GAIL is planning a capex of Rs.54,000 crores in 2-3 years and will list Gail Gas soon.
Riddhi Steel and Tube Ltdās (RSTL) results are out.
March 2019 quarter net profit is Rs.3.38 crores. This includes āother incomeā of Rs.1.82 crores (pre-tax). Quarterly EPS is Rs.4.07 per share. Full year net profit is Rs.4.98 crores. Full year EPS is Rs.6 per share. The current stock price is Rs.16 and market cap is Rs.13.26 crores.
Their statutory auditor resigned recently. I would see this as a red flag. Many small companies have seen their auditors resigning recently after the IL&FS and DHFL news stories.
RSTL has ācapital work in progressā of Rs.3.47 crores which seems to be some expansion going on. Short term and long term borrowings and inventories have risen 20-25%. Sales have also risen from Rs.270 crores in FY18 to Rs.377 crores this year.
GAILās expansion plan is in progress.
This will give a big boost to the steel pipes industry. They are also planning to spin off the pipeline business. This may make expansion easier because the pipeline company may not be burdened by the economics of the gas supply business.
Hereās an update on the market cap of the respective companies in the steel pipes industry. In brackets is the market cap as on April 4, 2019. This correction may present a good opportunity to add some of these.
Company name | Market cap (Crores)
- Ratnamani Metal 4386 (3,948.98)
- Mah Seamless 2929 (2,995.22)
- APL Apollo 3370 (2,648.25)
- Welspun Corp 2974 (2,394.99)
- Jindal Saw 2155 (2,383.77)
- Surya Roshni 1017 (1,097.97)
- Srikalahasthi Pipes 780 (772.86)
- RMG Alloy Steel 389 (618.85)
- Gandhi Spl Tube 474 (487.80)
- Man Industries 230 (327.77)
- Good Luck 122 (147.59)
- JTL Infra 105 (128.10)
- Oil Country 34 (60.32)
- Surani Steel Tubes 35 (43.0)
- PSL 0.96 8.62 (11.99)
- Riddhi Steel and Tube 17.41 (9.95)
- Zenith Birla 4.86 (9.45)
- Umiya Tubes 8.58 (9.29)
- Prakash Steelag 4.20 (5.43)
- Rama Steel Tubes 99.84 (194)
The biggest gainer in market cap in percentage terms has been Riddhi Steel Tube which has risen by 75%, The significant losers in market cap are (in no particular order) Rama Steel Tubes, RMG Alloy Steel and MAN Industries.
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I really wonder why Tata Steel is not seen as a Pipe manufacturer. They themselves have a installed capacity of 5.8 Lakh MT/Annum and after acquisition of Bhushan this has increased to over 12 Lakh MT/Annum.
Tata Steel and Tata Steel-Bhushan control over 80% market share in Precision Tube Market in India.
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Iām not aware of the exact revenue contribution of Tata Steelās pipe business to their overall revenue. However it is almost certainly not the bulk of their business. This is obvious because, to give you an example, Ridhi Steel and Tube has a capacity of 100,000 MTPA and the market cap is Rs.18 crores. Tata Steel has a 12,00,000 MTPA capacity (as per your post) and the market cap is Rs.46,873 crores. Almost all the companies I have listed have steel pipes as their only or their main business.
The reason Iām picking pure pipe companies is because they could become beneficiaries of GAILās Rs.70,000 crores pipeline expansion plan which may be implemented even if there is a slowdown in the economy. If there is a slowdown, Steel producing companies like Tata Steel will get affected whereas pipe manufacturers for GAIL can pass the costs to the government.
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Tata Steel- Tubes Business produced around 5 Lakh MT and logged divisional PAT of around 110 Crores last financial (APL Apollo did ~130 Cr and volume of 16 Lakh MT). Agreed that the tubes business is minuscule as compared to overall Tata Steel Business. I feel that Tata Steel is relevant because amongst all the companies listed above, only Tata Steel is backward integrated player with very deep pockets.
Prima facie I can tell you that Jindal Saw, Srikalahasthi Pipes, RMG Alloy Steel do not make pipes which are used for transporting Gas. I donāt have idea about the others.
Tubes business is very highly capital intensive with little value addition in tube rolling process. It is very difficult for any company to build specifc āMOATā.
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Tata Steel can be separately evaluated as a possible buy but it does not fit the criteria of a company that will meaningfully benefit from GAILās expansion plan because its steel business is the major business.
Hereās a news story about how Jindal Saw will benefit from orders from ONGC and GAIL.
If you go to the website of RMG Alloy Steel (http://www.rmgalloysteel.com/) you will find this:
āWe are currently producing Alloy & Special steels, mainly for Auto, Engineering, Oil and Gas, Energy, Defense and Railway applications etc as per IS, BS, AISI/SAE, DIN, JIS, GOST specifications or as per customerās specific requirements.ā
At another place they have specifically mentioned Oil India and ONGC as customers.
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Regardinl APL Aplollo capacity : Six direct forming technology lines were
commissioned in FY 2018 across existing
facilities at Raipur in Chhattisgarh, Hosur
in Tamil Nadu and Murbad in Maharashtra.
Another two lines are to be set across existing facilities at Sikandarabad in Uttar Pradesh
and Hosur. These are likely to come on
stream in H1 of FY 2019. The total
installed capacity will go up to two mtpa.Source- Capital Market
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Some people believe that that the steel tube business is a capital intensive business, there is little value addition and there is no moat.
Yes, it is a capital intensive business. Applying for tenders requires a company to demonstrate 1) Net worth 2) Working capital 3) Turnover.
Once a company starts getting accepted by the major customers, it seem to become easier to get bigger orders. Getting approved by major companies is not easy unless you have the size and execution ability. This is why companies which have been able to manage this have created huge wealth over time. APL Apollo Tubes was Rs.50 in 2009. It touched 2487 in January 2018. Thatās a 50 fold return in less than a decade. Ratnamani Metals was Rs.35 in 2009. In touch 1095 in January 2018. Thatās a 30 fold return in less than a decade. All companies in an industry are not going to be multibaggers. But if we can find well run companies with honest managements which know how to execute, expand and manage cash flow, those who have vision, big money can be made.
The time to invest in an industry is when huge demand is expected and GAILās expansion will create that demand. At least 2-3 companies from that list will be multibaggers in the next decade. The question is which ones?
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No one commenting about Man Industries.?
It is a leading manufacturer and exporter of large diameter Carbon Steel Line Pipes for various high pressure transmission applications for Gas, Crude Oil, Petrochemical Products and Potable Water. The Company has state-of-the-art manufacturing facilities for LSAW & HSAW Line Pipes and also for various types of Anti-Corrosion Coating Systems.
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In Man Industries, the promoters have reduced their stake in the last quarter and pledged some stake. OPM has dipped sharply from 8.51% to 6%. They were in trouble with SEBI less than a year back:
Thereās also an internal dispute among the promoters that has been on for several years now.
From 2018:
From 2013:
Contingent liabilities of Rs.511.02 Cr.
The company has delivered a poor growth of 1.21% over past five years. (Screener.in)
It seems like a complicated situation to get into.
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APL Apollo Tubes is one of the biggest steel pipe companies. They have grown organically as well as inorganically by acquiring others. But I think the time to buy its stock was 5-10 years back, before it had grown so big. Now it is at a PE of 20 and would have to grow much faster to justify the price. The OPM % is 3.89 for FY19. If their capacity utilization drops, this OPM will drop from here. Their interest costs are also over Rs.100 crore every year. We should look for young companies which can add capacity based on demand and can be multibaggers.
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Thank you @manishak , I do agree these negative issues dragging the price , hope soon things turn positive for ManInds.
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The Jal Jeevan Mission is also going to create demand for steel pipes. The ministry has identified 1592 Blocks which are critical and overexploited, spread across 256 districts. They want to have piped water supply to all rural households by 2024. We should look for steel pipe companies which manufacture pipes meant for oil and gas as well as water infrastructure. After the recent water crisis in Chennai this has to be taken seriously.
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India has imposed anti dumping duty on welded stainless steel tubes being imported from China and Vietnam for a period of five years w.e.f July 31, 2019. The countervailing duties, range from 21.74%-29.88% for China and 10.33%-11.96% for Vietnam.
This will help the local steel tube companies which were losing out on orders. Prices from China and Vietnam were serving as a benchmark to drive down realization of local pipes.
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According to a report by Bank of America Merrill Lynch India needs to invest $270 billion in next to ensure piped water supply to all by 2024.
This and the GAIL expansion looks a huge opportunity for steel pipe companies. We should look for companies which have the capability to cater to both industries, Gas and Water. Some like Srikalahasti Pipes seem to specialize in water.
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Good sets of number of Jindal Saw. Let see how capture the opportunity and how much timr take NTPC Case.
Along with the GAIL pipeline expansion, the Jal Jeevan mission also looks like a massive opportunity for the steel pipes industry. It is a 3.35 lakh crores project. The total sales of the steel pipes companies in the above list will be barely Rs.30,000 crores. This may give a big boost to demand and profitability. Better to opt for companies which manufacture pipes for both water and gas industries. How the government will fund this remains to be seen. Maybe it will be by foreign debt like the bullet train. It will be very good for our economy. The spending can prevent a slowdown as well as strengthen the infrastructure. Steel pipe companies are looking like some of them may be a good investment for 5-10 years.
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