Making a clean sweep of a 'dirty' business in India

A new kind of "dirty" business is becoming the latest frontier in the bottom-of-the-pyramid market in India, with a number of start-ups seeing a huge opportunity in building and maintaining toilets as more than 600 million Indians still defecate in the open, according to the World Health Organization.

Bindeshwar Pathak, who launched India`s first paid toilet way back in 1974 told CNBC that there were just not enough toilets in a country of a billion people.

"You need private companies to take on the mantle and there is money to be made here," said Pathak whose non-profit organization Sulabh International runs 8,000 toilets in 23 states in India, of which 5,000 are profit-making paid toilets that subsidize the others in the network.

Pathak thinks it is a viable business given the huge demand-supply gap in this sector. For example, almost 50 percent of all households in India lack toilet facilities, according to latest Indian Census figures. Now contrast this with another fact: more than 60 percent of households have a telephone connection, of which 52 percent have mobile phones.

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This anomaly has caught the attention of a few entrepreneurs who are smelling cash in the toilet business. When entrepreneur Rajeev Kher started his portable toilet business Saraplast in 1999 he faced not just social ridicule from family and friends but also from banks, financiers and potential recruits. "I had no products to show, collateral to give or proven financial model to argue the case for the toilet business," he told CNBC.

It did not help either that traditionally the work of cleaning toilets in India has been culturally and socially considered the lowest form of menial labor. But Kher remained undaunted, initially sourcing demo portable toilets from Germany for free and touring the country on a pick-up truck to showcase them personally to potential customers.

The persistence paid off. After 14 years, his company has a country-wide network of 3,000 `3S Shramik` brand of toilets with 250 maintenance staff. The company had a turnover of 135 million rupees (USD 2.5 million) in 2012.

Early Mover Advantage

Delhi-based Dipesh Bhutani spotted the opportunity in portable toilets as early as 1996 when he noticed the difficulty faced by family members while shopping or attending an outdoor wedding or religious ceremony. "If this was the situation in the capital of India, I could sense that portable toilets would work and make money," said Bhutani. Today his portable toilet business under the brand `Super Loo" are available in 12 Indian cities and range from single commodes to air-conditioned toilet vans.

According to Business Innovation Facility (BIF) an international facilitator of social enterprise, in urban Indian slums alone, an estimated 75 million people have no access to individual or shared toilets. This puts the immediate demand in 2013 for urban slum toilets at 1 million seats based on a ratio of 80 per seat.

"The toilet business presents the same opportunity today that bottled water presented a couple of decades ago. Nobody thought Indians would pay for water; but they did. Now they are ready to pay for clean and hygienic toilet facilities," Kher said.

The economic prosperity of Asia`s third largest economy that has grown until recently at over 8 percent, has given rise to a consumer class that is now willing to pay for products and services that improve quality of life - from clean drinking water to toilets to hygiene products.

According to the BIF, slum households it surveyed in the three cities of Delhi, Bangalore and Pune last year were willing to pay for clean and hygienic mobile toilet facilities. In Bangalore, for example, slum residents pay Rs 300 to Rs 500 per month per family on use of brick and mortar toilets, but 69 percent of them complained of long waiting time at community toilets where the person to seat ratio was 200.

The entry barrier for portable toilets is relatively low for entrepreneurs. Compared to traditional brick-and-mortar structures, portable toilets have low set-up time, low cost-per-seat, do not need elaborate government clearance or real estate to become functional, according to market participants.

Demand is also robust in the urban market for social events, sports meets, religious gatherings, political rallies and construction sites.

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"Construction sites are turning out to be a major market for our portable loos as Indian cities are pushing the pedal on new projects like airports, metros and retail, commercial and residential infrastructure," said Sorabh Singh, business development manager for ASAP Infra that branched out of real estate in 2008 to provide prefabricated construction solutions to corporates, including portable toilets. "The business of portable toilets is non-seasonal, scalable and sustainable," he added.

Investors Pour In

Seeing the growth potential of this market, venture capitalist and private equity players are also adding `toilet` assets to their portfolio. In 2009, venture capital fund Aavishkaar picked up a 21 percent stake in Saraplast for Rs 30 million.

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The company is now finalizing a second round of funding to scale up operations. Kher has plans to provide more than a million toilet maintenance services a week throughout the country and also in the offing is a waste treatment plant to generate bio-energy from toilets.

"Given that the size of the sanitation market is USD 7 billion in the US where sanitation is not even a big issue, there is no reason why sanitation cannot be a USD 10 billion industry in India," said Noshir Colah, operations partner at Aavishkaar.

Clearly, a set of early movers, risk-taking entrepreneurs and far-sighted investors are hoping to make a clean sweep in the `dirty` business that others hesitate to enter.

Copyright 2011 cnbc.com