space. In the urban water demand and treatment and recycling space, we prefer TMX and LNT over others. However, while they are leading listed players in the water industry, water segment forms only a minor part of their revenues currently. For TMX it forms ~7% of revenues while for LNT it forms lower than 5% of total revenues.

We believe the water sector story in India is a long drawn one and while the potential for the same is immense given the factors explained above, the current exposure to water industry in the listed space is rather limited. However, we continue to like companies with some presence in the water segment, as these are the ones which can scale up their exposure to the water industry when the opportunity arises over the medium to long term.

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