Tata Faces Crisis as $20 Billion Spent on Water: Corporate India

Tata Faces Crisis as $20 Billion Spent on Water: Corporate India

India, the world’s second-most populous nation, is doubling spending on water management to a record as conglomerates from the Tatas to Adani face shortages that the United Nations calls an impending crisis.

The federal and state governments have set aside 1.1 trillion rupees ($20 billion) for sewage treatment, irrigation and recycling for the five-year period ending March 2017, G. Mohan Kumar, special secretary in the Ministry of Water Resources, said in an interview. The nation with 1.2 billion people, which treats only 20 percent of its sewage, is pouring more money as inadequate clean water is threatening to stunt growth in industrial and farm output.

Disputes with farmers demanding rights to their irrigated land have stalled about $80 billion of investment by companies including Posco and ArcelorMittal (MT) as Prime Minister Manmohan Singh seeks to revive an economy growing at the slowest pace in a decade. Tata Steel Ltd. (TATA), India’s biggest maker of the alloy, is setting annual targets to cut water usage as two-thirds of the country faces a scarcity, H.M. Nerurkar, managing director said in an April 11 interview.

“Water availability is a very big issue and in the coming days this will be a far bigger issue,” A.P. Choudhary, chairman of Rashtriya Ispat Nigam Ltd., India’s second-biggest state-run steelmaker, said in an interview. “Water is critical for the steel industry’s growth and no company is comfortably placed.”Industrial Demand

India has 18 percent of the world’s population and four percent of the globe’s water resources, President Pranab Mukherjee said at an April 8 conference in New Delhi. About 80 percent of the water available is used for farming and less than 10 percent by factories, water ministry’s Kumar said.

Industrial water demand in India may surge 57 percent by 2025, with the Asian country being the most water-stressed among the Group of 20 nations, which also includes China, according to estimates by HSBC Holdings Plc.

India’s demand for clean water by 2030 may exceed supply by 50 percent while pollution is making what’s available unfit for human consumption, industrial or farm use, according to McKinsey & Co. forecasts and a government report.

“This five-year plan devotes far more space to water and it is clear that there is more political agreement on India’s water crisis,” said Srinivasan Iyer, assistant country director at the United Nations Development Program.

‘Extremely Rich’

Still, the planned spending on water projects account for just 2 percent of the $1 trillion Prime Minister Singh says is needed to build infrastructure in the five years ending March 2017 to revive economic growth that slowed to an estimated 5 percent in the year ended March 31, the least since 2003.

Jim Rogers, the investor who foresaw the start of a commodity rally in 1999, said he is “extremely optimistic” about investing in water amid scarce supply in countries from India to the U.S.

“If you can find ways to invest in water, you will be extremely rich because we do have a serious water problem in many parts of the world like India, China, the southwestern part of the U.S., and west of the Red Sea,” Rogers, chairman of Rogers Holdings, told reporters in Singapore on April 15.

Beating Gold

Shares of water-treatment companies are beating those of gold and oil explorers as governments from China to India boost spending on basic infrastructure to avert shortages threatening economic growth and political stability.

The S&P Global Water Index of 50 companies has surged 162 percent since Nov. 30, 2001, when Bloomberg began compiling the measure. In comparison, the S&P Global Oil Index has risen 135 percent in the same period and the S&P/TSX Global Gold Sector Index (SPTSGD) has climbed 37 percent.

Suez Environment, Europe’s third-largest water company by market value, won 41 million euros ($54 million) of contracts to build and operate water-treatment units in New Delhi, a city of 17 million people, and Bangalore, according to a March 13 statement. Thermax Ltd. (TMX), a Pune-based company that produces water-recycling equipment, has climbed 31 percent in the past year, compared with the benchmark S&P BSE Sensex’s 9 percent advance. VA Tech Wabag Ltd. (VATW), the nation’s biggest builder of water-treatment plants, has risen 17 percent in the same period.

Work including sewage treatment and waste water management will help boost revenue as much as four-fold for VA Tech and double it for Thermax in five years, according to the companies’ chief executive officers.

Acquisition Plan

“We will participate in projects where there’s need for for technology to treat water,” M.S. Unnikrishnan, CEO of Thermax, said in an April 9 interview. “Sewage treatment is getting increasing importance from the government.”

VA Tech plans to spend as much as 50 million euros to buy two companies in Europe to help it gain access to new markets and technology, Managing Director Rajiv Mittal said in an interview on April 17.

Thermax’s revenue from its environment business, which includes water, rose to a record 11.7 billion rupees in the year ended March 31, 2012. VA Tech Wabag’s net income climbed 36 percent to 751.2 million rupees in the 12 months and sales rose to 10 billion rupees, both an all-time high. Pretax profit margin in the quarter ended Dec. 31 was 11.18 percent compared with 10.24 percent a year earlier.

Farmer Suicides

Parts of Maharashtra and Karnataka, states that together account for 45 percent of India’s sugar production, have faced drought in the past two years. Output in India, the world’s top producer after Brazil, is set to decline for a second year, according to a survey compiled by Bloomberg.

Nearly a 1,000 farmers, unable to repay their debt after dry weather cut their incomes, committed suicide in one region of Maharashtra in 2012, India Today said in an article dated Jan. 21, a number the local administration disputes.

Plans by Posco (005490), the world’s biggest steelmaker by value, to build a $12 billion mill in the eastern state of Odisha have stalled for eight years as the South Korean company failed to persuade farmers to move. ArcelorMittal, the world’s largest steelmaker by output, faces delays for a $10 billion plant in Odisha and in Jharkhand state.

“We don’t have the luxury to use water the way we want,” said Devendra Amin, vice-president and spokesman for Adani Group, which is controlled by billionaire Gautam Adani. “Water cannot be taken for granted the way industries set up in the decades gone by used to.” Adani has businesses in mining, power and ports.

To contact the reporters on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net; Archana Chaudhary in New Delhi at achaudhary2@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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