We started with Porter’s force to understand “Why our industry is Economically Profitable and the reason why it is expected to continue in future.” This has led us to analyse all the five forces of porter as below:

1. Threat of Substitute.
2. Entry Barrier.
3. Bargaining power of Supplier.
4. Bargaining power of Buyer.
5. Rivalry amongst existing competitors.

Now, as we have come so far, analysing each of five forces. It is time for us to conclude the main reasons why I think that industry’s profitability is protected and is expected to remain so.

Steel Pipes & Tubes Segment was profitable because number of players in the segment are very limited. We have divided our segment into three different product categories. Those categories include SAW Pipes, Seamless Pipes and ERW Pipes. Number of players in each categories are as below:

Sr. No.	SAW Pipe Companies	Seamless Pipe Companies	ERW Pipe Companies
1	Welspun Corp.	Ratnamani Metals	APL Apollo Tubes
2	Jindal SAW Ltd.	Maharashtra Seamless Ltd.	Surya Roshni
3	Ratnamani Metals.	Gandhi Special Tubes	SAIL
4	Man Industries.	Jindal SAW Ltd.	Tata Steel
5	–	ISMT Ltd.	Maharashtra Seamless
6	–	Suraj Ltd.	Hi-Tech Pipe Ltd
7	–	–	Many Other Unorganised.

Hence, in SAW Pipe and Seamless Pipe categories, there are very limited companies in India. Whereas ERW Pipes have a lots of companies (major from unorganised).

So, what we understood in SAW Pipe and Seamless Pipe, it is difficult for new entrant to start this business. Firstly, SAW Pipe are operating at very low capacity utilization levels and then the amount of capital investment is huge. This discourages entry. Similarly, seamless pipes are very complex to make and again requires lots of investment & expertise. This, overall and historically have kept away new entry into the business.

As far as ERW segment is considered, APL and Surya Roshni have emerged as cost efficient producers with network of factories & distributors spread all over India. Hence they are able to provide at lower cost leading to increased market share, this has been observed across time periods. ERW on the other hand is increasing its application to many new sectors leading to high growth traction. On top of this, there has been shift of market share from unorganised market to organised market. So, this shift is keeping away small players to enter the market. Also, the margins here are pretty tight and ROIC is generated by economies of scale. Hence, this again discourages new entry in the market.

When we start carefully analysing force by force, on overall basis we concluded the following:

• Threat of substitute is very low. D.I. Pipes are already operating at over utilizations level along with major application in water and sewage segments only. This overcapacity is added benefit for SAW companies as overflow of orders from D.I Pipe will come into SAW Pipe manufacturers. Apart from that, PVC Pipes have already extended its arm wherever it had to and now have only few opportunities to take market of steel pipes, indicating low threat of substitute in future.

• There is very high entry barriers. Stable market share across years is important point indicating the possibility of high entry barriers. Along with that, less number of competitors, High Requirement of Capital, Long Pay Back Periods, High expertise to start plant, Requirement of Certifications and advantage in Economies of Scale are all the points which collectively discourages new entrants to start new plant at ease.

• Prices of commodity here are market determined. Hence, our raw materials are basically acquired on basis of market determined prices. Our buyers have some pricing power to ask for. There exists higher bargains for basic whereas VAP and buyers with critical applications have very less bargain power. System of tender brings more bargain power to buyer when compared to custom order system where margins depends on clients and products and are usually higher. Hence, here, the bargaining power of supplier is limited and for buyer and it depends on companies to companies and products to products.

• Competition is again very limited. With few players in the market, and also with low capacity utilizations, additional intense competition means even less profitability. Hence, competition exists among players but companies indicate that they will not sell below certain levels of profit. Hence, competition exists for basic commodity product with limited aggression. But for VAP and order to make products, the competition is almost not there.

Hence, seeing at overall structure of porter for steel pipes & tubes segment. With low threat of substitute, high entry barriers, low bargain power of supplier, neutral bargain power of buyers and limited competition; the profitability of steel pipes & tubes segment seems to be protected to certain extend. Also, less expected entry of new players, and growing traction for past two years indicate that profitability is going to increase in near future. Also it is indicating that the capacity utilization will rise in coming future as cycle is on upward trend.

Hence, seeing in context. The porter analysis seems to be very favourable tilting towards industry’s continued profitability.

I hope you appreciate my analysis on part porter’s five force on steel pipes & tubes segment. It was very vast analysis, and I am sure it will reap us benefit, indirectly into our investment decision. In case if you find something ugly, incorrect, etc. Do let me know, as it is my duty to crystallise the concepts.

Thank you all!

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.