India's Steel Pipes & Tubes

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TABLE OF CONENTS
RISK SCORE ................................................................................................................................................................... 5
EXECUTIVE SUMMARY .............................................................................................................................................. 6
OVERVIEW ..................................................................................................................................................................... 7
MACROECONOMIC SCENARIO ................................................................................................................................ 8
Glance at Key Economic Indicator ........................................................................................................................................8
Tradeoff between Growth & Inflation ............................................................................................................................... 12
Currency Movement ................................................................................................................................................................. 13
REGULATORY SCENARIO ...................................................................................................................................... 14
DEMAND SUPPLY SCENARIO................................................................................................................................ 15
Current Scenario ....................................................................................................................................................................... 15
Demand Drivers ......................................................................................................................................................................... 16
Imports.......................................................................................................................................................................................... 19
Exports .......................................................................................................................................................................................... 20
New Capacity Addition ........................................................................................................................................................... 21
Future Growth Prospect ......................................................................................................................................................... 23
COMPETITIVE SCENARIO ...................................................................................................................................... 24
FINANCIAL PERFORMANCE .................................................................................................................................. 26
Sales Growth ............................................................................................................................................................................... 26
Operating Cost ........................................................................................................................................................................... 27
Profitability ................................................................................................................................................................................. 28

Ratio Analysis ............................................................................................................................................................................. 29

Debt Equity Ratio ................................................................................................................................................................. 29
Interest Coverage Ratio ..................................................................................................................................................... 30
Other Key Ratios ................................................................................................................................................................... 31

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RISK SCORE
Clarity in gas pricing would kickstart

investment in the oil & gas
exploration leading to an increase in
demand from that sector.
US Trade Commission's decision to

impose anti-dumping duty on steel
pipes & tube exports from India
would impact exports.
Execution of gas pipeline expansion

plans would increase the demand.
Delay in rebound in economic

growth would impact the demand
growth.

EXECUTIVE SUMMARY
Based on manufacturing process, steel pipe & tubes are divided into five categories:
Seamless, Longitudinal Submerged Arc Welded Pipes (LSAW), Horizontal Submerged Arc
Welded Pipes (HSAW), Electric Resistance Welded (ERW) pipes and Ductile Iron / Cast
Iron pipes.
India is one of the major manufacturing hubs for steel pipes & tubes and has emerged as a
major exporting hub catering mostly to demand from the markets of US and EU. Annual
production of steel tubes & pipes has increased by a CAGR of ~4.2% during FY 2010-14 to
reach 2.5 Mn tonnes. Going forward production of steel pipes & tubes is expected to reach
2.53 Mn tonnes by FY 2017 while consumption would touch 2.17 Mn tonnes.
Demand for seamless pipes arises from oil & gas sector where it is used in exploration as
well as for transportation. While demand for wielded pipes & tubes originate from
infrastructure construction, water treatment, power plants, automobiles and general
engineering sectors.
Anti-dumping investigations by US Trade Commission in 2013 on behalf of US steel
producers resulted in anti-dumping duties being imposed on steel pipes imported from
India (along with five other countries) to the US. Since US is the largest export market for
Indian steel pipes & tubes manufacturers, this high tariff would impact exports from the
country.
Currently eight to ten large players have a significant share of existing manufacturing
capacity. Jindal SAW, Welspun Corp, Electrosteel Casting, APL Apollo Tubes and ISMT
are few of the major players in the sector.

OVERVIEW
India is one of the major manufacturing hubs for steel pipes & tubes and has emerged as a major
exporting hub, catering mostly to demand from the markets of US and EU. Steel pipe & tube
industry consists of numerous types with varying dimensions. Based on end usage, it is broadly
classified into oil & gas and non-oil sector. Oil & gas sector comprises of pipes used for oil & gas
exploration, production as well as transportation. Non-oil sector consists of pipes & tubes used for
applications in construction, waste water management, and process plant equipment sector.
Based on the manufacturing process steel pipe & tubes are divided into five categories:
Seamless, Longitudinal Submerged Arc Welded Pipes (LSAW), Horizontal Submerged Arc
Welded Pipes (HSAW), Electric Resistance Welded (ERW) pipes and Ductile Iron / Cast Iron
pipes.
Types of Steel Pipes & Tubes
Type
Manufacturing Process
Major Applications
Seamless Pipes
Piercing ingots/
Oil & Gas Exploration & Production,
HSAW
billets of
steel at high temperatures
refineries, industrial equipment like boilers
Spirally Welding HR Coils
Low Pressure Application Cross- Country

Line Pipes for Oil & Gas and Water
Transport
LSAW
ERW
Longitudinally submerged arc
High Pressure Application Cross Country
welding of steel plates
Line Pipes for Oil & Gas Transport
Hot Rolled steel coils using
Low Pressure Application Cross- Country
electrical resistance welding
Line Pipes for Oil & Gas and Water
process
Transport
Limitations in size, thickness and grade
Ductile / Cast Iron
Water & Sewage Transport.

MACROECONOMIC SCENARIO
Glance at Key Economic Indicator
Indian economy continued to report below 5% growth in FY 2014. At global level, economic
growth performance in major economies continued to play a decisive role in deciding the growth
fortunes of developing countries including India. Indian economic performance was severely
impacted by the sustained weakness in USA, Euro Zone countries and China that are also Indias
major trading partners and source of foreign capital inflows. In CY 2013, world economic growth
slide further to 3% as compared to 3.1% in previous year while US GDP growth slowed down to
1.88% as compared to 2.8% in in previous year and Euro Zone as a whole reported a growth of
about 0.2%. Annual GDP growth of world fastest growing market i.e. China too slowed down from
the level of 10.4% in 2010 to 7.7% in 2013.
At domestic level, Indias investment and industrial growth prospects remained fragile and even
the services sector remained weak. Even though the Indian government took several steps to
arrest the volatility in foreign exchange rate and narrow down the current account deficit in FY
2014 but the growth momentum of the domestic economy faced unrelenting challenges.
Persistence of high consumer price inflation and interest rates, weakening performance of
services and industrial sector has let down all expectation of economic revival in the past fiscal.
Additionally, regulatory hurdles, administrative bureaucracy, and policy delay pertaining to land
acquisition process, obtaining license, and environmental clearance were further impediments to
growth. These factors dampened the countrys position at global level as well due to which, on
th
ease of doing business Index India ranks 134 amongst 184 countries and lowest amongst
BRICs peers. Lack of consensus on major economic reform and policy paralysis led to a declining
new-investment spending for the fourth consecutive year in row since FY 2011.

Macro Economic Indicator

8.91%
8.59%
8.23%
6.69%
5.28%
5.5%
4.74%
4.47%
2.7%
2.88%
-0.1%
FY 2010
FY 2011
FY 2012
GDP Growth Rate
1.10%
FY 2013
FY 2014 PE
FY 2015F
IIP Growth Rate
Source: CSO & D&B Forecast, (PE is Provisional Estimates)
As per provisional estimates on GDP number released on May 30
th
2014, Indias annual GDP
growth reported a marginal incremental growth of 0.3% over the previous year and grew at about
4.74% in FY 2014 as compared to 4.47% in FY 2013. Economic activity continued to exhibit
stagnancy on back of slowing industrial sector. Industrial sector growth as measured by the Index
of Industrial Production (IIP), registered a y-o-y decline of 0.1% during FY 2014.
As seen in the below chart, services sector registered maximum growth over the period FY 201014, followed by the agriculture sector and industrial sector.

GDP (Factor Cost, Constant 2004-05 Prices) by Economic Activity

Agriculture (INR Bn)
6,610
7,178
7,538
7,645
Industry (INR Bn)

8,005
14,807
14,949
15,002
13,733
12,769
FY 2010
FY 2011
FY 2012
FY 2013 RE FY 2014 PE
FY 2010
25,782
28,274
32,227
FY 2012
FY 2013 RE FY 2014 PE
CAGR (FY 2010-14)
Services (INR Bn)

30,130
FY 2011
7.54%
34,482
6.19%
4.91%
4.11%
FY 2010
FY 2011
FY 2012
FY 2013 RE FY 2014 PE
Agriculture
Industry
Services
Over all GDP
Source: CMIE Outlook, RE is Revised Estimated, PE is Provisional Estimate
In FY 2014, services sectors contribution towards GDP stood at 60.1%, followed by industry
(26.1%) and agriculture (13.9%). Also, the share of services to economic output is increasing,
while that of agriculture and industry segment declined over the period FY 2012-13.
The annual growth rate of services sector, industry and agriculture sector stood at 7%, 0.35% and
4.17%, in FY 2014 as compared to 6.96% 0.96% and 1.42% respectively, registered in previous
fiscal.

Yearly Q-o-Q change in Sectoral GDP (%)

7.2%
7.6%
6.9%
7.2%
7.2%
6.4%
6.3%
6.3%
6.3%
5.0%
4.0%
Agricuture
-0.4%
Industry
-0.2%
Q4: FY 2014
-0.4%
3.7%
Q3: FY 2014
1.6%
Q2: FY 2014
0.8%
Q1: FY 2014
-0.4%
2.6%
2.1%
Q4: FY 2013
1.7%
Q3: FY 2013
1.8%
Q2: FY 2013
Q1: FY 2013
1.8%
0.3%
Services
Source: CMIE Outlook

From quarterly trend, growth in agriculture sector expanded from sharply to 6.3% on sequential Qo-Q basis in Q4 FY 2014, while service sector economic output slowed down to 6.4% in last
quarter of FY 2014 from 7.2% in previous sequential quarter. Industry segment continued to report
a decline in Q4 FY 2014 on yearly q-o-q basis on the back of contracting economic output from
mining and quarrying and manufacturing segment in all four quarters (excluding Q2:FY 2014).
D&B expects economic growth to recover in FY 2015, albeit at moderate rate and grow at about
5.5%. With formation of a new and stable government, economic growth is likely to get impetus
from improved policy environment, early implementation of long pending reforms and revival of
large stalled projects.

Tradeoff between Growth & Inflation
Source: Office of the Economic Advisor; RBI

Monetary authorities kept the interest rate unchanged during April 2012-Dec 2012 as the
inflationary pressure continued to loom over the economy that impacted the fresh investments and
economic growth in FY 2013. In order to revive investment and push liquidity in the economy, RBI
reduced the repo rate thrice during Jan 2013 till May 2013 by 25 basis point each time. However,
with revival of inflationary pressure the repo rate was hiked by 25 bps thrice since September
2013. The latest hike of 25 bps in repo rate was made Jan 28, 2014. Rise in interest rates has
adversely impacted the overall GDP growth on the back of increasing project financing cost for
corporate and deterring the demand growth. India Inc. has been demanding a rate cut to spur
investment and promote growth as the monthly WPI index which measure inflation has shown
some decline trend since November 2013. However, RBI kept the policy rate unchanged in its
th
latest monetary policy review in August 5 2014 against the industry expectation. Repo rate
currently stands at 8%.
CRR another monetary tool used by RBI to regulate money supply has been reduced four times
(each time by 25 basis point) since March 2012 in order to infuse the primary liquidity in banking
th
system and supports the GDP growth. With last 25 basis point cut on 29 Jan 2013, the CRR
currently stands at 4.0% and CRR too remained unchanged in latest policy review.

Currency Movement
Indian currency entered into a prolonged period of depreciation by the middle of fiscal 2012 which
continued well into end of FY 2014. During this period, rupee touched record lows. After a
prolonged period of depreciation the US dollar stabilized against Indian rupee in the range of INR
59 60. India is a major exporter of steel pipes & tubes and this depreciation in rupee has helped
shore up export revenue.
Source: Ministry of Finance, Govt of India

REGULATORY SCENARIO
Removal of production, pricing, and export restrictions placed on steel sector during the industrial
reforms of 1991 has immensely helped in growth of the sector. Private sector participation went
up and so did the manufacturing capacities that led India in becoming one of the largest producers
of steel in the world. Steel pipes & tubes sector too has benefitted from this relaxed regulatory
scenario and over the years the sector has seen massive capacity expansion, mostly by private
companies.
Increased pace of activity in several end-consuming sectors including oil & gas exploration,
construction and waste water treatment increased demand for steel pipes & tubes. Apart from
providing growth opportunities for domestic manufacturers, this scenario also attracted the
attention of foreign manufactures. Consequently import of steel pipes & tubes began to increase.
Imports from low cost manufacturing countries have skewed the platform in favor of foreign
manufacturers. To nullify these advantage anti-dumping cases were initiated by several domestic
manufacturers against exports from Austria, Czech Republic, Russia, Romania, and Ukraine.
Currently imports from these countries into India attract anti-dumping duties. An anti-dumping
investigation was initiated against imports from China in 2010, however the same has been
terminated

DEMAND SUPPLY SCENARIO

Current Scenario
Capacity expansion in Indian steel pipes & tubes sector was initially triggered by increasing export
demand, mostly from US and UK markets. However, increasing activity in domestic oil & gas
sector and other end consuming sectors in recent years have strengthened domestic demand.
Currently both export and domestic demand play significant roles in driving demand in the sector.
Annual production of steel tubes & pipes has increased by a CAGR of 4.2% during FY 2010-14 to
reach 2.5 Mn tonnes. Consumption during the same period has increased by a CAGR of 4% to
reach 1.8 Mn tonnes. Production dropped in FY 2014 over last fiscal year due to lower export
demand. This created an oversupply scenario in domestic market which too is in the midst of a
slowdown leading to lower demand.
Source: CMIE Industry Outlook

Demand Drivers
Demand for seamless pipes arises from oil & gas sector where it is used in exploration as well as
transportation. While demand for wielded pipes & tubes originate from infrastructure construction,
water treatment, power plants, automobiles and general engineering sectors.
KEY DEMAND DRIVERS

Implementation of New Exploration Licensing Policy (NELP) and
Coal Bed Methane (CBM) in 1999 as well as opening up of E&P
Oil & Gas Exploration and
Production (E&P)
activities to foreign investment has increased the pace of

exploration & production activity in the sector. Since then close to
250 hydrocarbon blocks have been awarded out of which close to
180 blocks are currently active.
Till date USD 21 Bn worth of investment has been made in E&P

activities and close to 130 hydrocarbon discoveries have been

made. Oil & gas production from hydrocarbon blocks awarded
under NELP reached 6,900 barrels of oil per day (bopd) and 14
million standard cubic meters per day (mmscmd) per annum. This
growth in E&P activities in Indian oil & gas sector has resulted in
higher demand for seamless steel tubes & pipes.
As per CMIE twenty three new projects are expected to be
completed during the period 2014 16. This hectic activity in E&P
sector would keep the demand for seamless steel pipes & tubes
buoyant.
Seamless steel tubes & pipes are used in transporting oil & gas
from wells to final consumers. In between, it passes through
gathering stations and refineries. Oil & gas pipeline infrastructure
Oil & Gas Transportation
in the country is estimated to be close to 38,400 Kms. It has

grown by a compounded rate of 7% during 2009-13. Such a
robust growth in pipeline infrastructure has created high demand
for seamless steel pipes & tubes.
Steel pipes & tubes are used in the construction of public
transportation infrastructure (metros), airport, and commercial
properties (malls). The country witnessed a construction boom in
real estate as well as infrastructure construction during most of
last decade. Growth in real estate construction was driven by
Construction
office space demand, growth in organized retail and hospitality.

Infrastructure construction on the other hand benefitted by
increased government focus on infrastructure building to support
economic growth. Consequently demand for steel pipes & tubes
from construction sector have gone up.
Currently demand from construction sector is low due to slow
down in construction activity, brought about by a combination of

slow economic growth and regulatory hurdles. However this

slowdown is conceived to be temporary and demand is expected
to pick up once the economic growth rebounds.
Growth in industrial activity and urbanization has increased the
quantity of waste water and sewage produced in the country.
However bulk of this sewage generated goes untreated. As per
industry estimates approximately 48,000 MLD of waste water is
generated in Tier I and Tier II cities alone, of which less than 25%
Waste Water Treatment
undergoes treatment before discharge.

Waste water treatment is high on priority of the new government
as well as corporates due to emerging water scarcity challenges.
Consequently the sector is expected to witness high level of
investments to add capacity. This capacity addition would create
demand for steel pipes & tubes used in such plants.
In process plant equipment sector, seamless steel pipes & tubes
are used for applications in industrial boilers that are used in
manufacturing industry. Demand from this segment has suffered a
decline in the last couple of years due to subdued investment in
capacity expansion projects due to adverse demand scenario.
Process Plant
Equipments
However fundamental growth factors impacting manufacturing

sector remains strong and is expected to pick by FY 2016. This
improved scenario is expected to trigger capacity expansion
investments that are currently held back. Renewed vigor in
capacity expansion projects would increase demand for process
plant equipment, and indirectly of steel tubes & pipes

Imports
Import of steel pipes & tubes have declined in the past couple of years as overall demand
scenario slackened. Annual imports fell to 535,000 tonnes in FY 2014 from a high of 745,000
tonnes imported during fiscal year 2012. Consequently import expense incurred dropped from INR
79 Bn to INR 70 Bn during FY 2012-14.
China is the largest exporter of steel pipes & tubes to India, accounting for ~52% of total imports
(by value). Japan and Italy are the other two major exporters. Together imports from these three
countries accounted for 69% of total imports in FY 2014.
Source: Directorate General of Foreign Trade

Exports
India imported close to 1.2 Mn tonnes of steel pipes & tubes during the fiscal year 2014. However
exports has steadily declined / stagnated after peaking at 2.2 Mn tonnes in FY 2011. Sedate
global demand due to the prevailing recessionary contributed to this decline in exports. In
response to decline in export volume overall value of exports declined from INR 118 Bn to INR 93
Bn during FY 2013-14.
Unlike imports, steel pipes & tubes exports from India are not concentrated to few markets.
Instead it is scattered across a large number of markets, with largest market accounting for only
17% of total exports. Western economies like US and countries in EU are few of the key markets
for Indian steel pipe & tube manufacturers. Slower demand growth from these countries that are
reeling under economic slowdown contributed to the overall drop in exports.
Source: Directorate General of Foreign Trade
Steel pipes & tubes too witnessed major capacity expansion as removal of export restrictions
opened up markets in the US and EU where demand was on the upswing. However anti-dumping
investigations by US Trade Commission in 2013 on behalf of US steel producers resulted in antidumping duties being imposed on steel pipes imported from India (along with five other countries)
to the US. Since US is the largest export market for Indian steel pipes & tubes manufacturers, this
high tariff would impact exports from the country.

New Capacity Addition

Drop in sales on the back of unfavorable demand scenario has impacted capital expenditure
pattern in the sector. Pace of new investments into capacity expansion projects has dropped
drastically as manufacturers are holding back till demand improves. New investments coming into
the sector declined from ~INR 38 Bn in FY 2012 to INR 1 Bn in FY 2014 while number of new
projects announced from five to one. Projects currently under implementation too have been
declining as no new projects are coming up. In FY 2014, only four projects were under
implementation.
Source: CMIE Prowess, D&B Research

Subdued investment scenario points out to slow capacity expansion in the sector. During the
period 2014-16 only 266,000 tonnes of new capacity is expected to be added in the sector.
Major Projects Expected to be Commissioned by 2016
Company
Project
Tube Investments of
Tube manufacturing unit in Chennai,
India
Tamil Nadu
Good
Luck
Steel
CDW
/ERW
Precision
Tube
Tubes
manufacturing unit in Uttar Pradesh
APL Apollo Tubes
Steel tube manufacturing project in
Capacity
Expected
(Tonnes)
Completion
36,000
March 2015
40,000
April 2015
190,000
July 2015
Ahmadabad, Gujarat
Source: CMIE Capex

Future Growth Prospect

Demand for steel pipes & tubes have dropped in the past couple of years due to unfavorable
demand scenario in domestic as well as export markets. Uncertain economic scenario which
lowered industrial activity impacted domestic demand while lower than expected demand from key
western economies, who are still reeling under low growth scenario, impacted export demand.
Domestic demand is expected to pick up as economic growth picks up, widely expected to
happen by the start of next fiscal (FY 2015). Fast tracking of infrastructure projects and speedier
implementation of city gas distribution project would help in reviving the demand. In addition
demand from oil & gas exploration is expected to pick up once the uncertainty surrounding gas
pricing is cleared. Clarity in gas pricing would help attract investment in oil & gas exploration
creating demand for seamless pipes & tubes used in exploration & production.
Export demand would continue to be moderate, primarily because of the anti-dumping duty
initiated by US Trade Commission on imports from India. US steel manufactures have won an
anti-dumping case against steel pipes & tubes imports from India (along with five other countries)
in early 2014. Since exports to the US account for ~17% of total steel pipes & tubes export from
India this ruling would have a severe impact on overall exports. Going forward production of steel
pipes & tubes is expected to reach 2.53 Mn tonnes by FY 2017 while consumption would touch
2.17 Mn tonnes.

COMPETITIVE SCENARIO
Steel pipes & tube manufacturing is capital intensive and economies of scale is a major factor for
succeeding in the industry. This capital intensive nature, need for a wide dealership network to
cater to domestic demand and compliance to global quality standards, to be able to compete in
export markets, act as entry barriers for smaller players. Consequently incumbent companies
have an advantage and new players face tough competition. Currently eight to ten large players
have a significant share in existing manufacturing capacities.
Major Steel Pipes & Tubes Manufactures in India
Established in 1984, Jindal SAW part of USD 18 Bn O.P.Jindal Group is
Jindal SAW
one of the largest manufacturers of Submerged Arc Welded (SAW) tubes in

the country. The company manufactures ductile iron spun pipes, seamless
tubes & pipes as well as large diameter pipes.
Established in 1995 Welspun Corp is one of the largest manufactures of
Large Diameter Pipes in the country. Apart from pipes the company also
Welspun Corp
manufactures plates and coils. Welspun also has business operations in

the US and Middle East where it operates through Welspun Tubular LLC
(USA) and Welspun Middle East Pipe LLC.
Electrosteel
Part of Electrosteel Group, the company is one of the major manufacturers

of ductile iron pipes. The companys pipe manufacturing capability received
Castings
a major boost by the acquisition of 46% of Lanco Industries in 2002.

Established in 1986 APL Apollo is one of the leading manufacturer ERW
APL Apollo
steel tubes and pipes. In addition the company also manufactures
Tubes
galvanized and pre-galvanized steel tubes, hollow sections and MS Round

tubes.
The Company was established in 1980 as Indian Seamless Metal Tubes
ISMT
Ltd and rechristened as ISMT in 2005 after merging with its subsidiary
Indian Seamless Steels and Alloys Ltd formed in 1995 to produce steel

alloys. Since its inception in 1980 the company has made couple of major
acquisition. The Company acquired Kalyani Seamless Tubes Ltd in 2000
and Sweden based Structo Hydraulics AB in 2007.
Capacities of Major Manufacturers

Company
Capacity (in Tonnes)
Jindal Saw
2,040,000
Welspun Corp
1,500,000
Man Industries
1,000,000
APL Apollo Tubes
800,000
ISMT
450,000
Maharasthra Seamless
350,000
Ratnamani Metals
350,000
Electrosteel Casting
330,000
Financial Performance of Major Companies in the Segment (FY 2014)

Company
Sales % Change over previous
Operating Profit & % Change
fiscal
over previous fiscal

INR 55.1 Bn ( 1.8%)
INR 7.3 Bn ( 6.2%)
Welspun Corp
INR 48.8 Bn ( 26.2%)
INR 7.9 Bn ( 10.7%)
Electrosteel Castings
INR 21.8 Bn ( 13.0%)
INR 3.6 Bn ( 20.8%)
APL Apollo Tubes
INR 20.6 Bn ( 27.9%)
INR 9.5 Bn ( 2.3%)
INR 15.6 Bn ( 1.9%)
INR 1.6 Bn ( 12.3%)
Jindal SAW
ISMT

FINANCIAL PERFORMANCE
Sales Growth
Economic slowdown that gripped Indian economy for the past few years has led to a stagnation of
industrial activity. New investments have dried up and production as such has gone down as
demand scenario deteriorated. Slowdown in end consuming sectors has impacted demand for
steel pipes & tubes. Consequently starting FY 2012 year on year change in sales has gone down.
Source: CMIE Prowess, D&B Research, Sample -14 Companies

Operating Cost
Operating Cost Margins
Year
Raw Material
Power & Fuel
Salary & Wage
SGA Expenses
Interest Expense
FY 2010
60.3%
3.3%
3.2%
4.7%
2.2%
FY 2011
60.3%
4.5%
3.8%
5.1%
2.4%
FY 2012
65.7%
4.8%
3.7%
5.0%
2.8%
FY 2013
61.4%
4.7%
3.9%
5.0%
3.5%
FY 2014
56.9%
4.9%
4.3%
5.1%
3.9%
Source: CMIE Prowess, D&B Research, Sample 14 Companies
Steel prices have softened from the high levels reached during FY 2011 that has helped
companies in the sector control their raw material expense. Reflecting this scenario combined raw
material cost in the sample declined from 60% to ~57% of total revenue during FY 2010-14. The
spike in FY 2012 was more due to higher volume of consumption rather than increase in steel
prices.
By FY 2014 raw material consumption too has gone down as sedate demand scenario forced
manufacturers to realign annual production volumes. Drop in both volume of raw material
consumed as well as cost of raw material during FY 2013-14 led to the fall in raw material cost
margin by ~4.5 percentage points.
Steel industry is both labor intensive as well as power intensive. Consequently manufacturers
incur high salary & wage expense as well as power & fuel expenses. Combination of crude oil
price rise as well as weak currency led to an increase in power & fuel cost, which inflated from
3.3% of revenue to ~5% revenue during FY 2010-14. Salary & wage expense too increased from
3.2% to ~4.3% during the same period.

Profitability
Profitability margin in the sector has steadily declined (as seen in the sample considered) during
the period FY 2010-14 due to slowdown in sales as demand from end consuming sector dropped.
Although raw material cost largest operating cost moderated during the period other major
expense heads like power & fuel cost as well as salary & wage expense increased.

Ratio Analysis
Debt Equity Ratio
Demand for steel pipes & tubes from domestic market as well as export markets grew at a brisk
pace for several years till 2012. This extended period of growth encouraged manufacturers to
invest in capacity expansion projects, anticipating continuation of demand. Towards this many
companies raised debt to fund these expansion plans, leading to growth in consolidated debt
component.
However drop in industrial activity in domestic market and slower than expected revival in export
demand impacted sales leading to lower growth in net worth. Combination of increase in debt
component and slow growth in net worth pushed debt-equity ratio upward.

Interest Coverage Ratio

Increase in debt component along with a high interest rate scenario led to increased interest
expense in the sector. In the sample considered interest expense as a percentage increased from
2.2% to ~4% during FY 2010-14. On the other hand operating profit in the sector (as well as in the
sample) dropped as sales declined due to sedate demand scenario. Consequently interest
coverage ratio in the sector deteriorated but still remains in comfortable situation.

Other Key Ratios
Sample: 14 Companies (Source: CMIE Prowess)

Time Period: FY 2012,13 and 14
Ratios
Gross Margin
Net Margin
Average Value
29.9%
3.0%
Current Ratio
2.26
Quick Ratio
1.20
Account Receivables Days
72
Inventory Days
96
Account Payable Days
35
RONW
5.4%
ROA
9.1%
ROCE
Long Debt-Equity
Net worth to Total Liabilities
12.0%
0.89
40.0%
Interest Coverage Ratio
3.70
Fixed Asset Turnover
2.21
Asset Turnover
0.72
Inventory Turnover
3.99
Fixed Assets to Net worth
4.36
Sales to Capital Employed
0.82

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India&#39;s Steel Pipes &amp; Tubes

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Ratio Analysis ............................................................................................................................................................................. 29

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2014 Dun & Bradstreet All rights reserved.

Dun & Bradstreet Information Services India Private Limited

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Clarity in gas pricing would kickstart

US Trade Commission's decision to

Execution of gas pipeline expansion

Delay in rebound in economic

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Oil & Gas Exploration & Production,

steel at high temperatures

refineries, industrial equipment like boilers

Spirally Welding HR Coils

Low Pressure Application Cross- Country

Longitudinally submerged arc

High Pressure Application Cross Country

welding of steel plates

Line Pipes for Oil & Gas Transport

Hot Rolled steel coils using

Low Pressure Application Cross- Country

electrical resistance welding

Line Pipes for Oil & Gas and Water

Ductile / Cast Iron

Water & Sewage Transport.

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Macro Economic Indicator

GDP Growth Rate

IIP Growth Rate

Source: CSO & D&B Forecast, (PE is Provisional Estimates)

As per provisional estimates on GDP number released on May 30

2014, Indias annual GDP

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GDP (Factor Cost, Constant 2004-05 Prices) by Economic Activity

Industry (INR Bn)

CAGR (FY 2010-14)

Services (INR Bn)

Over all GDP

Source: CMIE Outlook, RE is Revised Estimated, PE is Provisional Estimate

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Yearly Q-o-Q change in Sectoral GDP (%)

Source: CMIE Outlook

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Tradeoff between Growth & Inflation

Source: Office of the Economic Advisor; RBI

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Source: Ministry of Finance, Govt of India

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DEMAND SUPPLY SCENARIO

Source: CMIE Industry Outlook

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KEY DEMAND DRIVERS

activities to foreign investment has increased the pace of

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activities and close to 130 hydrocarbon discoveries have been

in the country is estimated to be close to 38,400 Kms. It has

office space demand, growth in organized retail and hospitality.

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slow economic growth and regulatory hurdles. However this

India's Steel Pipes & Tubes

India's Steel Pipes & Tubes