Any company, be it in any industry or segment, needs ample opportunities to grow its revenues. If the market for company is saturated, they will find tough time to grow at decent pace. In quest of growing the revenues in a saturated industry, there will be intense competition to snatch each other’s market share. This reduces profitability. Hence, it is extremely important for industry as a whole to have enough opportunities to grow its market. As discussed, profitability and growth are of prime importance, the later will be judged through opportunity size of industry/segment.

Similarly for Steel Pipes & Tubes segment. We need to find upcoming opportunities because of which the whole segment will benefit and lead to overall growth of segment. This is because, when opportunities are available, growth comes easy to every company and this leads to higher profitability, higher utilization levels and better value to the shareholders.

So, let us first try to find the growth opportunity for steel pipes & tubes segment. Steel Pipes & Tubes are widely used in many industries like Oil & Gas, Exploration & Refineries, Power, Fertilizer, Airport, Construction, Infrastructure, Water & Sanitation, etc. Hence, as far as Steel Pipes & Tubes segment are concerned, the higher the investment in these user industry is catalyst of its growth.

Majority of steel pipes & tubes are used in Oil, Gas and Refineries. Hence, taking these three industry growth as important drivers, let us try to find opportunity size:

• Opportunities at Oil & Gas Industry Steel Pipeline requirement.

Gas Pipeline: Government of India has plans to make India’s Natural Gas energy mix to 15% in 2030 from current 6%. They are moving towards cleaner energy i.e. Natural Gas. This natural gas will be delivered all over India through transportation by Steel Pipes, an important component for cheaper transportation. Currently there is about 16,788 km of steel pipeline in the country for Natural Gas transportation. To achieve the purpose of 15% natural gas energy mix, the government needs to extend its pipeline transportation to more geographical areas for its usage. For that, government has come up with plan of setting up additional pipeline of 15,543 km to be constructed in period between 2020 and 2025. All these plans have been envisaged in government’s “National Gas Grid”.

As per National Gas Grid, PNGRB (Petroleum and Natural Gas Regulatory Board) have been authorised to grant permission to companies to operate these pipelines. PNGRB have authorised companies like GAIL, ONGC, IOCL, etc. for building these pipelines to various identified geographical area. Some plans are currently, under execution stage whereas for others the development and planning is underway. All this information is available in PNGRB website: https://www.pngrb.gov.in/data-bank/NGPLReports30092020.pdf

For construction of 15, 543 km of pipeline, an amount of Rs. 2.82 Lakh Crores have been granted by government which is to be spend up to 2025. But, the amount of investment which will specifically go into Steel Pipes is found out as follows:

Particulars	Facts
Upcoming Pipeline Projects	15,543/- Kms
Tonnes per Kms	200
Total Tonnes Required	31,08,600
Realization per Tonne (Industry average)	75,000/-
Investment into steel pipeline (In Cr.)	23,315/-

Crude Oil & Product Pipeline: Very less number of pipelines are being laid down for Crude Oil Pipeline & Products Pipeline. Going through the annual reports of major Oil companies, we find that pipeline investment is done by only three companies i.e. Indian Oil, ONGC and BPCL. The projects undertaken by them are as follows:

Indian Oil Project – Ongoing Product Pipeline (AR 2020) – 3,195 Kms

Indian Oil Project – Ongoing Crude Oil Pipeline (AR 2020) – 1,034 Kms

Indian Oil Project – Upcoming Product Pipeline (AR 2020) – 1,164 Kms

Indian Oil Project – Upcoming Crude Oil Pipeline (AR 2020) – None

ONGC – Redevelopment of Phase 2 Project (AR 2020) – 49 Kms

BPCL – Various Product Pipeline Projects (AR 2020) – 699 Kms

This translated into opportunity size as follows:

Particulars	Facts
Total Crude Oil & Product Pipeline Projects	6,141/- Kms
Tonnes per Kms	200
Total Tonnes Required	12,28,200
Realization per Tonne (Industry average)	75,000/-
Investment into steel pipeline (In Cr.)	9,212/-

Opportunities available at Refineries: At present, India has 250 MMTPA capacity to refine crude oil. With growing energy demand, Ministry of Petroleum has estimated that current capacity of 250 MMTPA will not be sufficient to meet the needs of the country. Hence, in order to have sufficient capacity to refine imported crude oil, government plans to increase the running capacity of refineries to about 450-500 MMTPA by 2030. To meets its target, GOI have already started investment into refineries. Have a look at the major investments by government as of now:

Majority of the planned investment have already commenced its work. The above mentioned capacity extension is expected to be completed by 2025, as per AR of Ministry of Petroleum. Hence, 74% i.e. 148 MMTPA of GOI’s vision of 450 MMTPA by 2030 is already under progress. This translated to opportunity size for Steel Pipes & Tubes as follows:

Particulars	Facts
Total Refinery Addition on lower side (450MMTPA – 250MMTPA)	200 MMTPA
Projects already commenced and expected to complete by 2025	148 MMTPA
Average Cost per MMTPA of Refinery (In Cr.)	6,268/-
Total Refinery Cost (In Cr.) (148 MMTPA x 6,268/-)	9,27,664/-
Total investment into Pipes & Tubes @ 9% (Note)	83,490/-

Note: After referring through many sources and reports, it is understood that about 8% to 10% of total refinery cost goes into various types of Pipes & Tubes.

Hence, from above, the opportunity market for pipes & tubes from Refineries translates into Rs. 83,490/- Crores.

• Calculation of Growth in Market for Steel Pipes &Tubes:

Three important opportunity market have been found out i.e. Gas, Oil and Refineries. These user industries demands usage of various types, grades and sizes of pipes and tubes. In India, there are only 5 major companies of Pipes & Tubes serving to these industries. They include Maharashtra Seamless, Jindal SAW, Welspun Corporation, Man Industries and Ratnamani Metals and Tubes Limited. Companies like APL Apollo and Surya Roshni have their revenues coming from Infrastructural & Construction activities. Whereas Gandhi Special Tubes serves to only automobile sector. Hence, for opportunities arising from Oil, Gas and Refineries, we only consider these major 5 companies in the segment. The domestic sales of these 5 companies for the year 2020 are:

Hence, for these companies as of 2020, the market is of Rs. 9,957/- Crores. The combined opportunity size of all the 3 industries sums up to Rs. 1, 16,016/- Crores till the year 2025. This translates into growth in market size as follows:

The above calculation shows huge opportunity size growth in the Steel Pipes & Tubes segment. A CAGR of 30% over the years till 2025 is extremely rosy. Even if growth drops by 5%-7%, it remains huge. This is extremely good indication stating that going forward, the whole sector will perform tremendously for coming 3-5 years.

• Other observations:

The above opportunity size had covered only 3 industries (Oil, Gas & Refineries) and 5 companies of our sector. Despite limited coverage of opportunity size, the CAGR is clocking at whopping 30%. There are many other industries which require use of Steel Pipes & Tubes. Although not much clarity have been sough on amount of investment by these industries into Pipes & Tubes, I will let you know the industries where there is additional opportunities available. They are:

• Power sector.
• Water & Sanitation sector.
• Fertilizer Sector.
• Aerospace & Defence Sector.
• Infrastructure & Constructional activities.
• Automobiles.
• Other smaller requirement from different industries.

All of the above will bring additional opportunity size. Few investments which could be highlighted from these industries are as follows:

• Government has come up with the vision to spend Rs. 21.83 Lakh Crores on water and sanitization sector till 2025. Orders are therefore expected to come to steel pipes & tubes segment, although the amount could not be quantified.

• Amount of 7.43 lakh Crores will be spend on commercial infrastructure by government till 2025. The demand for ERW pipes in form of structural steel will be the revenue driver for our steel pipes & tubes industry.
• Many other infrastructure plan and list of the expenditure and their amounts are given below. All this will bring demand for steel pipes & tubes and is considered key revenue driver in future. Only thing is that, they could not be quantified.

All these above are the plans of National Infrastructure Pipeline(NIP) scheme announced by Finance Minister on 31^st December, 2019 proposing investment of over 100 Lakh Crores. Apart from NIP, there are lot more other investment which will generate opportunity for Pipes & Tubes Segment.

All of the above information is simply made available by government on its website portal. Source: https://indiainvestmentgrid.gov.in/

Hence, looking at the opportunity size calculated above, I am very optimistic that for at least up to 2025, huge orders will come to Steel Pipes & Tubes Segment leading to high growth opportunities.

 

Thank You!!

Disclaimer: Views are personal and presented through independent research. By no means there is any stock advice. Also, presented content is for learning purpose only. I might be wrong in presenting data and inaccurate data, let me know if you find any discrepancies.