It has been a very long journey of complete knowledge build up right from the scratch, before we finally could understand a bit about the whole segment, and be in a position to ascertain the attractiveness of segment. We have conducted lots of analysis about our segment and now I think, it is time I give you all, some concluding points. The reason for conducting whole industry analysis was to find best investment. And that brings us only one question to answer i.e. “Will you invest major stake/money of your portfolio in this segment?” All of our analysis performed up till now, will help us in justifying the only one above question.

But, what analysis have we conducted so far? In a very vast analysis, have a look at the important pointers which is given in table below. It will help us in a quick recap and assist us in presenting an opinion for Steel Pipes & Tubes segment:

Sr. No.	Particulars	Remarks	Ratings
1	Steel Size & its Growth.	Steel’s growth in India is expected to rise. NSP, 2017’s vision of India is to reach 300 Mn. TPA by 2030.	Positive.
2	Industry Mapping & Value Chain.	Complex Value Chain, value added for Pipes & Tubes is high. Too many factors affecting steel pipes & its profitability.	Neutral.
3	Profit Pool Analysis.	High E.P. for few companies within our segment. Near best segment is Steel Pipes which is selected for our analysis.	Positive.
4	Evolution of Industry.	Positive development seen over time for steel pipes segment. But, due to commodity, product difference is less and substitute have developed.	Neutral.
5	Porter’s Five Force.	Overall for Steel Pipes & Tubes segment, it is good. But, due to cyclical segment there is variation in profitability.	Positive.
6	Cost Driver of Industry.	Very less G.P. and high material costs as % of sales. This makes profitability at risk mainly due to R.M. price fluctuation.	Negative.
7	Revenue Driver.	Very good prospect. High opportunity size and very good future for Steel Pipes & Tubes Industry.	Very Positive.
8	Risk of Industry.	Reasonable risk, majorly risk dependent on its application industry, R.M. & Economic growth.	Neutral.

Majority of the pointers explained above are favouring this segment. Higher growth prospect as seen from revenue drivers, the cyclicality trending upwards, good capacity utilization trends recently, reasonable and slowly up ticking E.P.’s, and so on. All these pointers, which we have studied and observed in our industry right from the start, are tilting towards this segment, indicating the possibility of higher growth and profitability in coming future. Recent trends of import restriction, government’s initiative for higher expenditure on infrastructure and pipeline, high capacity utilization and again good future opportunity to grow, are very positive developments happening in this segment. And this is the reason why, “It seems to be the best time to invest in our segment”. And I hope, you got the justification of same through the analysis conducted till now.

We have done a lot of number crunching during the course of our analysis for the whole segment. I will love to finally, give you a glimpse of all the important data points for each of the companies in our segment, this will help us decide which company to bet on within this segment.

For that purpose, I have prepared a master sheet of whole industry summarising important matrix of all the companies in our segment. Have a look at the extensive data:

There are lot of other matrix apart from the above, for which you need to open the link given for excel sheet. Our job currently is to find the best company in the whole segment. Based on all the parameters shown above and in the excel link, we need to make a decision regarding which company to select for researching in detail. Obviously, you will not get everything in one company for sure, but we will look to find maximum parameters which are fulfilled enabling us to select the best company in our segment for further research.

I have simplified the process and come up with another table showing the strength of the company parameter wise. This is done so as to select the best company with relative ease.

One very basic criteria is that a company should be profitable and have good scope of growth. The mix of growth opportunities along with profitability is deadly combination. Also, company should at least generate slightly higher Economic Profitability to add to shareholders value. Looking at the above table and keeping in mind the profitability & growth matrix, I have the following viewpoint for those few companies which we will exclude:

• Gandhi Special: Firstly the profitability of the company is excellent. It has generated very high economic profitability averaging close to 17%. But, there is only one issue i.e. growth. Revenue & Profit growth have been negative. Also, company has not extended its capacity since 2016. With limited capacity, no growth, the company is certainly an exclusion from our list of investable companies.

• Welspun Corporation: Welspun Corp was involved in business of manufacturing Iron, Plates, Sheets and Pipes & Tubes. The margins for Pipes & Tubes business is way better than other products. This is the reason why WCL is having very low overall blended margin. Also, a sub-par growth over the years do not make WCL an attractive company. However, there are two important positive development happening recently with this company. They are divesting their Plates & Sheets business to focus on only core Pipes & Tubes. And the growth for past 3 years is 19% CAGR. However, these are only recent development which is yet to reflect in financials. Therefore, I cannot comment much in case of Welspun Corporation unless it reflects in financials. Apart from this, their 60% of revenue comes from export market. With equity dilution in the past, high risk and uncertainty of overseas business, falling oil prices, high debt, etc. makes me a bit cautious to get into this company. Hence, for time being the availability of better companies in this segment makes me jump on to other companies for core research & analysis.

• Man Industries: Man Industries has negative long term average E.P., being the prime reason to ignore this company for further research. Again, similar to WCL we see here that recent Revenue & Profit growth are very high. But, the debt level is extremely high coupled with lower interest coverage ratio. There a lot of red alerts in this company, which will lose our interest. Contingent liability is very huge standing at 985 Crores. Low blended EBITDA margin per tonne, low promoter holding, equity dilution in past, etc. are all points indicating us to ignore this company for further research. Also, Man Industries have corporate governance issues. In recent past, the promoter brothers i.e. Mansukhanis have fought for stake in the company. This company is therefore a straight reject.

• Maharashtra Seamless: Again, on similar lines to Welspun corporation. Although we have seen revenue growth, there is no Profit growth. It means, company is growing by selling at lesser rate. Also, on top of that, economic profitability is negative. So, we would not attend this company and move on to the current best companies in this segment.

So, now we are left with only two companies and they are the best of lot in the whole Pipes & Tubes Segment. We need to select amongst these two companies for further research i.e. Ratnamani Metals & APL Apollo. Looking at the Table, I will definitely go for Ratnamani Metals with almost all parameters under its belt i.e. high profitability, high growth, favourable porter, good product mix and high margins. However, APL Apollo is not a bad choice either. Let me give you a reasoning, as to why Ratnamani Metals is a better choice over APL Apollo.

APL Apollo has a robust growth story over the years with average Revenue & Profit CAGR’s knocking in excess of 20%, better than Ratnamani Metals. APL has better ROE over Ratnamani Metals beating the later by roughly 2%. The cash conversion cycle and working capital cycles of APL Apollo is way lower than Ratnamani Metals. However, there are few extremely important risks in the business which we need to consider. Let me explain you by presenting the table:

Let us start with Revenue Part. Revenue Streams, when analysed minutely have varied difference. Oil & Gas, Aerospace, Fertilizer, Power, Petrochemicals, E&P, etc. are all source of revenue generation for Ratnamani when compared with Infrastructure, Commercial & Residential Construction activity for APL Apollo. Also, Ratnamani Metals venture into making all types of Pipes & Tubes used for very critical applications serving into niche market compared with only ERW Segment for APL Apollo. Hence, on revenue front, Ratnamani Metals risk is more diversified to many industries and variety of products when compared with almost single stream of APL Apollo Pipes.

APL Apollo has lot of risk in the nature of business and product category it operates. We saw earlier in Porter’s analyst of bargaining power that, fluctuation in Raw Material costing directly impacts companies Gross Margins as our buyers are not absorbing the increased costs. With 85.51% of materials cost as % of sales, APL has huge risk for even a small volatility in raw material costing. Also, the product it sells have very tight margins i.e. EBITDA per tonne of Rs. 2,933/- APL Apollo’s business model works on volume sales and not pricing. When we compare it with Ratnamani, the product mix, product category, margins, etc. are at very comfortable levels. This comfort will help to sustain adverse times better. Add on that, the higher debt with APL Apollo makes it riskier than Ratnamani Metals.

Other factors like Low Promoter Holding is also a sign of cautious. Although low promoter holding is not always bad, but we would love to see companies with higher promoter holding. High Promoter holding shows that management/promoters are interested in company and it gives us more reliability. Also, critical requirement of products in niche markets served by Ratnamani Metals makes the earning highly stable.

 Hence based on above reasoning and as per my understanding, the best company in the segment is “Ratnamani Metal & Tubes Limited”, which will be our go to company to analyse it further before investing. With all the past matrix favouring Ratnamani Metals, we have to also predict a lot of future of Ratnamani Metals, for which analysis part on company specific factor will follow later.

Conclusion: We have finally come to an end of the whole Industry Analysis we performed on our steel pipes & tubes segment. The prospect of the whole industry’s growth is very high and on top of that we have selected one company i.e. Ratnamani Metals which is the best in the segment. Concluding with industry analysis, I would love to present you my thoughts on company analysis as well in coming days through my blog posts. And this time not with segment, but with company specific factors i.e. Ratnamani Metals & Tubes limited.

Thank You Folks for being with me so long!

 

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.