MarketsmithIndia Articles

India's Infra Push: Pipe Dreams Do Come True

August 12 2021 | Reading Time: 30 Minutes

A Pipe Dream

In February 2021, Prime Minister Narendra Modi announced that the Government of India plans to invest around Rs 7.5T in oil and gas infrastructure over the next five years. In Budget 2021, the finance minister announced that the government would add 100 more districts to the City Gas Distribution Network in three years. Also, the government is working on Har Ghar Jal mission to provide tap water supply to every rural household by 2024.
India’s existing pipeline infrastructure falls well short of what is required to cater to the upcoming boom in demand from the oil and gas and water segments. It bodes well for the piping industry in India, as the demand visibility is clear.

The domestic pipe industry is dominated by plastic pipes, which have a market size of ~Rs. 315B, with the organized players accounting for more than 70% of the market share in this segment. Plastic pipes are growing faster than other pipes because they are lightweight and come with ease of transportation, installation, and a longer life span.

Primary Applications of Plastic Pipes:
- Agriculture (irrigation). - Potable water supply. - Drainage. - Industrial applications - Carrying cables & electrical conducts

Key Growth Driver

Strong Demand Outlook for PVC Resin and PVC pipes
India’s PVC demand is projected to grow at a CAGR of 6.81% during CY 2019–30 to reach 6,779KTPA by 2030. The key growth drivers are a growing agriculture sector, rapid industrialization, infrastructure development, favorable government policies, rising urbanization, and incremental usage of PVC in flooring applications across private, commercial, and industrial premises.

Similarly, India’s demand for PVC pipes and fittings currently stands at 20 Lakh MT and is projected to grow at a CAGR of 14.7% between FY 2018–26. PVC pipes and fittings have end-user applications in building and construction, irrigation, water supply, and other purposes.
Various Government Initiatives Create Opportunities in Housing, Construction, and Infrastructure Sectors
The government has taken various initiatives to invest in irrigation, housing, and sanitation, through schemes such as ‘Housing for All,’ ‘Atal Mission for Rejuvenation and Urban Transformation’ (AMRUT), and ‘Pradhan Mantri Krishi Sinchayee Yojana’ (Prime Minister’s Agriculture Irrigation Scheme).
Housing Initiatives
In the 2021 budget, the Ministry of Housing and Urban Affairs’ outlay stood at Rs 50,040 crore, 18% higher than the revised estimates for 2019–20.
In 2020–21, the allocation for AMRUT Mission stood at Rs 7,300 crore, 14% more than the revised estimate of 2019–20. Similarly, the Smart Cities Mission, which aims to develop cities that provide core infrastructure and apply ‘smart’ solutions, has been allocated Rs 6,450 crore in 2020–21, which is 87% higher than the revised estimates for 2018–19.
The government has launched Pradhan Mantri Awas Yojana (PMAY) to provide affordable housing to the urban poor and build 20M affordable houses by 2022. The scheme’s budgetary allocation for 2020–21 is Rs 8,000 crore. This is a 17% increase over the revised estimates for 2019–20.
Many Cities to Follow Puri Style of Providing High-Quality Drinking Tap Water
Puri became the first city in India to provide high-quality drinking water directly from the tap on a 24-hour basis to its 2.5 lakh residents. Similar facilities are available in big cities like New York, London, and Singapore. The move would reduce plastic waste by an estimated 400 metric tonnes annually. Water fountains were developed at 400 locations spread across the city.
This is the first step toward providing clean drinking water to all households across the country. Many other state governments are evaluating the project implementation and are likely to implement the same, creating a massive demand for the piping companies.
Healthcare Initiatives
The finance minister announced a new centrally sponsored scheme called PM Atma Nirbhar Swasthya Bharat Yojana with an allocation of Rs 64,180 crore over six years. This scheme focuses on developing primary, secondary, and tertiary healthcare systems.
Environmental Initiatives
The government has allocated Rs 1,41,678 crore for Urban Swachh Bharat Mission 2.0 in the recent budget announcement. The government has shown a strong commitment to promoting ODF (Open Defecation Free) behavior through the ODF Plus program, which consists of four components ODF-S, Solid Waste Management, Liquid Waste Management, and Faecal Sludge Management. The emphasis is on liquid waste and greywater management and solid-waste collection, source segregation, and processing.

Replacement Market: PVC/CPVC Preferred Over GI Pipes

In existing real estate units, there might be certain cases where GI pipes are used, and the market is moving fast away from these pipes toward plastic pipes. PVC/CPVC pipes have the edge over these pipes because of their longer life span, which is two times more than GI pipes. PVC/CPVC pipes are highly durable as well and are preferred by various allied industries.

Irrigation To Increase Plastic Pipes Demand
As previously noted in this report, India is a highly water-scarce country, with an abundant requirement for a proper infrastructure for irrigation and water supplies, keeping in mind the country’s high dependence on agricultural activities. To address this problem, the central government has sharpened its focus on irrigation projects through its flagship schemes such as PMKSY. Other initiatives include supporting farm incomes as well local government initiatives to encourage farmers to use irrigation systems.

Water and Sanitation
According to the World Bank, India’s per capita availability is only 1,118 cubic meters, significantly lower than China’s 2,062 cubic meters, Brazil’s 27,271 cubic meters, and the U.S.’s 8,844 cubic meters. It is marginally higher than South Africa’s 821 cubic meters, which is a desert country. This shows India needs to do a lot of work on its transmission line, which would lead to an increase in demand for pipes. Following the launch of the ‘Swachh Bharat’ mission, the basic sanitation coverage in India went up to 99% in 2019 from 40% in 2014.

Growing Opportunities in the Water Transportation Segment
Water is one of the most critical resources that enable life on earth, and it is depleting very fast. As the global population is expected to reach 9.2B in 2040 from 7.4B in 2017, water demand would increase 20–30% every year during this period. At 1,544-meter cube per capita availability, India is already water-starved as it has only 4% of the global water resources but accounts for nearly 17% of the global population. By 2030, the demand for water will be twice that of supply. The government of India has taken various initiatives and has proposed to link major water-starved regions to rivers of India.

According to the World Bank data, India is one of the wettest lands in terms of precipitation received annually. Still, water management continues to be a big issue for the country. We waste ~74% of the available water due to inefficient water management and transmission infrastructure. For domestic and industrial uses, most river basins are water-stressed.

Steel Pipe


65% Rise in Natural Gas Expected Between 2010 and 2040
In 2040, gas is projected to become the second-largest energy source with an estimated share of 25%, an increase of more than 3% from 2015 levels. The majority of the increase in gas demand is expected to come from China, the Middle East, and Europe, which covered almost 85% of the global y/y increase in gas consumption in 2017.

The global demand for natural gas is projected to grow at 65% from 2010 to 2040, the largest volume in any energy resource. It is anticipated that the natural gas consumption is mainly concentrated in the non-OECD countries where demand is expected to grow twice as fast as the OECD countries.
Change in Energy Mix to Propel Demand for SAW pipes
In India’s total energy mix, the share of oil and gas is likely to increase to 45% in 2025 from 36% in 2017. Energy demand is expected to grow at 4.5–5% and would propel SAW pipe volume demand in absolute terms till 2025.

Replacement of Old Oil and Gas Truncated Pipelines and Demand for New Lines to Propel Demand for SAW Pipes
Oil and gas pipelines usually have an economic life span of 30 years. Many pipelines have outgrown their economic age and will require a replacement. We expect about one-tenth of pipelines to be replaced, creating demand for SAW pipes. In addition to replacement demand, an 11,000KM new pipeline is under construction, likely to be constructed in the next 5–7 years.
New-build trunk oil and gas pipelines length growth by key countries
In India’s total energy mix, the share of oil and gas is likely to increase to 45% in 2025 from 36% in 2017. Energy demand is expected to grow at 4.5–5% and would propel SAW pipe volume demand in absolute terms till 2025.


Finolex Ind

Finolex Industries (Finolex) operates in two key business segments: a) PVC pipes and fittings; and b) PVC resin. The company is the largest manufacturer of PVC pipes and resins in India. It has state-of-the-art manufacturing plants in Pune and Ratnagiri in Maharashtra and Masar in Gujarat. The company has a nationwide presence, with a robust network of over 22,000 dealers, sub-dealers, and retailers.
Robust Financials in Q1 FY21 Despite Second Wave of Pandemic
  • Total income from operations grew 71.9% y/y to Rs 965.72 crore for Q1 FY22 against Rs 561.89 crore in Q1 FY21.
  • Sales volume in the pipes and fittings segment advanced 5.5% to 55,819 MT in Q1 FY22 against 52,911 MT in Q1 FY21 while sales volume in the PVC resin segment grew 10.6% to 50,249 MT in Q1 FY22 against 45,435 MT in Q1 FY21.
  • EBITDA surged 137.4% y/y to Rs 209.51 crore for Q1 FY22.
PAT advanced 166.3% y/y to Rs 146.80 crore for Q1 FY22 versus Rs 55.11 crore for Q1 FY21.

Strong Fundamental Profile
Finolex is a debt-free company. It had a net cash surplus of Rs 606 crore at the end of Q1 FY22 and an ROE of 28.8%. The company has had good profit growth of 26.02% CAGR over the last five years. Inventory turnover has been consistently decreasing over the last three years. EBITDA margin has expanded to 21.7% in Q1 FY22 from 15.7% in Q1 FY21.

Consistent Capacity Additions in Pipe Segment to Drive Volume Growth
The pipe division contributes nearly 45% of the total top line and would remain a key contributor to revenue, going forward. Pipe volume has grown significantly due to strong demand from the irrigation segment and consistent capacity additions. The company’s current pipe capacity stands at 370,000MT; it is on track to increase the installed capacities of PVC pipes and fittings to capture the anticipated increase in demand.
Advantage of Backward Integration:
The backward integration of PVC resins gives a unique advantage in terms of consistent high-quality raw materials and sustaining margin. It has a capacity of 272,000 MT. It also has its own jetty in Ratnagiri and a 43MW power plant.
PVC/EDC Spread Key Driver of Future Profitability
A key metric of profitability for PVC resin manufacturers is the spread between PVC and EDC prices. A healthy spread assures good margins. By Q4 FY21, the spread between EDC and PVC was around $574/MT, up from $523/MT during Q4 FY20.

Government Initiative in Agriculture, Housing Sectors to become Tailwinds:
The company serves customers in the agricultural and housing, construction and infrastructure sectors. A budget allocation of Rs 1.23 lakh crore for the sector comprising agriculture and allied activities, with an aim to double farmers’ incomes by 2023, can help Finolex much as 70% of its revenue is from the agriculture sector.The government has launched Pradhan Mantri Awas Yojana (PMAY), which aims at providing affordable housing to the urban poor, and building 20M affordable houses by 2022. The budgetary allocation towards the scheme for 2020-21 is Rs 8,000 crore. This is a 17% increase over the revised estimates for 2019-20.
O’Neil Methodology and Technical Viewpoint:
  • The stock recently made a fresh all-time high and succumbed to profit booking. It breached its 21- and 50-DMA.
  • Its RS Rating has declined to 43 after making blue dots in June.
  • In the last four quarters, the company has reported strong growth in its sales and EPS. Hence, EPS Rank is good at 95.
  • Currently, it is trading in no trade zone. We would wait for the stock to improve its technical parameters and form a base pattern.


Astral Poly Technik manufactures and markets a wide variety of piping and drainage systems for residential, commercial, industrial, and agriculture applications. The company’s six manufacturing units across the country have automated material handling and feeding systems. Astral Poly Technik is one of the leading players in the CPVC and PVC piping segment and an emerging player in the adhesive segment. With a current total PVC/CPVC/DWC capacity of 2,57,989 MT in the piping space, Astral competes with Supreme and Ashirwad in the CPVC segment and with Supreme, Finolex, and Prince in the PVC segment. The company has backward integrated manufacturing of CPVC compounds and ensures consistent cost savings and efficient raw material supply.
Key Tailwind: Positive Industry Outlook
The pipe industry is likely to consolidate following the second wave of the COVID-19 pandemic as unorganized regional players seem to be highly affected amid the pandemic. Also, the government is expected to increase its spending on pipe installations under several schemes such as Nal-Se-Jal, a low-cost housing scheme, among others. Also, polymer price volatility will support cash-rich companies because they can manage the additional working capital requirement. The company as an industry leader is well-positioned to benefit from the favorable pricing in the CPVC pipe segment in the coming years. Moreover, higher PVC pricing will lead to market cannibalization toward CPVC products

Financial Muscle Growing From Strength to Strength
The company has significantly reduced the debt from its balance sheet to become net debt-free in FY21. The debt/equity ratio has turned to zero from 0.25 in FY17. EBITDA margin has witnessed a consistent uptrend over the last five years. FY21 margin stood at 20.9% against 14.3% in FY17. The EBITDA margin is expected to remain in the higher teens in the future, driven by a better product mix and economies of scale, providing operating leverage. The cash in the balance sheet has clocked a healthy CAGR of 28.1% during the FY17–21 period.

New Product Launches to Drive Next Leg of Growth
The company has launched several new products, including Astral water tanks, Multi pro, Sartia water tanks, Solvobond-high quality solvent cement, Resiwood-premium synthetic adhesives. Also, the company is likely to launch a few new products in the pipes segment over the next 12 to 18 months, which should aid in additional revenue of Rs.300 crore over the next five years. Furthermore, the company is expected to launch a few new products under different chemistry in the adhesive & sealants segment. Together with the recently launched products and existing products, the company will double the business from the current level in the next four to five years.
New Plants to Aid Top Line Growth
The company's plant in Cuttack will be operational by September 2021. It will add a production capacity of 60,000MT, which includes 20,000MT in the first phase. This plant will serve Eastern and North-Eastern markets. Similarly, the Sangli plant will have an additional pipe manufacturing capacity of 8,856MT. This plant will cater to the western and southern Indian markets. Also, the Aurangabad plant will soon have a pipe manufacturing capacity of 5,000MT. This plant will cater to the western and central Indian markets.

Entry into Water-tank Market to Improve Growth
In 2020, Astral has expanded its product portfolio and entered the Water Tanks Segment with the acquisition of Sarita – an Aurangabad-based brand of water tanks. The company plans to gain a major share in the huge market of water tanks in India by using Astral’s strong brand recall. It also started manufacturing water tanks under the brand name ‘ASTRAL’ in Ahmedabad from April 2021 and will start production in Ghiloth, Rajasthan, from September 2021. In the future, it also plans to put up a water tank plant in Hosur, for which it has already placed an order for machinery

O’Neil Methodology and Technical Viewpoint:
  • The stock broke out of a stage-two consolidation base and hit a fresh all-time high. However, due to general weakness in the broader market, the stock is down 10% from its high.
  • It has reported good set of numbers for the last three-four quarters. Hence, EPS Rank is strong at 97.
  • Institutional sponsorship for the stock increased 10% in the last quarter.
  • Its RS Rating has slightly declined due to the profit booking seen early in August.

APL Apollo Tubes

APL Apollo Tubes (Apollo) is India’s largest producer of electric-resistance welded (ERW) steel pipes and sections. It has an installed capacity of more than 1.3M TPA. The company has a vast country-wide distribution network and over 800 distributors and more than 50,000 retailers selling its products. It also exports products to more than 20 countries.
Apollo’s brands include Apollo Structural, Apollo Z, Apollo Galv, and Apollo Tricoat.
The Company has Grown from Strength to Strength
During the last 10 years, Apollo’s sales volume has had a CAGR of 21%. Sales in FY21 took a hit due to the global slowdown caused by the pandemic. The company has 50% market share in structural steel tubes.
The main factors contributing to the company’s exponential growth are:
- It developed the structural steel tube market in India. - The company has focused on steel strength and building material applications. - It continues to innovate in terms of sizes and shapes. - It has introduced new applications.

Apollo's Debt Position

Apollo’s Structural Steel Pipes Offer
Advantages over Conventional Steel Constructions
In emergency scenarios, the completion of projects in a shorter time span is crucial and takes precedence over any other factor. The current global pandemic has brought home this point. The rapid construction of hospitals and oxygen plants was the need of the hour during the second wave of COVID-19. Using Apollo’s tubes, a 2M sq. ft hospital, which would normally require six months for completion, can be set up in 50 days.
Using Apollo’s offerings brings other advantages. The volume of steel used in these constructions would be lower by almost 20% versus conventional structures. Thus, there can be up to 10% savings in total project cost. Also, these structures are environment-friendly.
Apollo Prioritizes Financial Performance under Strong Governance:
The company has reported sustainable EPS growth over the years and has achieved targets in various economic cycles. Over the years, it has reported RoE of over 20%, which has been accelerating for the last three years. Apollo’s distributors can churn capital up to eight times in a year, which helps them generate high ROCE.

Company Enjoys Monopoly in New Innovations
Apollo has a market share of 50%, while the next closest player has just a 9% share. In innovation products, the company has a monopoly and thus a higher margin. Apollo buys 2% of India’s total steel production and 10% of India’s hot rolled (HR) coil production. It is among the top three major customers of the country’s largest steel producers. Hence, it has the lowest buying price among its peers.

During FY21, Apollo Converted Crisis into Opportunity
The company increased its India market share in structural tubes from 40% to 50%. Value-added product expansion contribution increased to 57% from 45%. During FY21, the company focussed on the cash-and-carry model to reduce net working capital requirement, which decreased to eight days from 25 days. It has thus strengthened its balance sheet as debt decreased to Rs 1.6B from Rs 7.9B in FY20.

Company Plans to Increase Investment in Warehousing to Pare Logistics Costs
As of 2021, India had total warehousing space of 296M sq. ft, including grade A and grade B structures. JLL estimated there would be 344M sq. ft of warehousing space in India by 2022. Logistics, engineering, auto and ancillaries, ecommerce, FMCG, retail and telecom, and white goods have remained the biggest drivers of the demand for warehousing space.

Warehouses play a pivotal role in logistics costs. Sophisticated, strategically placed warehouses will help decrease logistics costs. Old-fashioned warehouses are not suitable for storage during the rainy season and there might even be termite attacks. Hence, the government and companies are investing heavily in the construction of secure warehouses.
O’Neil Methodology and Technical Viewpoint:
  • The stock broke out of its stage-one consolidation base in June. Afterwards, it rallied ~20% to make a fresh all-time high.
  • It has reported consistent growth in its sales and EPS for the last four quarters. Hence, its EPS is strong at 94.
  • RS Rating has slightly declined but it is still good at 83.
  • Institutional sponsorship for the stock increased 7.7% in the last quarter.

Jindal Saw

Jindal SAW Limited is a leading global manufacturer and supplier of iron and steel pipe products, pipe accessories, and pellets. It is one of the largest exporters of steel pipes in India. It has set up manufacturing units in India, the U.S., and the UAE (MENA). Its clients vary from oil and gas corporations to water governing bodies to enterprises dealing in engineering and industrial applications, and others. The company offers various products, including SAW pipes, ductile iron pipes, seamless tubes, and welded pipes, pellets, and other products.
Like other companies, Jindal Saw also suffered due to the global pandemic. Last year, it focussed on returning to normalcy. It ensured business continuity despite the challenges and safeguarded the interests of its stakeholders with resilient performance.
Operational and Financial Highlights
The quantitative sales break up for the June quarter:

Steel Pipes
Steel pipes have diverse uses across various industries such as oil and gas, water supply, sanitation, irrigation, infrastructure, petrochemicals, power, and energy. Globally, Europe and Japan are the major producers of these pipes. India has also emerged as a major supplier because of the lower cost of production and lower raw materials in India.
Of the total consumption for steel, steel pipes constitute 8–10%. Its global market, valued at $90B, is projected to grow over the next three years at a CAGR of 4%. The Indian steel pipe industry is valued at around Rs 55,000 crore.
Large Diameter Submerged Arc Welded Line Pipes (SAW Pipes)
Jindal Saw is India’s leading manufacturer of Large Diameter Submerged Arc Welded (LSAW) pipes used in oil and gas, water projects, and the structural pipes sector. The company is the first to produce and export LSAW pipes from the country. It has supplied 36,000+ kms of line pipes and exported 17,000+ kms for on-shore and off-shore pipeline projects worldwide. It has eight manufacturing plants with a combined capacity of 2MT per annum.
Ductile Iron Pipes (DI Pipes)
Jindal Saw is the third-largest producer of DI Pipes in the world. It exports DI pipes used to transport and manage potable water and wastewater to more than 30 countries. The company’s Samaghoga plant has a Source: Company Website 20 capacity of 5,00,000 MTPA. It is also upgrading the unit to meet increasing exports demand. The focus will be on manufacturing pipes of the size range of 80mm–300mm.
Its Abu Dhabi unit has a capacity of 3,00,000 MTPA. There has been an increase in demand for large diameter pipes in the Gulf region. Hence, an expansion is being planned in Abu Dhabi to increase the capacity for pipes in the size range of 1,400 mm and above. Its commissioning is expected by the first quarter of CY22.
In the last two years, the company has increased its focus on special products such as PU-coated pipes and double chamber pipes to retain its market edge and improve sales. The government’s Jal Jeevan Mission will likely increase demand; accordingly, it is considering upgrading its facilities.
The government’s housing for all scheme will have a multiplier effect on various sectors. Demand for water supply and sanitation as well as wastewater treatment will increase, contributing to the demand for ductile iron pipes. These pipes are used in the distribution of drinking water. By 2030, ductile pipes would be 25% of the total market share. The ductile iron pipes market is growing, owing to the increasing focus on potable water supply management and wastewater recycling and servicing of the agricultural sector. Globally, China is a major supplier of ductile pipes, with a 65% share of the global market in the segment.
Order Book
The current order book for pipes and pellets is around $803M. The break-up is as under:

As against a sale of ~Rs 24.1B in the June quarter, the company booked fresh orders of ~Rs 24B primarily related to the water segment. Around 18% of the orders are export-related. With volume of ~0.98M MT (pipes & pellets), the order book gives comfort for the coming quarters of FY22. Large diameter pipes orders will see execution in the next 9–12 months, whereas those for ductile iron pipes, over the forthcoming 12–15 months.
Debt Position:
By the June quarter, the net institutional debt of the company (at standalone level) was around Rs 28.1B against Rs 29.7B at the end of Q4 FY21. It includes net working capital borrowings (short term) of Rs. 11.9B at Q1 end (~Rs 10.1B at Q4 FY21) and Long-term Rupee Loans / Rupee NCDs of Rs 16.1B at (~Rs 19.7B at Q4 FY21).

Jal Jeevan Mission to Drive Long Term Growth
Under the mission, the supply of water reached approximately 28.6M households through tap connections. Jindal Saw to benefit the most because of the initiative. The government’s push toward infrastructure will also play a key role in driving the growth of piping companies. For proper distribution of gas, an excellent piping infrastructure is needed. Transport of petroleum products also demands huge piping structures. These are some of the major demand-side factors that favor the company’s sales and scope for expansion.
O’Neil Methodology and Technical Viewpoint:
  • The stock gave a strong breakout from a stage-1c cup base on May 3. Since then, it rallied almost 70% before succumbing to selling pressure.
  • Its RS Rating has declined to 63 after forming blue dots for the last three months.
  • EPS Rank is at 93 on the back of strong numbers in the last two quarters.
  • Institutional sponsorship for the stock increased around 14% in the last quarter

Indian Hume

Government’s Infra Push to Keep Order Book Healthy
Indian Hume Pipe Company (IHP) was established in 1926. The company has specialization in executing turnkey water supply, sewage projects, and has also developed Prestressed Concrete Pipes (PSC), Prestressed Concrete Cylinder Pipes (pccp), Bar Wrapped Steel Cylinder (bwsc), and hume steel pipes.
It is estimated that two out of three people will live in water stressed areas by 2025. In today’s times, 450 million people in 29 countries suffer from shortage of water supply, which puts huge pressure especially on growing economies to use water sustainability and also resolve their growing imbalance of supply and demand.
Government of India, state governments, and local bodies are striving to do their best to supply drinking water. This leads to dependence on a strong infrastructure to provide water to every possible household in India. Hence, companies like IHP will benefit as they specialize in providing such kind of infrastructure.
Bar Wrapped Steel Cylinder (BWSC) Pipes/Prestressed Concrete Cylinder Pipes (PCCP)/Prestressed Concrete Pipes (PSC)
As an alternate to MS and DI pipes, the company has introduced BWSC and PCCP pipes. To meet the demand for these pipes, the company is undertaking several projects involving BWSC & PCCP pipes. It had specially set up manufacturing plants one each in Telangana and Andhra Pradesh and two plants in Maharashtra. In addition, the company has also made arrangements to manufacture these pipes at its existing plants.
In FY21, these plants produced 59.72 Km of BWSC pipes valued at Rs 19.3 crore, 30.45 Km of PCCP Pipes valued at Rs 33.9 crore and 60.07 Km of PSC Pipes valued at Rs 22.8 crore. In FY21, the company has received orders worth Rs 19.9 crore for BWSC pipes, orders worth Rs 15.6 crore for PSC pipes, and orders worth Rs 58.6 crore for PCCP pipes along with other civil works.
Central/State Government’s Initiatives to Play a Key Role in Company’s Prospects
In the Union Budget 2019, the government has announced Har Ghar Jal (Water to Every Household) scheme with the aim to provide tap water to every rural household by the year 2024 at a cost of Rs 5T during the next five years.
Implementation of lift irrigation scheme (LIS) is another government’s scheme. LIS schemes help in increasing agricultural output, thus many states are undertaking such schemes. LIS scheme demands a large amount of piping infrastructure. As part of Swacch Bharat mission, many sewerage projects are coming up in various cities and villages, which demand piping infrastructure.
India’s Water Stress Levels can be Compared to Africa
As per the World Bank data, India is water stressed region with 1,188 meter cube of per capita water availability. India’s per capita availability can be compared to countries in Africa. A country is categorized as water 24 stressed if its water availability is less than 1,700 meter cube and water scarce if its water availability is less than 1,000 meter cube.

The situation is further worsening given that India has only ~4% of world’s renewable resources but is home to ~18% of world’s population. However, India is considered as one of the wettest countries in the world given that it has 1,911 km cube of annual precipitation.

The GOI is currently working on over Rs 1,00,400 crore of water transmission projects, out of which Rs 96,230 crore worth of projects are under construction.

IHP is likely to be a key beneficiary with the advent of such projects. Andhra Pradesh Drinking Water Supply Department has provided a project worth Rs 502.9 crore for construction of drinking water supply projects in Guntur district.
Karnataka Power Corporation Limited has provided a project worth Rs 418.3 crore for manufacturing and supplying to site, laying, jointing, testing, and commissioning of PCCP water pipeline from Kushtagi to Bellary Thermal Power Plant.
Water Resources Investigation Division, Gujarat, has provided an order worth Rs 340 crore for transmission of 200 cusecs of water from NMC Chainage to Sipu Dam. TWAD Board, Coimbatore for CWSS to Alampalayam Town and other habitations in Namakkal district in Tamil Nadu have provided a project for DI K7 and DI K9 pipes worth Rs 220 crore.
IHP’s order book is well diversified at the moment from orders from Andhra Pradesh, Gujarat, and Tamil Nadu, among other states. The largest order in all three categories (completed, ongoing, & new projects) was related to providing drinking water to habitations that also hint toward the growing requirement of such projects in the country. The company looks well placed to cater to any new major orders and opportunities to arise from GOI’s further push to deepen the infrastructure network of water transmission pipeline in India.
O’Neil Methodology and Technical Viewpoint:
  • The stock broke out of its stage-one cup base on May 27. However, it was highly volatile after the breakout. After hitting new 52-week high, it succumbed to selling pressure and down 15% to breach its 21- and 50-DMA.
  • It has poor EPS Rank of 43 and an RS Rating of 35.
  • While its competitors have showed recovery in their earnings, the company was unable to report good numbers.

Maharastra Seamless

Maharashtra Seamless (MSL) is a key player in the Indian seamless pipe and electric-resistance welded (ERW) pipe segments. It has the largest capacity of 550,000 MTPA for seamless pipe, which constitutes nearly 31% of the industry’s total pipe capacity. Realizations for seamless pipes have been protected in the last few years due to the anti-dumping duty imposed on seamless pipe imports from China. We believe this benefit will continue over the next couple of years and realizations would hold up, going ahead.
MSL’s customers range from oil & gas players to infrastructure companies. Some of the oil & gas customers are BPCL, HPCL, IOCL, ONGC, Reliance, Cairn, and British Gas. Infrastructure customers include DLF, Adani, GMR, BHEL, NTPC, and Jaypee Group.
Revenue mix: Steel pipes and tubes contribute the majority share of MSL’s revenue.

Consensus estimates seamless pipe volumes to grow to 440,000 MT in FY19–21E, a CAGR of 18%, due to heavy capital expenditure undertaken for E&P activities, particularly in the natural gas exploration segment. The bulk of production is currently set to be carried out at the existing facilities. The USTL deal is currently on hold and it is not being considered a subsidiary. However, with the current utilization rate of 57% for seamless pipes (as of FY19), the company has enough capacity to meet the additional demand expected in the upcoming years.

Key Demand Drivers for ERW Pipes in the Water Segment
India has only 4% of the world’s renewable water resources, but is home to 18% of the world’s population. Per World Bank data, India is a water-stressed region, with per capita water availability of 1,188 cubic meters, comparable with the desert regions of Africa.
MSL’s ERW plant, located at Nagathane, Maharashtra, with current capacity of 200,000 MTPA, has a meager capacity utilization rate of 35%. With the focus on CGD and the water pipeline segment gaining traction, consensus expects a CAGR of 22% in ERW sales volume during FY19–21E, from the current 73,000 MTPA to 108,000 MTPA.
Some Key Trends that Benefit MSL
HPCL, a key client, has launched a refinery project in Barmer, Rajasthan with refining capacity of 9MM TPA. The project, estimated to be worth Rs 5K crore, will require around 80K MT of pipes in two years.
There is significant demand country-wide for value-added welded pipes (ERW), especially from the northeastern states. The government’s push toward city water distribution projects, smart city projects, and water & sewerage projects will sustain a steady demand for ERW pipes.
The government is considering unblocking and offering new oil & gas exploration blocks for deep-sea drilling. This will also boost the demand for drill pipes and OCTG pipes.
As part of the union government’s “Atmanirbhar Bharat” campaign, global tenders will be disallowed from participating in government procurement tenders up to Rs 200 crore. This will also boost the demand for domestic pipe manufacturers.
Government Policies to Trigger Demand for Seamless Pipes in India
To enhance domestic oil production, the government has come up with an industry-friendly E&P policy that is expected to increase investment in this space. Given the favorable investment space and the key need for seamless pipes, the outlook on demand looks stellar for the upcoming years.

A surge in natural gas output is expected to drive the demand for seamless pipes too. The traction for this can be seen in the trend for the last couple of years as well.

MSL, as a leading player in the seamless pipes segment, is likely to benefit from this surge in demand.

Sanctions, Output Cuts to Keep Crude Oil Prices Elevated
Crude oil prices are currently at multi-year lows, but due to supply cuts by OPEC members and sanctions on Venezuela. Iran is expected to maintain its elevated crude oil prices in the near term. With buoyant crude oil prices, E&P spending within the segment is likely to remain stable in the coming years, which will help drive the future demand for seamless pipes.
Anti-dumping Duty on Chinese Imports to Support Realizations
In February 2017, the Indian government imposed an anti-dumping duty on seamless pipes imported from China. The duty ranged from $961/MT to $1,611/MT and brought much relief to domestic seamless pipe players. The duty was only imposed on products that were already being produced in India. MSL, being the leading player in India, benefitted from this duty.
Key Risks and Concerns
  • Any further increase in iron ore prices
  • Decline in crude oil prices
  • E&P spending not improving significantly
O’Neil Methodology and Technical Viewpoint:
  • The stock’s attempt to break out of its stage-two cup-with-handle base was unsuccessful.
  • It has poor EPS Rank of 29 and an RS Rating of 26.
  • We would wait for the company to report good numbers for at least two quarters before considering for addition. By then, EPS Rank and RS Rating would improve.

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