When industry is at saturation point and have very less scope of growth, companies go for dividend distribution to get away with excess cash and reward shareholders or they go for expansion into newer industries to chase for growth. This is very general sense, finding opportunities to grow, to earn continuously and to add value to the company. This has somewhat happened in our segment of steel pipes & tubes as well. I have already explained all of the below, just to have a recap, let us look at them:
- Expansion into newer industries.
ERW segment historically was used in Oil, Gas, Plumbing, irrigation, water & sewage purposes, etc. It was very lately that this industry have found opportunities in newer industries. Industries like infrastructure and construction are major users of structural steel which include steel long products like Channels, Beam and Angles. This structural steel requirement is now being catered by ERW Pipe makers. Similarly, ship building, ports, airports, bridges, etc. are slowly shifting its usage to ERW Pipes from other structural steel products. Not only this, ERW segment is also finding its opportunity to furniture market. A replacement to wood, with lower cost, better life and beautification are newer trends in ERW markets. Where opportunities currently are very wide, I won’t be even surprised if they find application to many other industries like Automobiles, Real Estate and so on (which management has indicated to).
- Trend to look for VAP & Niche Category.
The margins are very less in basic commodity products. Lately, industrial development & drive for Make in India initiatives have been very beneficial for this segment. APL Apollo have started branding initiatives with 8 patents to their products. Ratnamani, Man Industries, Welspun Corp., etc. all are trying to develop something extra. A value addition to product is giving them higher margins. Also, companies are constantly finding newer markets to serve them. These niche markets where margins are huge. Markets like defence requirements, aerospace, nuclear power, etc. are giving good margins for companies who are able to cater to these niche markets.
- Import Substitute & Better Exports.
Recent positives like China Dumping products led to anti-dumping duty, Corona virus being originated from China, Governments focus for Self Reliant India & initiatives like Make in India, etc. again are all the positives for this segment. Constant efforts of companies for higher export share in revenue mix is also sensed. Not only this, companies are also ready for setting up factories to different geographical locations across countries to cater to all the markets at lower costs (basically freight cost savings). Due to above, majorly two benefits derived from all these. Firstly, due to cost efficiencies of Indian Companies they are becoming competitive in Export market. And, the drive for Self-reliant India have led to development of many new products within our country which are import substitutes.
- A shift form Unorganised to Organised.
This is yet another benefit especially for ERW Pipes makers. Low steel prices, GST Implementation and weaker markets have led to unorganised players shutting down. And this is great benefit to the organised market. Again, all these have been explained before.
Hence, these new trends developing for Steel Pipes & Tube manufacturer, especially lately are very encouraging and giving rise to possible higher profits, better capacity utilization and better period for growths.
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.