India's Steel Pipes & Tubes

8/9/2019 India's Steel Pipes & Tubes

1/32

EMISPDF in sbicapro4 from 116.74.41.99 on 2015 01 12 14:27:56 GMT. DownloadPDF.

Downloaded by in-sbicapro4 from 116.74.41.99 at 2015-01-12 14:27:56 GMT. EMIS. Unauthorized Distribution Prohibited.


2/32

TABLE OF CONENTS

RISK SCORE ................................................................................................................................................................... 5

EXECUTIVE SUMMARY .............................................................................................................................................. 6

OVERVIEW ..................................................................................................................................................................... 7

MACROECONOMIC SCENARIO ................................................................................................................................ 8

Glance at Key Economic Indicator ........................................................................................................................................8

Tradeoff between Growth & Inflation ............................................................................................................................... 12

Currency Movement ................................................................................................................................................................. 13

REGULATORY SCENARIO ...................................................................................................................................... 14

DEMAND SUPPLY SCENARIO................................................................................................................................ 15

Current Scenario ....................................................................................................................................................................... 15

Demand Drivers ......................................................................................................................................................................... 16

Imports .................................................................................................................................................................. ........................ 19

Exports .......................................................................................................................................................................................... 20

New Capacity Addition ..................................................................................................... ...................................................... 21

Future Growth Prospect ......................................................................................................................................................... 23

COMPETITIVE SCENARIO ...................................................................................................................................... 24

FINANCIAL PERFORMANCE .................................................................................................................................. 26

Sales Growth ....................................................................................................................................................... ........................ 26

Operating Cost ................................................................................................................................................... ........................ 27

Profitability ................................................................................................................................................................................. 28




3/32

Ratio Analysis ............................................................................................................................................................................. 29

Debt Equity Ratio ................................................................................................................................................................ . 29

Interest Coverage Ratio .................................................................................................................................................... . 30

Other Key Ratios .................................................................................................................................................................. . 31




4/32

© 2014 Dun & Bradstreet All rights reserved.

D&B and D-U-N-S are registered trademarks of Dun & Bradstreet.

All other product names and brand names are trade names, service marks, trademarks, or

registered trademarks of their respective owners.

Disclaimer

D&B has compiled this report using information from various sources. Although every effort has

been made in checking the information given in this report, the accuracy and completeness of the

same cannot be guaranteed. D&B will not be responsible for the continued relevance of the

information or for any errors, negligence or otherwise or for any consequence arising from the useof the report. This report and the information contained therein are for the subscriber alone and no

part of this document may be reproduced, stored in a retrieval system, or transmitted, in any form

or by any means or discussed with any third-party without the prior written consent of D&B.

Dun & Bradstreet Information Services India Private LimitedICC Chambers, Saki-Vihar Road, Powai

Mumbai 400 072.

www.dnb.co.in



http://www.dnb.co.in/http://www.dnb.co.in/


5/32


6/32

EXECUTIVE SUMMARY

Based on manufacturing process, steel pipe & tubes are divided into five categories:

Seamless, Longitudinal Submerged Arc Welded Pipes (LSAW), Horizontal Submerged Arc

Welded Pipes (HSAW), Electric Resistance Welded (ERW) pipes and Ductile Iron / Cast

Iron pipes.

India is one of the major manufacturing hubs for steel pipes & tubes and has emerged as a

major exporting hub catering mostly to demand from the markets of US and EU. Annual

production of steel tubes & pipes has increased by a CAGR of ~4.2% during FY 2010-14 to

reach 2.5 Mn tonnes. Going forward production of steel pipes & tubes is expected to reach

2.53 Mn tonnes by FY 2017 while consumption would touch 2.17 Mn tonnes.

Demand for seamless pipes arises from oil & gas sector where it is used in exploration as

well as for transportation. While demand for wielded pipes & tubes originate from

infrastructure construction, water treatment, power plants, automobiles and general

engineering sectors.

Anti-dumping investigations by US Trade Commission in 2013 on behalf of US steel

producers resulted in anti-dumping duties being imposed on steel pipes imported fromIndia (along with five other countries) to the US. Since US is the largest export market for

Indian steel pipes & tubes manufacturers, this high tariff would impact exports from the

country.

Currently eight to ten large players have a significant share of existing manufacturing

capacity. Jindal SAW, Welspun Corp, Electrosteel Casting, APL Apollo Tubes and ISMT

are few of the major players in the sector.




7/32

OVERVIEW

India is one of the major manufacturing hubs for steel pipes & tubes and has emerged as a major

exporting hub, catering mostly to demand from the markets of US and EU. Steel pipe & tube

industry consists of numerous types with varying dimensions. Based on end usage, it is broadly

classified into oil & gas and non-oil sector. Oil & gas sector comprises of pipes used for oil & gas

exploration, production as well as transportation. Non-oil sector consists of pipes & tubes used for

applications in construction, waste water management, and process plant equipment sector.

Based on the manufacturing process steel pipe & tubes are divided into five categories:

Seamless, Longitudinal Submerged Arc Welded Pipes (LSAW), Horizontal Submerged Arc

Welded Pipes (HSAW), Electric Resistance Welded (ERW) pipes and Ductile Iron / Cast Ironpipes.

Types of Steel Pipes & Tubes

Type Manufacturing Process Major Applications

Seamless Pipes Piercing ingots/ billets of

steel at high temperatures

Oil & Gas Exploration & Production,

refineries, industrial equipment like boilers

HSAW Spirally Welding HR Coils Low Pressure Application Cross- Country

Line Pipes for Oil & Gas and Water

Transport

LSAW Longitudinally submerged arc

welding of steel plates

High Pressure Application Cross Country

Line Pipes for Oil & Gas Transport

ERW Hot Rolled steel coils using

electrical resistance welding

process

Low Pressure Application Cross- Country

Line Pipes for Oil & Gas and Water

Transport

Limitations in size, thickness and grade

Ductile / Cast Iron Water & Sewage Transport.




8/32

MACROECONOMIC SCENARIO

Glance at Key Economic Indicator

Indian economy continued to report below 5% growth in FY 2014. At global level, economic

growth performance in major economies continued to play a decisive role in deciding the growth

fortunes of developing countries including India. Indian economic performance was severely

impacted by the sustained weakness in USA, Euro Zone countries and China that are also India’s

major trading partners and source of foreign capital inflows. In CY 2013, world economic growth

slide further to 3% as compared to 3.1% in previous year while US GDP growth slowed down to

1.88% as compared to 2.8% in in previous year and Euro Zone as a whole reported a growth of

about 0.2%. Annual GDP growth of world fastest growing market i.e. China too slowed down from

the level of 10.4% in 2010 to 7.7% in 2013.

At domestic level, India’s investment and industrial growth prospects remained fragile and even

the services sector remained weak. Even though the Indian government took several steps to

arrest the volatility in foreign exchange rate and narrow down the current account deficit in FY

2014 but the growth momentum of the domestic economy faced unrelenting challenges.

Persistence of high consumer price inflation and interest rates, weakening performance of

services and industrial sector has let down all expectation of economic revival in the past fiscal.

Additionally, regulatory hurdles, administrative bureaucracy, and policy delay pertaining to land

acquisition process, obtaining license, and environmental clearance were further impediments to

growth. These factors dampened the country’s position at global level as well due to which, on

“ease of doing business” Index India ranks 134th

amongst 184 countries and lowest amongst

BRICs peers. Lack of consensus on major economic reform and policy paralysis led to a declining

“new-investment” spending for the fourth consecutive year in row since FY 2011.




9/32

Source: CSO & D&B Forecast, (PE is Provisional Estimates)

As per provisional estimates on GDP number released on May 30th 2014, India’s annual GDP

growth reported a marginal incremental growth of 0.3% over the previous year and grew at about

4.74% in FY 2014 as compared to 4.47% in FY 2013. Economic activity continued to exhibit

stagnancy on back of slowing industrial sector. Industrial sector growth as measured by the Index

of Industrial Production (IIP), registered a y-o-y decline of 0.1% during FY 2014.

As seen in the below chart, services sector registered maximum growth over the period FY 2010-

14, followed by the agriculture sector and industrial sector.

8.59%

8.91%

6.69%

4.47% 4.74%

5.5%5.28%

8.23%

2.88%

1.10%

-0.1%

2.7%

FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 PE FY 2015F

Macro Economic Indicator

GDP Growth Rate IIP Growth Rate




10/32

Source: CMIE Outlook, RE is Revised Estimated, PE is Provisional Estimate

In FY 2014, services sectors contribution towards GDP stood at 60.1%, followed by industry

(26.1%) and agriculture (13.9%). Also, the share of services to economic output is increasing,

while that of agriculture and industry segment declined over the period FY 2012-13.

The annual growth rate of services sector, industry and agriculture sector stood at 7%, 0.35% and

4.17%, in FY 2014 as compared to 6.96% 0.96% and 1.42% respectively, registered in previous

fiscal.

6,6107,178 7,538

7,645 8,005

FY 2010 FY 2011 FY 2012 FY 2013 RE FY 2014 PE

Agriculture (INR Bn)

12,769

13,733

14,807 14,94915,002

FY 2010 FY 2011 FY 2012 FY 2013 RE FY 2014 PE

Industry (INR Bn)

25,78228,274

30,13032,227 34,482

FY 2010 FY 2011 FY 2012 FY 2013 RE FY 2014 PE

Services (INR Bn)

4.91%

4.11%

7.54%

6.19%

Agriculture Industry Services Over all GDP

CAGR (FY 2010-14)

GDP (Factor Cost, Constant 2004-05 Prices) by Economic Activity




11/32

Source: CMIE Outlook

From quarterly trend, growth in agriculture sector expanded from sharply to 6.3% on sequential Q-

o-Q basis in Q4 FY 2014, while service sector economic output slowed down to 6.4% in last

quarter of FY 2014 from 7.2% in previous sequential quarter. Industry segment continued to report

a decline in Q4 FY 2014 on yearly q-o-q basis on the back of contracting economic output from

mining and quarrying and manufacturing segment in all four quarters (excluding Q2:FY 2014).

D&B expects economic growth to recover in FY 2015, albeit at moderate rate and grow at about

5.5%. With formation of a new and stable government, economic growth is likely to get impetus

from improved policy environment, early implementation of long pending reforms and revival of

large stalled projects.

1.8% 1.8%

0.8%1.6%

4.0%

5.0%

3.7%

6.3%

0.3%

-0.4%

1.7%2.1%

-0.4%

2.6%

-0.4% -0.2%

7.2% 7.6%6.9%

6.3%

7.2%

6.3%

7.2%

6.4%

Q 1 : F Y 2 0 1 3

Q 2 : F Y 2 0 1 3

Q 3 : F Y 2 0 1 3

Q 4 : F Y 2 0 1 3

Q 1 : F Y 2 0 1 4

Q 2 : F Y 2 0 1 4

Q 3 : F Y 2 0 1 4

Q 4 : F Y 2 0 1 4

Yearly Q-o-Q change in Sectoral GDP (%)

Agricuture Industry Services




12/32

Tradeoff between Growth & Inflation

Source: Office of the Economic Advisor; RBI

Monetary authorities kept the interest rate unchanged during April 2012-Dec 2012 as the

inflationary pressure continued to loom over the economy that impacted the fresh investments and

economic growth in FY 2013. In order to revive investment and push liquidity in the economy, RBI

reduced the repo rate thrice during Jan 2013 till May 2013 by 25 basis point each time. However,

with revival of inflationary pressure the repo rate was hiked by 25 bps thrice since September

2013. The latest hike of 25 bps in repo rate was made Jan 28, 2014. Rise in interest rates has

adversely impacted the overall GDP growth on the back of increasing project financing cost forcorporate and deterring the demand growth. India Inc. has been demanding a rate cut to spur

investment and promote growth as the monthly WPI index which measure inflation has shown

some decline trend since November 2013. However, RBI kept the policy rate unchanged in its

latest monetary policy review in August 5th

2014 against the industry expectation. Repo rate

currently stands at 8%.

CRR another monetary tool used by RBI to regulate money supply has been reduced four times

(each time by 25 basis point) since March 2012 in order to infuse the primary liquidity in banking

system and supports the GDP growth. With last 25 basis point cut on 29th Jan 2013, the CRR

currently stands at 4.0% and CRR too remained unchanged in latest policy review.




13/32

Currency Movement

Indian currency entered into a prolonged period of depreciation by the middle of fiscal 2012 which

continued well into end of FY 2014. During this period, rupee touched record lows. After a

prolonged period of depreciation the US dollar stabilized against Indian rupee in the range of INR

59 – 60. India is a major exporter of steel pipes & tubes and this depreciation in rupee has helped

shore up export revenue.

Source: Ministry of Finance, Govt of India




14/32

REGULATORY SCENARIO

Removal of production, pricing, and export restrictions placed on steel sector during the industrial

reforms of 1991 has immensely helped in growth of the sector. Private sector participation went

up and so did the manufacturing capacities that led India in becoming one of the largest producers

of steel in the world. Steel pipes & tubes sector too has benefitted from this relaxed regulatory

scenario and over the years the sector has seen massive capacity expansion, mostly by private

companies.

Increased pace of activity in several end-consuming sectors including oil & gas exploration,

construction and waste water treatment increased demand for steel pipes & tubes. Apart from

providing growth opportunities for domestic manufacturers, this scenario also attracted theattention of foreign manufactures. Consequently import of steel pipes & tubes began to increase.

Imports from low cost manufacturing countries have skewed the platform in favor of foreign

manufacturers. To nullify these advantage anti-dumping cases were initiated by several domestic

manufacturers against exports from Austria, Czech Republic, Russia, Romania, and Ukraine.

Currently imports from these countries into India attract anti-dumping duties. An anti-dumping

investigation was initiated against imports from China in 2010, however the same has been

terminated




15/32

DEMAND SUPPLY SCENARIO

Current Scenario

Capacity expansion in Indian steel pipes & tubes sector was initially triggered by increasing export

demand, mostly from US and UK markets. However, increasing activity in domestic oil & gas

sector and other end consuming sectors in recent years have strengthened domestic demand.

Currently both export and domestic demand play significant roles in driving demand in the sector.

Annual production of steel tubes & pipes has increased by a CAGR of 4.2% during FY 2010-14 to

reach 2.5 Mn tonnes. Consumption during the same period has increased by a CAGR of 4% to

reach 1.8 Mn tonnes. Production dropped in FY 2014 over last fiscal year due to lower export

demand. This created an oversupply scenario in domestic market which too is in the midst of a

slowdown leading to lower demand.

Source: CMIE Industry Outlook




16/32

Demand Drivers

Demand for seamless pipes arises from oil & gas sector where it is used in exploration as well as

transportation. While demand for wielded pipes & tubes originate from infrastructure construction,

water treatment, power plants, automobiles and general engineering sectors.

KEY DEMAND DRIVERS

Oil & Gas Exploration and

Production (E&P)

Implementation of New Exploration Licensing Policy (NELP) and

Coal Bed Methane (CBM) in 1999 as well as opening up of E&P

activities to foreign investment has increased the pace of

exploration & production activity in the sector. Since then close to

250 hydrocarbon blocks have been awarded out of which close to

180 blocks are currently active.

Till date USD 21 Bn worth of investment has been made in E&P




17/32

activities and close to 130 hydrocarbon discoveries have been

made. Oil & gas production from hydrocarbon blocks awarded

under NELP reached 6,900 barrels of oil per day (bopd) and 14

million standard cubic meters per day (mmscmd) per annum. This

growth in E&P activities in Indian oil & gas sector has resulted in

higher demand for seamless steel tubes & pipes.

As per CMIE twenty three new projects are expected to be

completed during the period 2014 – 16. This hectic activity in E&P

sector would keep the demand for seamless steel pipes & tubes

buoyant.

Oil & Gas Transportation

Seamless steel tubes & pipes are used in transporting oil & gas

from wells to final consumers. In between, it passes through

gathering stations and refineries. Oil & gas pipeline infrastructure

in the country is estimated to be close to 38,400 Kms. It has

grown by a compounded rate of 7% during 2009-13. Such a

robust growth in pipeline infrastructure has created high demand

for seamless steel pipes & tubes.

Construction

Steel pipes & tubes are used in the construction of public

transportation infrastructure (metros), airport, and commercial

properties (malls). The country witnessed a construction boom in

real estate as well as infrastructure construction during most of

last decade. Growth in real estate construction was driven by

office space demand, growth in organized retail and hospitality.

Infrastructure construction on the other hand benefitted by

increased government focus on infrastructure building to support

economic growth. Consequently demand for steel pipes & tubes

from construction sector have gone up.

Currently demand from construction sector is low due to slow

down in construction activity, brought about by a combination of




18/32

slow economic growth and regulatory hurdles. However this

slowdown is conceived to be temporary and demand is expected

to pick up once the economic growth rebounds.

Waste Water Treatment

Growth in industrial activity and urbanization has increased the

quantity of waste water and sewage produced in the country.

However bulk of this sewage generated goes untreated. As per

industry estimates approximately 48,000 MLD of waste water is

generated in Tier I and Tier II cities alone, of which less than 25%

undergoes treatment before discharge.

Waste water treatment is high on priority of the new government

as well as corporates due to emerging water scarcity challenges.

Consequently the sector is expected to witness high level of

investments to add capacity. This capacity addition would create

demand for steel pipes & tubes used in such plants.

Process Plant

Equipments

In process plant equipment sector, seamless steel pipes & tubes

are used for applications in industrial boilers that are used in

manufacturing industry. Demand from this segment has suffered a

decline in the last couple of years due to subdued investment in

capacity expansion projects due to adverse demand scenario.

However fundamental growth factors impacting manufacturing

sector remains strong and is expected to pick by FY 2016. This

improved scenario is expected to trigger capacity expansion

investments that are currently held back. Renewed vigor in

capacity expansion projects would increase demand for process

plant equipment, and indirectly of steel tubes & pipes




19/32

Imports

Import of steel pipes & tubes have declined in the past couple of years as overall demand

scenario slackened. Annual imports fell to 535,000 tonnes in FY 2014 from a high of 745,000

tonnes imported during fiscal year 2012. Consequently import expense incurred dropped from INR

79 Bn to INR 70 Bn during FY 2012-14.

China is the largest exporter of steel pipes & tubes to India, accounting for ~52% of total imports

(by value). Japan and Italy are the other two major exporters. Together imports from these three

countries accounted for 69% of total imports in FY 2014.

Source: Directorate General of Foreign Trade




20/32

Exports

India imported close to 1.2 Mn tonnes of steel pipes & tubes during the fiscal year 2014. However

exports has steadily declined / stagnated after peaking at 2.2 Mn tonnes in FY 2011. Sedate

global demand due to the prevailing recessionary contributed to this decline in exports. In

response to decline in export volume overall value of exports declined from INR 118 Bn to INR 93

Bn during FY 2013-14.

Unlike imports, steel pipes & tubes exports from India are not concentrated to few markets.

Instead it is scattered across a large number of markets, with largest market accounting for only

17% of total exports. Western economies like US and countries in EU are few of the key markets

for Indian steel pipe & tube manufacturers. Slower demand growth from these countries that arereeling under economic slowdown contributed to the overall drop in exports.

Source: Directorate General of Foreign Trade

Steel pipes & tubes too witnessed major capacity expansion as removal of export restrictions

opened up markets in the US and EU where demand was on the upswing. However anti-dumping

investigations by US Trade Commission in 2013 on behalf of US steel producers resulted in anti-

dumping duties being imposed on steel pipes imported from India (along with five other countries)

to the US. Since US is the largest export market for Indian steel pipes & tubes manufacturers, this

high tariff would impact exports from the country.




21/32

New Capacity Addition

Drop in sales on the back of unfavorable demand scenario has impacted capital expenditure

pattern in the sector. Pace of new investments into capacity expansion projects has dropped

drastically as manufacturers are holding back till demand improves. New investments coming into

the sector declined from ~INR 38 Bn in FY 2012 to INR 1 Bn in FY 2014 while number of new

projects announced from five to one. Projects currently under implementation too have been

declining as no new projects are coming up. In FY 2014, only four projects were under

implementation.

Source: CMIE Prowess, D&B Research




22/32

Subdued investment scenario points out to slow capacity expansion in the sector. During the

period 2014-16 only 266,000 tonnes of new capacity is expected to be added in the sector.

Major Projects Expected to be Commissioned by 2016

Company Project Capacity

(Tonnes)

Expected

Completion

Tube Investments of

India

Tube manufacturing unit in Chennai,

Tamil Nadu

36,000 March 2015

Good Luck Steel

Tubes

CDW /ERW Precision Tube

manufacturing unit in Uttar Pradesh

40,000 April 2015

APL Apollo Tubes Steel tube manufacturing project in

Ahmadabad, Gujarat

190,000 July 2015

Source: CMIE Capex




23/32

Future Growth Prospect

Demand for steel pipes & tubes have dropped in the past couple of years due to unfavorable

demand scenario in domestic as well as export markets. Uncertain economic scenario which

lowered industrial activity impacted domestic demand while lower than expected demand from key

western economies, who are still reeling under low growth scenario, impacted export demand.

Domestic demand is expected to pick up as economic growth picks up, widely expected to

happen by the start of next fiscal (FY 2015). Fast tracking of infrastructure projects and speedier

implementation of city gas distribution project would help in reviving the demand. In addition

demand from oil & gas exploration is expected to pick up once the uncertainty surrounding gas

pricing is cleared. Clarity in gas pricing would help attract investment in oil & gas explorationcreating demand for seamless pipes & tubes used in exploration & production.

Export demand would continue to be moderate, primarily because of the anti-dumping duty

initiated by US Trade Commission on imports from India. US steel manufactures have won an

anti-dumping case against steel pipes & tubes imports from India (along with five other countries)

in early 2014. Since exports to the US account for ~17% of total steel pipes & tubes export from

India this ruling would have a severe impact on overall exports. Going forward production of steel

pipes & tubes is expected to reach 2.53 Mn tonnes by FY 2017 while consumption would touch

2.17 Mn tonnes.




24/32

COMPETITIVE SCENARIO

Steel pipes & tube manufacturing is capital intensive and economies of scale is a major factor for

succeeding in the industry. This capital intensive nature, need for a wide dealership network to

cater to domestic demand and compliance to global quality standards, to be able to compete in

export markets, act as entry barriers for smaller players. Consequently incumbent companies

have an advantage and new players face tough competition. Currently eight to ten large players

have a significant share in existing manufacturing capacities.

Major Steel Pipes & Tubes Manufactures in India

Jindal SAW

Established in 1984, Jindal SAW – part of USD 18 Bn O.P.Jindal Group –is

one of the largest manufacturers of Submerged Arc Welded (SAW) tubes in

the country. The company manufactures ductile iron spun pipes, seamless

tubes & pipes as well as large diameter pipes.

Welspun Corp

Established in 1995 Welspun Corp is one of the largest manufactures of

Large Diameter Pipes in the country. Apart from pipes the company also

manufactures plates and coils. Welspun also has business operations in

the US and Middle East where it operates through Welspun Tubular LLC

(USA) and Welspun Middle East Pipe LLC.

Electrosteel

Castings

Part of Electrosteel Group, the company is one of the major manufacturers

of ductile iron pipes. The company’s pipe manufacturing capability received

a major boost by the acquisition of 46% of Lanco Industries in 2002.

APL Apollo

Tubes

Established in 1986 APL Apollo is one of the leading manufacturer ERW

steel tubes and pipes. In addition the company also manufactures

galvanized and pre-galvanized steel tubes, hollow sections and MS Round

tubes.

ISMTThe Company was established in 1980 as Indian Seamless Metal Tubes

Ltd and rechristened as ISMT in 2005 after merging with its subsidiary

Indian Seamless Steels and Alloys Ltd formed in 1995 to produce steel




25/32

alloys. Since its inception in 1980 the company has made couple of major

acquisition. The Company acquired Kalyani Seamless Tubes Ltd in 2000and Sweden based Structo Hydraulics AB in 2007.

Capacities of Major Manufacturers

Company Capacity (in Tonnes)

Jindal Saw 2,040,000

Welspun Corp 1,500,000

Man Industries 1,000,000

APL Apollo Tubes 800,000

ISMT 450,000

Maharasthra Seamless 350,000

Ratnamani Metals 350,000

Electrosteel Casting 330,000

Financial Performance of Major Companies in the Segment (FY 2014)

Company Sales % Change over previous

fiscal

Operating Profit & % Change

over previous fiscal

Jindal SAW INR 55.1 Bn ( 1.8%) INR 7.3 Bn ( 6.2%)

Welspun Corp INR 48.8 Bn ( 26.2%) INR 7.9 Bn ( 10.7%)

Electrosteel Castings INR 21.8 Bn ( 13.0%) INR 3.6 Bn ( 20.8%)

APL Apollo Tubes INR 20.6 Bn ( 27.9%) INR 9.5 Bn ( 2.3%)

ISMT INR 15.6 Bn ( 1.9%) INR 1.6 Bn ( 12.3%)




26/32

FINANCIAL PERFORMANCE

Sales Growth

Economic slowdown that gripped Indian economy for the past few years has led to a stagnation of

industrial activity. New investments have dried up and production as such has gone down as

demand scenario deteriorated. Slowdown in end consuming sectors has impacted demand for

steel pipes & tubes. Consequently starting FY 2012 year on year change in sales has gone down.

Source: CMIE Prowess, D&B Research, Sample -14 Companies




27/32

Operating Cost

Operating Cost Margins

Year Raw Material Power & Fuel Salary & Wage SGA Expenses Interest Expense

FY 2010 60.3% 3.3% 3.2% 4.7% 2.2%

FY 2011 60.3% 4.5% 3.8% 5.1% 2.4%

FY 2012 65.7% 4.8% 3.7% 5.0% 2.8%

FY 2013 61.4% 4.7% 3.9% 5.0% 3.5%

FY 2014 56.9% 4.9% 4.3% 5.1% 3.9%

Source: CMIE Prowess, D&B Research, Sample – 14 Companies

Steel prices have softened from the high levels reached during FY 2011 that has helped

companies in the sector control their raw material expense. Reflecting this scenario combined raw

material cost in the sample declined from 60% to ~57% of total revenue during FY 2010-14. The

spike in FY 2012 was more due to higher volume of consumption rather than increase in steel

prices.

By FY 2014 raw material consumption too has gone down as sedate demand scenario forced

manufacturers to realign annual production volumes. Drop in both volume of raw material

consumed as well as cost of raw material during FY 2013-14 led to the fall in raw material cost

margin by ~4.5 percentage points.

Steel industry is both labor intensive as well as power intensive. Consequently manufacturers

incur high salary & wage expense as well as power & fuel expenses. Combination of crude oil

price rise as well as weak currency led to an increase in power & fuel cost, which inflated from

3.3% of revenue to ~5% revenue during FY 2010-14. Salary & wage expense too increased from

3.2% to ~4.3% during the same period.




28/32

Profitability

Profitability margin in the sector has steadily declined (as seen in the sample considered) during

the period FY 2010-14 due to slowdown in sales as demand from end consuming sector dropped.

Although raw material cost – largest operating cost – moderated during the period other major

expense heads like power & fuel cost as well as salary & wage expense increased.





29/32

Ratio Analysis

Debt Equity Ratio

Demand for steel pipes & tubes from domestic market as well as export markets grew at a brisk

pace for several years till 2012. This extended period of growth encouraged manufacturers to

invest in capacity expansion projects, anticipating continuation of demand. Towards this many

companies raised debt to fund these expansion plans, leading to growth in consolidated debt

component.

However drop in industrial activity in domestic market and slower than expected revival in export

demand impacted sales leading to lower growth in net worth. Combination of increase in debt

component and slow growth in net worth pushed debt-equity ratio upward.





30/32

Interest Coverage Ratio

Increase in debt component along with a high interest rate scenario led to increased interest

expense in the sector. In the sample considered interest expense as a percentage increased from

2.2% to ~4% during FY 2010-14. On the other hand operating profit in the sector (as well as in the

sample) dropped as sales declined due to sedate demand scenario. Consequently interest

coverage ratio in the sector deteriorated but still remains in comfortable situation.





31/32

Other Key Ratios

Sample: 14 Companies (Source: CMIE Prowess)

Time Period: FY 2012,13 and 14

Ratios Average Value

Gross Margin 29.9%

Net Margin 3.0%

Current Ratio 2.26

Quick Ratio 1.20

Account Receivables Days 72

Inventory Days 96

Account Payable Days 35

RONW 5.4%

ROA 9.1%

ROCE 12.0%

Long Debt-Equity 0.89

Net worth to Total Liabilities 40.0%

Interest Coverage Ratio 3.70

Fixed Asset Turnover 2.21

Asset Turnover 0.72

Inventory Turnover 3.99

Fixed Assets to Net worth 4.36

Sales to Capital Employed 0.82




32/32

Registered Office

ICC Chambers,

Saki Vihar Road, Powai,

Mumbai - 400 072

Tel: +91-22 2857 4190/92/94,

6676 5555

Fax: +91-22-2857 2060

Email: [email protected]

URL: www.dnb.com

New Delhi Office

FB-01,NSIC STP Centre, NSIC

Bhawan,

Okhla Industrial Estate,

New Delhi – 110 020

Tel: +91-11-4149 7900/01/

Fax: +91-11-4149 7902


Chennai

New no: 28, Old no: 195

1st Floor, North Usman RoadT,Nagar

Chennai – 600 017

Tel: +91-44- 2814 2265/ 4289

7602/ 2814 2275

Fax: +91-44-2814 2285


Bangalore

# 7/2 Gajanana Towers,

1st

Floor, Anna Swamy Mudaliar Street

Opposite Ulsoor Lake,

Bangalore – 560042

Tel:+91-080-3316 / 3500

Fax: +91-080-3316 3540


Kolkata

166 B, S.P. Mukherjee Road,

Merlin Links,Unit 3E, 3rd Floor,

Kolkata – 700 026

Tel: +91-33-24650204

Fax: +91-33-2465 0205


Hyderabad

504, 5th

Floor

Babukhan’s Millennium Center

6-3-1099/1100, Somajiguda

Hyderabad – 500 004

Tel: +91-40-6662 4102 / 6651 4102

Fax: +91-40-6661 9358

Email:[email protected]

Ahmedabad

001, Samruddhi, Opp.Old High

Court,

Income Tax, Ashram Road,

Ahmedabad – 380 014

Tel: +91-079-27540558 / 27540559

Fax: +91-079-27540560

mailto:[email protected]:[email protected]:[email protected]:[email protected]

Documents

India's Steel Pipes & Tubes