Metal Pipes Sector Final Report

-1- Wednesday 18th February, 2019
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Table of Contents
Executive Summary 3
Ventura view on incumbent players 7
Industry Overview & Key Demand Drivers
Key demand drivers for metal pipes in Oil & Gas industry 10
Key demand drivers for metal pipes in water segment 21
Demand requirement in sub-segments of metal pipes 36
Low competitive intensity 37
Steel prices to remain stable 37
Key risk and concern areas 39
Financial performance analysis on incumbent players
Maharashtra Seamless Ltd 41
Ratnamani Metals & Tubes Ltd 47
Welspun Corp Ltd 52
Man Industries Ltd 57
Jindal SAW Ltd 62
Annexure – Steel pipe manufacturing process 67
Disclaimer 69
-2- Monday 20th May, 2019
Executive Summary
Along with domestic oil & gas distribution (which is expected to increase sharply from 34.1 MMT to
38.3 MMT and 35.0 BCM to 72.0 BCM respectively), refining capacities are expected to be ramped up
from the current 248 MMTPA to 307 MMTPA by FY22. However, India’s existing metal pipeline
infrastructure falls far short of what is required to cater to the incumbent demand. A similar situation
exists in the water and sanitation segment too. And as the government moves forward on its plan to
fulfil basic aspirations, the shortages in the metal pipeline network stand further accentuated.
To address these shortages, the present day government has undertaken a number of initiatives
which should boost the demand for metal pipes:
Oil & Gas

• Improving the transmission network by replacing old oil & gas trunk pipelines and laying a
fresh network of more than 11,000 km of new trunk pipelines to ensure efficient distribution
of crude oil and petroleum products.
• Expansion of natural gas connectivity from LNG terminals and natural gas production hubs.
Pan India gas transmission connectivity under city gas distribution (CGD) is expected to
increase natural gas usage. Already, in the 9th & 10th rounds of auctions, CGD licenses have
been awarded and coverage is expected to increase to ~70% of India’s population. CGD alone
will require 1.6 lacs kms of gas pipeline across India.
The above-mentioned policy reforms could attract investments in the domestic oil & gas sector,
which is expected to grow from the annual rate of Rs.65,000 Cr till FY18 to Rs.90,000 Cr by FY22,
translating into a CAGR of 8.5%. Such a gargantuan increase in investment will create significant
demand for metal pipes catering to the oil & gas sector.
Water and Sanitations
• Feeder pipelines from rivers and canals to ensure efficient water supply and its availability
for irrigation and basic sanitation. After the launch of ‘Swachh Bharat’ mission and ‘Access
to at-least basic sanitation’, the basic sanitation coverage in India went up from ~40% in Oct
2014 to 99% in Feb 2019. The need for water and sewage disposal will improve with education
and urbanization, which is expected to trigger demand for high diameter long range pipeline
networks to supply water.
According to the World Bank, per capita water availability in India is only 1,118 cubic meters, which
is significantly lower than China (2,062 cubic meters), Brazil (27,721 cubic meters) and USA (8,844
cubic meters) and marginally higher than South Africa (821 cubic meters), which is a desert country.
Lots of work has to be done on efficient water transmission, which is expected to propel demand
for metal pipes.
Significant demand drivers are in place for domestic metal pipe manufacturers, which could keep
the order book elevated and ensure higher capacity utilizations.
1) Demand from oil & gas sector: Heightened activity in both, the global and domestic energy markets
is expected to trigger sustained demand for metal pipes. The key triggers being:
For seamless pipes (including stainless)

• Global recovery in E&P spends
• Thrust on domestic E&P activity
• Revamp of refining capacities to cater to BS-VI norms
• Hydrocarbon Vision 2030, which attempts to make North East an energy hub
SAW pipes
• Improvement in the share of liquid fuel and gas in energy mix
• Replacement of India’s aged oil & gas transmission pipelines and rollout of national gas grid by
GAIL India Ltd
ERW Pipes
• Pan India CGD rollout
2) Water & sanitation: India’s water availability and sanitation are plagued by a host of issues.
• India is a significantly water stress country
• Rising demand stressing water availability
• Evapotranspiration needs to be averted to improve water availability.
• Increasing urbanization
• Heavy dependence on monsoon precipitation
• Low penetration of irrigation infrastructure
• Water intensive cropping patterns
• Lack of sewage disposal
To deal with these issues and the impending water crisis, the government has taken a series of
measures which should boost demand for metal pipes mainly SAW, ERW & DI pipes.
• Increase in budgetary allocation for water segments
• Network of water transmission pipelines to link rivers, canals and other water bodies across the
country.
• Infrastructure to improve the utilization of Ganga – Brahmaputra – Meghana river basin
• AMRUT scheme launched to enhance sewage treatment capacities
3) Metal pipe manufacturers have ready capacity, no near-term capex required: All the domestic
metal pipe manufacturers are currently operating at 50-60% capacity utilization. The current total
installed capacity is sufficient to cater to the upcoming demand over the next 3-4 years. And hence,
no new capex is required.
4) Significantly reduced competition from local players: Stringent quality requirements have further
reduced local competition. Since, only organized players are able to meet the requirements their
performance outlook stands further enhanced.
5) Anti-dumping duties
a. Chinese imports in domestic market: To strengthen the domestic metal pipe industry,
government imposed anti-dumping duties on imports of seamless pipes (used in oil & gas
exploration and refining) from China (duties ranging from $961/MT to $1611/MT) in Q1FY17.
This has brightened the outlook for the domestic seamless pipe industry. As a result, players
like Maharashtra Seamless Ltd (MSL) in carbon steel seamless pipes and Ratnamani Metals &
Tubes Ltd (RMTL) in stainless steel seamless pipes are expected to be the biggest beneficiaries.
b. Restriction on export to the US market: The US International Trade Commission has imposed
restrictions on the import of large diameter SAW pipes used for oil & gas and water transmission.
At the same time, the US domestic demand for transmission pipes has increased materially.
Domestic manufacturers are in a sweet spot given the enhanced demand and import restrictions
which have meant good pricing power resulting in increased utilizations and improved EBIDTA
per ton. Welspun Copr with its US based manufacturing facility is a clear beneficiary.
6) Increased spends on E&P and water & sanitation in the Middle East & North Africa: The Middle
East and North Africa is home to 6% of the world’s population and the region has less than 2% of the
global water resources. Strong demand for water transmission pipeline has meant that players with
localized manufacturing like Welspun Corp, should benefit significantly.
Steel pipes and their usage
Steel Pipes
Seamless Pipes SAW Pipes ERW Pipes DI Pipes

(Oil & gas (Trunk pipelines for oil (City gas (Water &
exploration & & gas and water distribution & Sewage
refining) transmission) water transport) Pipes)
Carbon Stainless
L-SAW H-SAW
Steel Steel
Key players in different metal pipe categories
Type of pipes Usage Competitive intensity Companies
Carbon Steel Seamless Reduced after anti-

Oil & gas exploration MSL, ISMT & JSAW
Pipes dumping duties
Stainless Steel Reduced after anti- RMTL, Sandvik &

Refineries
Seamless Pipes dumping duties Sumitomo
High for low ticket size

Oil & gas and water JSAW, WCL, MIL, Tata
SAW Pipes orders. Very low for
trunk pipeline Metaliks & local players
high ticket orders
City gas pipeline and SRL, WCL, RMTL &

ERW Pipes Very high
water transport MSL
High for low ticket size

City water transport & SKPL, Electrotherm,
DI Pipes orders. Very low for
Sewage pipes JSAW
high ticket orders
MSL = Maharashtra Seamless Ltd

JSAW = Jindal SAW Ltd
RMTL = Ratanamani Metals & Tubes Ltd
WCL = Welspun Corp Ltd
MIL = Man Industries Ltd
Given the strong demand scenario and operational ability of the key players in
the respective segments, we initiate coverage on the steel pipe stocks with a
BUY rating on Maharashtra Seamless Ltd, Ratnamani Metals & Tubes Ltd,
Welspun Corp Ltd & Jindal SAW Ltd. We have a Neutral view on Man
Industries Ltd. Our rationale for the same is surmised as under
Maharashtra Seamless Ltd (MSL): Timely acquisition of USTL to boost

outlook.
MSL acquired 100% stake in United Seamless Tubular Ltd (USTL) – 350,000
MTPA for Rs.477 Cr, in NCLT bidding. With this acquisition, MSL’s total
capacity stands augmented to 900,000 MTPA. The MSL management will be
undertaking a further capex of Rs.125 Cr over the period FY19-22 to
operationalize the 350,000 MTPA capacity (75,000 MTPA in FY20, 125,000
MTPA in FY21 and 150,000 MTPA in FY22).
The USTL deal is value accretive considering the fact that a greenfield
capacity of similar size would have cost MSL Rs.2.0 cr per 1,000 MTPA, and
MSL has incurred an outgo of only Rs.1.7 cr per 1,000 MTPA (Rs.477 Cr for
acquisition & Rs.125 Cr for capacity revamp), while a new greenfield plant
requires investment of Rs.2.0 Cr for setting-up 1000 MTPA capacity.
This acquisition is quite opportune considering the fact that we are at the cusp
of a turnaround (given the improving procurement from the E&P segment and
anti-dumping duties on Chinese seamless pipes).
The MSL management has guided for an increase in the capacity utilization to
80% by FY22 from the current 60%. As a result, we expect MSL’s sales
volumes to grow at a CAGR of 27.6% to 9.28 lac tonnes by FY22. Factoring
in the strong demand, realizations have already increased by ~25% in FY19
(Rs.76,800 per MT). As a result, we are modelling flat to neutral growth in
realization.
On the back of the above we expect net revenues to grow at a CAGR of 34.9%
to Rs. 7,127 Cr during FY18-22E. With EBITDA per ton expected to be range
bound (Rs.13,000 – 15,000 per ton) we estimate an EBITDA CAGR of 42.1%
to Rs.1,267 Cr and net earnings CAGR of 47.4% to Rs.784 Cr over the same
period. Consequently, return ratios, RoE and RoCE are also set to improve to
15.1% (+945 bps) and 19.0% (+1,236 bps) respectively by FY22
We have valued the stock on a P/BV basis as historically the P/E has not
proven to be a reliable indicator to value the stock given its extreme
fluctuations. At the CMP of Rs.458, the stock currently trades at the P/BV of
0.68x FY22 earnings. We initiate with the BUY for a price objective of Rs.595
(0.85x FY22), which represents an upside potential of 30%
Ratnamani Metals & Tubes Ltd (RMTL): A balanced player with multiple
growth drivers in place
In FY19, RMTL’s capacity utilization improved significantly to ~85% from a

mere ~55% during FY15-18 given the sharp spurt in the fortunes of the ERW
pipe segment. To cater to the bullish outlook RMTL is undertaking a capex of
Rs.600 Cr (out of which Rs.150 Cr has already been incurred) which is
expected to be concluded by Dec 2019. Post capex, the installed capacity for
stainless steel pipes would stand augmented by 20,000 MTPA (Rs.400 Cr
capex) to 48,000 MTPA (from the existing 28,000 MTPA). The carbon steel
capacity will remain capped at 350,000 MTPA; however, the capability to
manufacture large diameter pipes (upto 80 inches pipes) will be enhanced at
a cost of Rs.200 Cr.
We expect RMTL’s sales volumes to grow at a CAGR of 17.0% to 4.11 lacs

tonnes between FY18-22E. While average realization per MT improved by
~15.5% to Rs.87,200 per ton in FY19, we expect further improvement in
realization by ~3.0% CAGR to ~Rs.95,000 per ton by FY22. As a result,
revenue is expected to grow at a CAGR of 22.6% to Rs.3,997 Cr during FY18-
22E. Similarly, the EBITDA per ton is expected to remain in the range of
Rs.13,000 to Rs.14,000, leading to an EBITDA CAGR of 23.8% to Rs.482 Cr.
In-line with the operating performance, PAT is expected to grow at a CAGR of
22.9% to Rs.347 Cr during FY18-22E. Consequently, return ratios, RoE and
RoCE are also set to improve to 14.2% (+255 bps) and 17.1% (+226 bps)
respectively by FY22E
The stock is currently trading at the FY22 forwarded P/E of 11.4x. We are
valuing RMTL at FY22 P/E of 15x at the target price of Rs.1,114, giving upside
potential of 31.5%. We recommend BUY at the current market price of Rs.847
Welspun Corp Ltd (WCL): Geographically diversified player with

improving visibility across all markets
WCL is expected to witness a strong performance across all its three

geographies – India, USA and Saudi Arabia. With the Saudi Arabia business
turning EBITDA positive in FY20 and increased order inflows in the US
business, the Indian operation will no longer be the only business driver for
WCL’s consolidated business in the coming years.
A rise in the investments in oil & gas rigs in the US has significantly increased
pipe procurement to expand the pipeline transmission infrastructure.
Meanwhile new profitable projects signed by WCL in Saudi are offsetting the
effect of older loss-making pipeline projects in the kingdom. Indian business is
also gaining traction due to the government’s focus on replacing old oil & gas
pipelines, improving water transmission across the country and building a
national gas grid. With all the three geographies set to enter the next leg of
growth, we expect WCL’s sales volumes to grow at a CAGR of 7.8% to 17.3
lacs tonnes over the period FY19-22. As a result, the utilization is set to
improve from 53% in FY19 to 71% in FY22. Realization per MT remained flat
in FY19, and we have assumed stable pricing over the forecast period.
We expect revenues to grow at a CAGR of 8.7% to Rs. 12,478 Cr over the

period of FY19-22. Similarly, EBITDA/ton is expected to significantly improve
from Rs.4,481 (FY19) to Rs.8,406 by FY22E, leading to an EBITDA CAGR of
26.2% to Rs.1,454 Cr. WCL reported 188% YoY growth in ‘Other Expenses’
in Q4FY19, on account of 100% provisions made on its bond investments in
IL&FS and Reliance Capital Ltd. Any recovery from these investments will be
positive for EBITDA. WCL recently announced the sale of its plate & coil and
captive power business for Rs.940 Cr and the proceeds are to be used to
repay part of its debt (Rs.1,252 Cr as on Mar 2019) in FY20. We expect the
company to be net debt free by FY20. Post the reduced gearing we expect the
PAT to grow at a CAGR of 55.8% to Rs.870 Cr by FY22. Consequently, return
ratios, RoE and RoCE are also set to improve to 22.5% (+1716 bps) and
31.5% (+2374 bps) respectively over the same period. The company has also
approved the buyback of 2.78 Cr shares at a maximum price of Rs.140
The stock is currently trading at the FY22 forwarded P/E of 4.4x. We are
valuing WCL at the FY22 P/E of 6.5x at the target price of Rs.192, which
suggests an upside potential of 46.5%. We recommend BUY at the current
market price of Rs.131
Man Industries Ltd (MIL): Focused only on the transmission opportunity

in both domestic and international market
MIL is a focused SAW pipe player with a capacity of 1.0 million MTPA (500,000
MTPA and LSAW capacity of 500,000 MTPA), with a strong global presence
(USA, Middle East, Africa, South America and Asia Pacific). MIL has reported
a history of volatile revenues throughout its life span. In 9MFY19, the capacity
utilisation increased from 23% to 39% on the back of a robust orderbook. As
on date, the company has a strong order book position of approximately
Rs.1,250 Cr including both domestic and international orders. The bid book
also remains strong at approximately Rs. 11,500 Cr.
Overall, we expect SAW pipe volume growth of 20.3% CAGR to 4.98 lacs
tonnes between FY18-22E. Average realization per MT increased by ~2% in
9MFY19 and we are expecting a sustained growth in realization for the coming
years. Therefore, revenue is expected to grow at a CAGR of 21.3% to
Rs.3,405 Cr during FY18-22E. Similarly, the EBITDA per ton is expected to
improve from Rs.5,165 in FY18 to Rs.6,085 in FY22E. In-line with the
operating performance, PAT is expected to grow at a CAGR of 26.2% to
Rs.169 Cr during FY18-22E. Consequently, the RoE is also set to improve to
16.8%(+576bps) and the RoCE should improve to 17.3%(+646bps) by FY22E.
The stock is currently trading at the FY22 forwarded P/E of 2.0x. Despite
having high growth prospects its valuations continue to remain supressed
given corporate governance issues. (These are enumerated in detail in the
report). We have not rated the stock.
Jindal SAW Ltd (JSAW): Operating performance to offset the debt drag
JSAW is a well-diversified domestic & global play in the metal pipe industry
with a considerable presence in SAW (20 lac MTPA capacity), Seamless (2.5
lac MTPA capacity) & DI (10 lac MTPA capacity) pipe segments. In 9MFY19,
the capacity utilisation for SAW pipes stands at 32% (530bps YTD), while that
for seamless & DI pipes stands at 68% (67bps YTD) & 54% (710bps YTD)
respectively. Over the period FY19-22 we expect the capacity utilization
across three segments to improve to – 47.3% / 94.5% / 75.8% respectively.
In-line with the improving utilization, we expect sale volumes to grow to – 9.46
MT (15.6% CAGR) / 2.36 MT (8.9% CAGR) / 7.57 MT (12.5% CAGR)
respectively leading to an average volume growth of 14.2% to 19.9 lac tons
over the period FY18-22.
On the back of a favourable environment, we expect revenues to grow at

20.3% CAGR to Rs.15,266 Cr by FY22. Over the same period, we expect
EBITDA to grow at a CAGR of 15.0% to Rs.1,736 Cr, while net earnings are
expected to deliver CAGR of 24.1% to Rs.984 Cr. JSAW reported more than
13% EBITDA margin during FY16-19. However, management indicated that
sustaining these margins would be an arduous task given the increasing share
of fixed price bulk contracts for large projects. The management is upbeat on
sustaining the EBITDA margin of more than 11% in the coming years. Return
ratios – RoE and RoCE are also set to improve to 9.9% (+287 bps) and 12.4%
(+511 bps) respectively by FY22
The poor performance of its unrelated diversifications into the sectors of

shipping, mining & pallet manufacturing has led to the company falling into a
debt trap at the consolidated level. As of Mar 2018, the consolidated net debt
of the company stood at Rs.6,166 Cr, while the consolidated EBITDA of FY18
was a paltry Rs.947 Cr, leading to a net debt to EBITDA of 6.5x. While
pressures from the poor performance of the subsidiaries ails at the
consolidated level, the financial profile has improved considerably for the
standalone parent entity. JSAW reduced the standalone debt from Rs.4,218
Cr in Mar 2018 to Rs.3,645 Cr in Sep 2018, and maintained its EBITDA
margins well above the level of 13.5% over the same period. Easing debt
burden and strong margin profile improved interest coverage from 1.89x to
2.05x during H1FY19. JSAW management has guided for the net debt to come
down to Rs.2,500 Cr by FY21 due to improvements in the working capital cycle
and annual debt repayment of Rs.250 Cr.
At the CMP of Rs.83, the stock currently trades at adjusted P/BV of 0.33x FY22
on a standalone basis. The adjusted BV is at Rs.238 per share (BV of
standalone = Rs.251 per share less negative BV of its subsidiaries = Rs.13).
We initiate with a BUY for a price objective of Rs.119 (0.5x FY22), which
represents an upside potential of 37%.
- 10 - Monday 20th May, 2019
Peer group comparison
Figures are in Rs Cr (except per share data, return ratios and price multiples).
EBITDA PAT
RoE RoCE P/E P/BV EV/EBITDA
Sales EBITDA PAT
Margin Margin EPS BV
(%) (%) (x) (x) (x)
(%) (%)
Maharashtra Seamless Ltd (Market Cap – Rs.3,231 Cr, CMP – Rs.458)
FY17 1,434 225 116 15.7 8.1 17.3 410 4.2 4.5 26.6 1.1 15.6
FY18 2,150 311 166 14.5 7.7 24.8 437 5.7 6.6 18.5 1.1 11.8
FY19E 2,839 556 340 19.6 12.0 50.8 478 10.6 12.4 9.1 1.0 6.2
FY20E 3,779 717 468 19.0 12.4 69.8 534 13.1 14.5 6.6 0.9 5.4
FY21E 5,216 959 588 18.4 11.3 87.8 613 14.3 17.2 5.2 0.8 4.0
Ratnamani Metals & Tubes Ltd (Market Cap – Rs.3,960 Cr, CMP – Rs.847)
FY17 1,412 257 144 18.2 10.2 30.9 254 12.2 16.6 27.2 3.3 14.9
FY18 1,767 266 152 15.1 8.6 32.5 280 11.6 14.8 25.8 3.0 15.0
FY19E 2,814 408 255 14.5 9.0 54.5 332 16.4 21.1 15.4 2.5 9.4
FY20E 3,106 452 288 14.6 9.3 61.6 390 15.8 18.3 13.6 2.2 9.3
FY21E 3,539 517 295 14.6 8.3 63.2 450 14.0 17.8 13.3 1.9 7.5
Welspun Corp Ltd (Market Cap – Rs.3,468 Cr, CMP – Rs.131)
FY17 5,899 512 89 8.7 1.5 1.0 106 3.2 2.8 128.4 1.2 8.6
FY18 7,543 684 239 9.1 3.2 6.0 108 8.4 7.4 21.4 1.2 5.4
FY19E 8,953 573 148 6.4 1.7 2.3 106 5.3 7.7 56.7 1.2 6.3
FY20E 9,792 999 481 10.2 4.9 14.8 103 17.5 19.6 8.6 1.2 3.0
FY21E 11,233 1,238 671 11.0 6.0 22.0 122 20.8 25.8 5.8 1.0 1.9
Man Industries Ltd (Market Cap – Rs.333 Cr, CMP – Rs.58)
FY17 1,060 46 33 4.3 3.1 5.7 105 5.4 0.6 10.3 0.6 11.8
FY18 1,572 123 67 7.8 4.2 11.7 114 10.2 9.1 5.1 0.5 4.4
FY19E 2,585 247 92 9.5 3.5 16.1 120 13.3 21.0 3.7 0.5 2.4
FY20E 2,858 272 133 9.5 4.6 23.3 141 16.5 19.0 2.5 0.4 1.3
FY21E 3,134 299 158 9.5 5.0 27.6 165 16.8 19.6 2.1 0.4 1.2
Jindal SAW Ltd (Market Cap – Rs.2,406 Cr, CMP – Rs.75)
FY17 5,696 862 339 15.1 6.1 10.6 174 6.1 6.8 7.0 0.4 7.1
FY18 7,287 992 415 13.6 7.0 13.0 185 7.0 7.3 5.7 0.4 6.6
FY19E 10,078 1,307 541 13.0 8.5 16.9 200 8.5 9.4 4.4 0.4 4.6
FY20E 11,591 1,295 502 11.2 7.3 15.7 214 7.3 9.3 4.7 0.3 4.5
FY21E 12,896 1,453 651 11.3 8.8 20.4 232 8.8 10.9 3.6 0.3 3.7
Source: Company Reports & Ventura Research
- 11 - Monday 20th May, 2019
Steel pipe scatter chart
0.6
RMTL
0.5
0.4
PEG FY21
0.3
0.2
JSAW MSL WCL
0.1
MIL
0.0
10 12 14 16 18 20 22 24
Return on Capital Employed FY21 (%)
- 12 - Monday 20th May, 2019
Performance charts of metal pipe manufacturers
Pipe sales volume in Kilo Ton
2,000 Maharashtra Ratnamani Metals Welspun Man Jindal
1,500 Seamless & Tubes Corp Industries SAW
1,000
500
0
Revenue in Bn per Ton

150 Jindal
Maharashtra Ratnamani Metals Welspun Man
Seamless & Tubes Corp Industries SAW
100
50
EBITDA in 000 Rs per Ton

20 Maharashtra Ratnamani Metals Welspun Man Jindal
15 Seamless & Tubes Corp Industries SAW
10
5
0
Profitability - EBITDA Margin (LHS) & PAT Margin (RHS)

Maharashtra Ratnamani Metals Welspun Man Jindal
25%
Seamless & Tubes Corp Industries SAW
20%
15%
10%
5%
0%
Return Ratios - RoE (LHS) & RoCE (RHS)
30% Maharashtra Ratnamani Metals Welspun Man Jindal

25% Seamless & Tubes Corp Industries SAW
20%
15%
10%
5%
0%
-5%
- 13 - Monday 20th May, 2019
❖ Key demand drivers for metal pipes in Oil & Gas industry
➢ Global recovery in E&P space augurs well for seamless pipes
With the fall in oil prices, rig values declined globally, which further impacted
E&P activities and the seamless pipe manufacturers.
Active rig counts improved significantly since mid-2016

Active rig counts (in nos)
2500
2000
1500
1000
500
0
Jul-10
Jul-08
Jul-09
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jan-16
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-17
Jan-18
Jan-19
Middle East U.S. Rest of World
Source: Baker Hughes
Post the sharp fall of crude oil price in 2014-16, global E&P has put in a
recovery as oil prices have also improved. With global prices expected to
remain firm we expect demand for seamless pipes to pick up.
Rebound in global E&P spend
22
19
15
11 11
8
4 3
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
-8
Annual change in global

E&P spend (%)
-29 -29
Source: Energy Information Administration
- 14 - Monday 20th May, 2019
The Indian seamless pipe manufacturers have been beneficiaries of the
aggressive exploration activity of ONGC.
Wells drilled by ONGC (in Nos)
501 503
415
377 381 392 378
345
322
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Source: Company Report
❖ Easing policies for E&P in India to trigger demand for seamless pipes
To enhance domestic oil production GOI has come out with an industrially
friendly E&P policy, which is expected to encourage investments in this space.
Given the favourable environment we expect the demand outlook for seamless
pipes to improve significantly.
India’s oil production to improve gradually

Volumes in MMT
38.3
35.6 35.9 35.7 34.7 35.9 35.5 34.8 35.1 35.8
34.6 34.1
9.5 8.2 9.6 12.3
10.3 11.5 11.7 11.2 10.4 8.6
12.0 9.9
3.6 3.4 3.4 3.5 3.5
3.8 3.7 3.4 3.2 3.3 3.4
3.5
22.5 21.8 20.8 21.1 20.9 20.8 22.8 23.5 22.7 22.6
20.5 19.2
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E
ONGC OIL Private/JVs
Source: Standing committee of Petroleum & Natural Gas
- 15 - Monday 20th May, 2019
New policy to trigger natural gas output
Volumes in BCM 72.0
58.8
51.5
47.6 47.8 40.4
40.7 27.9
38.5 16.3
26.1 21.6 35.4 33.7 35.0
14.5 32.3 31.9 8.1
9.5 8.9 7.9 3.2 3.3 3.5 3.7
8.2 6.9
2.4 2.6 2.6 2.6 2.7 2.9 2.9
2.8
23.3 23.5 23.3 24.2 27.2 28.2 27.4 27.9

23.1 22.0 21.2 22.1
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E
ONGC OIL Private/JVs
Source: Standing committee of Petroleum & Natural Gas
The gradual rise in oil production and significant surge in natural gas
production is expected to trigger demand for seamless pipes. The traction for
the same has been visible over the last 2 years.
❖ Revamp of refining capacities to push demand for seamless steel tubes
Substantial investments in the domestic E&P space and introduction of high

efficiency BS VI grade of petrol & diesel is expected to lead to PSUs
augmenting their refining capacities to cater to the burgeoning demand.
India refining capacities to outpace energy consumption

Volumes in MMTPA
326
307
292
277
262
248
230 234
213 215 215 215
193
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E FY23E
Source: PNGSTAT & Ventura Research
- 16 - Monday 20th May, 2019
The upcoming refining capacities with BS VI standards are expected to sustain
a CAGR growth of 5.5% to 87,000 MT by FY22 of stainless steel seamless
pipes. RMTL by virtue of being the only listed player (Sandvik and Sumitomo
being the unlisted MNC vendors) is expected to be the biggest beneficiary.
➢ Hydrocarbon Vision 2030 – The government’s effort to make Northeast

an energy hub
The current crude oil refining capacity in North Eastern Region (NER) of India
is 7.0 MTPA and is expected to increase to 16.0 MTPA by FY24 after the
expansion of IOCL’s Guwahati refinery. Similarly, the currently supply of
natural gas from the region is in the range of 12.0-13.0 MMSCMD, which is
expected to increase to ~30.0 MMSCMD by 2030. Potential for the CGD
network and industrial usage of gas are expected to drive the demand for the
natural gas in NER
Hydrocarbon demand – supply snapshot for Northeast

Crude oil refining capacity (in MMTPA) Natural gas supply & demand (in MMSCMD)
17 35
30
15
25
13
20
11 15
9 10
7 5 FY23
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY24
FY25
FY26
FY27
FY28
FY29
FY30
5
FY27
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24
FY25
FY26
FY28
FY29
FY30
Narual Gas supply in NER Narual Gas demand in NER
Source: Hydrocarbon Vision 2030 for Northeast India
The limited pipeline connectivity in NER has adversely impacted the

development of oil & gas market in the region. With the ‘Hydrocarbon Vision
2030’, the existing government is making expenditure to connect NER with
national oil & gas transmission pipeline of India. Below are the two major
projects by GAIL and ONGC:
• GAIL India is building a 616 kms trunk gas pipeline between Barauni
(Bihar) and Guwahati (Assam) to connect NER with national gas grid.
• ONGC has committed Rs.13,000 Cr of investment in next 5 years
(FY20-24), which includes 2050 kms of crude oil pipeline and a refinery
of 9.0 MMTPA capacity.
- 17 - Monday 20th May, 2019
The above-mentioned infrastructure projects are expected to create huge
demand for SAW pipes in NER.
❖ Improvement in the share of liquid fuel and gas in energy mix to drive
demand for SAW pipes
Increase in domestic E&P, refining and berthing of oil & gas (from imports) is
projected to improve the share of oil, petroleum products and natural gas in
the total energy mix of India from 36% in 2017 to 45% by 2025. Such a
significant increase in the share on a growing base of energy demand (India’s
energy demand is expected to grow at 4.5-5.0%, according to BP Statistical
Review), will lead to significant demand growth of ~85% for SAW pipe volume
in absolute terms by 2025
Change in energy mix could boost demand for SAW pipes
2017 2025
Others,
Others, 8% 5%
Oil & Gas, 36% Oil & Gas,

45%
Coal, 50%
Coal, 56%
Source: BP Statistical Review & PNGRB
➢ Replacement of old oil & gas trunk pipelines and demand from national
gas grid to drive trigger demand for SAW pipes
Few of the oil & gas transmission pipelines in India have outlived their
economic lives of 30 years and there is a pressing need to replace these. We
expect ~1/10th of the oil & gas pipelines to be replaced, leading to a demand
volume for 2,500-3,000 km length of SAW pipes.
India has over 18,000 kms of trunk pipeline for natural gas transmission
and an additional 11,000 kms is under construction which is expected to
get completed in the next 5-7 years.
- 18 - Monday 20th May, 2019
Natural Gas trunk pipeline network to expand
29000
35000
28000
27000
Gas trunk pipeline network in Km
26000
24500
30000
22500
20500
25000
18397
17753
17658
17421
17329
15519
20000
12029
10772
10246
15000
9622
7964
7332
6729
6388
Govt has announced Rs.70,000 Crores
10000
of capex to spread gas pipeline across
5000 country
FY15
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY16
FY17
FY18
FY19E
FY20E
FY21E
FY22E
FY23E
FY24E
FY25E
Source: PNGSTAT, PNGRB & Ventura Research
India Natural Gas pipeline network

Network/Region Entity Length (Kms) Capacity (mmscmd) Status
Hazira-Vijaipur-Jagdishpur Pipeline GAIL(India) Ltd. 4,554 53.0 Operational
DVPL-GREP upgradation (DVPL-II & VDPL) GAIL(India) Ltd. 1,385 54.0 Operational
Chhainsa-Jhajjar-Hissar Pipeline (CJPL) GAIL(India) Ltd. 310 5.0 Operational
Dahej-Uran-Panvel Pipeline (DUPL/ DPPL) GAIL(India) Ltd. 928 19.9 Operational
Dadri- Bawana-Nangal Pipeline (DBPL) GAIL(India) Ltd. 852 31.0 Operational
Dabhol-Bengaluru Phase 1 GAIL(India) Ltd. 1,116 16.0 Operational
Kochi-Koottanad-Bengaluru-Mangalore GAIL(India) Ltd. 48 6.0 Operational
Tripura (Agartala) GAIL(India) Ltd. 60 2.3 Operational
Gujarat GAIL(India) Ltd. 685 8.3 Operational
Rajasthan (Focus Energy) GAIL(India) Ltd. 151 2.4 Operational
Mumbai (Uran-Thal-Usar & Trombay-RCF) GAIL(India) Ltd. 131 7.0 Operational
KG Basin (including RLNG+RIL) GAIL(India) Ltd. 884 16.0 Operational
Cauvery Basin GAIL(India) Ltd. 306 8.7 Operational
East- West Pipeline (RGTIL) Reliance 1,480 80.0 Operational
Shahdol-Phulpur Pipeline (RGPL) Reliance 304 3.5 Operational
GSPL network including spur lines GSPL 2,618 43.0 Operational
Assam Regional Network AGCL, DNPL 817 3.2 Operational
Dadri-Panipat IOCL 140 9.5 Operational
Kochi - Kottanad - Bengaluru - Mangalore GAIL(India) Ltd. 1,056 16.0 Under Construction
Dabhol - Bengaluru (DBPL) Phase 2 GAIL(India) Ltd. 302 16.0 Under Construction
Surat - Paradip GAIL(India) Ltd. 2,112 74.8 Under Construction
Jagdishpur- Haldia-Bokaro-Dhamra GAIL(India) Ltd. 2,539 16.0 Under Construction
Mallavaram - Bhilwada GSPC India Transco Ltd. 2,042 78.3 Under Construction
Mehsana - Bathinda GSPC India Gasnet Ltd. 2,052 77.1 Under Construction
Bathinda -Jammu-Srinagar GSPC India Gasnet Ltd. 725 42.4 Under Construction
Kakinada - Vizag-Srikakulam AP Gas Distribution Corp 391 90.0 Under Construction
Ennore- Nellore Gas Transmission India Pvt. Ltd. 250 36.0 Under Construction
Ennore to Bengaluru, Madurai & Tuticorin IOCL 1,385 84.7 Under Construction
Jaigarh-Mangalore H-Energy Pvt. Ltd. 635 17.0 Under Construction
Source: PPAC & Ventura Research
- 19 - Monday 20th May, 2019
➢ Pan India CGD rollout (post 9th & 10th rounds of CGD auctions) to drive
demand for SAW and ERW pipes
With the completion of the 9th & 10th CGD bidding round by PNGRB, the
natural gas would be made available in 228 GAs covering 404 districts spread
over 27 states and UTs. It is expected to cover ~70% of India’s population and
~53% of its geographical area. As per the commitments made by the
successful CGD players in the 9th & 10th round of auctions, the new GAs
would require ~1.56 lacs kms of steel pipeline networks by 2026.
ERW steel pipes required to roll out network in GAs allotted in

9th & 10th round of auctions
Length of Steel 10th Round Length of Steel
9th Round Period
Pipeline (in Km) Period Pipeline (in Km)
Apr 19 to Mar 20 2,909 Oct 18 to Sep 19 4,900
Total 58,178 98,000
Source: PNGRB
Length of pipe required under 9th & 10th bids of CGD auctions
Fig are in KM 31,235

28,327
21,435
17,609
15,618 15,618 15,618
13,118
4,900
FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27
Source: PNGRB
- 20 - Monday 20th May, 2019
❖ Key demand drivers for metal pipes in water segment
India has only 4% of the world’s renewable water resources, but is home to
~18% of the world’s total population. The country’s per capita water availability
is 1188 cubic meter per year (as per World Bank data), which is significantly
lower than the threshold limit of 1700 cubic meter for a water stressed country.
India has 20 river basins, which collectively handles 4000 BCM of water and
the average annual surface flow out of this is 1869 BCM, the rest being lost in
infiltration and evaporation. Out of the 1869 BCM, utilizable water is only 690
BCM (according to Central Water Commission).
From the above it is clear that despite the stress, India is a water surplus
country. All it needs is an efficient water transmission infrastructure to handle
the available water. The Modi government has initiated activities in this
direction, but significant work needs to be done to achieve the stated objective.
This is expected to drive significant demnd for metal pipes over the next
decade.
➢ Currently India is a water stressed country & ranks similar to Africa
As per the World Bank data, India is a water stressed region with 1188 m³ of
per capita of water availability. (A country is categorized as ‘water stressed’
when water availability is less than 1,700 m³ per capita & considered ‘water
scarce’ if the level is less than 1000 m³ per capita). India’s per capita water
availability compares with those of the desert countries of Africa.
India’s water availability compares with desert countries
Per capita water availability (in cubic meter) 27,721
8,851
2,062
821 1,118
South Africa India China USA Brazil
Source: World Bank
The situation is further accentuated given that India has only ~4% of the
world’s renewable water resources but is home to ~18% of the world’s total
population.
- 21 - Monday 20th May, 2019
Rising population is accentuating water problem in India
20%
18%
15%
7%
6%
5%
4%
3%
India USA China Brazil
Share of Water Share of Population
Source: World Bank
Ironically India is considered to be one of the wettest countries in the world

given that it has 1911 km³ of annual precipitation.
India is one of the wettest countries and still a water stressed land
Average annual precipitation due to rainfall (in km³) 8,233
4,508
2,840 2,902 3,069
1,911 1,913 2,019 2,057 2,132
India Peru Indonesia EU Colombia China Canada USA Russia Brazil
Source: World Bank
- 22 - Monday 20th May, 2019
India water management
A covered pipeline is
1,047 BCM lost the solution to stop
Fresh water in evaporation evaporation, which
resources in is >25% of fresh
India water resource
1,084 BCM is
non-available
Of
4,000 this
water
billion cubic
meters
(BCM) 1,869 BCM is 1,123 BCM is usable water
available water (of which only 690 BCM) is
available for use
Source: Industry Reports & Ventura Research
However, we waste 74% of available water due to the lack of an efficient water
transmission infrastructure. Most of the water is lost due to evapotranspiration.
The situation is so precarious that if we do not act now then the current
demand (634 bcm) will soon eclipse the current availability of 690 bcm. As per
the Central Water Commission, in 2025 the situation will become
unmanageable when demand is expected to reach 1000 bcm.
Projected water demand in India in four broad categories
Water demand (in bcm)

1325
100
995 100
125
75
85
85
590 15
35
1000
40 750
500
2010 2025 2050
Irrigation Drinking Industry Energy
Source: Industry Reports & Ventura Research
- 23 - Monday 20th May, 2019
Need to control the evapo-transpiration to meet upcoming demand
4000 BCM of fresh

water
Surface Run-off = 1948 BCM (48.7% of
Surface Run-off = Not Estimated
annual rainfall)
Groundwater recharge
Groundwater recharge = Not Estimated
= 452 BCM (11.3% of annual rainfall)
Total available water Evapotranspiration

= Surface Run-off + Groundwater = 2600 BCM (65% of annual rainfall)
recharge Total available water = 4000 - 2600 = 1400
= 2400 BCM BCM
Utilizable water = *48.8% of 2400 BCM Utlizable water = *48.8% of 1400 BCM =
= 1171 BCM 683 BCM
*48.8% is the global standard to calculate share of utilizable water
Source: Committee on restructuring the CWC and CGWB
However, the situation is not irreparable and timely action by the government
to scale up water infrastructure will help abate the situation. Checking evapo-
transpiration and seepage will aid in preserving water and improve availability
over and above the demand.
- 24 - Monday 20th May, 2019
India has about 20 river basins; however, due to increasing demand for water
for domestic, industrial and agricultural uses, most river basins are water
stressed. Increasing demand from a growing urban population, coupled with
economic activity adds pressure to the already stressed water resources.
The biggest river basin has lowest utilization level

Water Utilizable
Utilization
River Basic Reserves (in Surface Water
Level
BCM) (in BCM)
Ganga - Brahmaputra - Meghna 1,110 274 24.7%
GBM severely lacks the national Godavari 110 77 69.4%
utilization of river basins. Simply Krishna 79 58 73.9%
concentrating on this basin can Indus (up to border) 73 46 63.4%
substantially improve the water
availability in the country Mahanadi 67 50 73.8%
Narmada 45 35 76.8%
Others 385 151 39.2%
Total 1,869 690 36.9%
Source: Government Documents, Industry Reports & Ventura Research
Urbanization to put more pressure on river water availability
Urban population (in crores)

60 38%
37%
50
36%
40
35%
30 34%
33%
20
32%
10
31%
0 30%
2015 2018 2020E 2025E
Urban Population, LHS Share of Urban Population, RHS
Source: Indian Brand Equity Foundation
➢ Heavy dependence on rainfall precipitation exposes the under belly
Water availability is unevenly distributed across the country due to the uneven
monsoon pattern in India. The country experiences both floods and droughts
periodically and with inefficient rainwater harvesting infrastructure available,
excess water storage is next to impossible.
- 25 - Monday 20th May, 2019
India is at the mercy of uneven rainfall
Average annual rainfall (in mm)
1,300 1,244 1,243

1,250 1,208 1,216
1,200 1,1621,179
1,105 1,118 1,116
1,150 1,081 1,085
1,100 1,045
1,050
1,083
1,000 1,055
1,035
950
982
900 954
850
800
2007
2009
2000
2001
2002
2003
2004
2005
2006
2008
2010
2011
2012
2013
2014
2015
2016
India Annual Rainfall (in mm) Average annual rainfall
Source: Indian Meteorological Department
India not only witnesses uneven rainfall every year, it also faces significant
regional variation in average annual rainfall
Variation in rainfall generates need for transmission network
Average annual rainfall (in mm)

3000
2500
2000
1500
1000
500
0
North East West Central South NER
Source: NITI Aayog report
- 26 - Monday 20th May, 2019
Rainfall distribution in India
26% of the country receives

below average rainfall, 21%
above average and the rest
equivalent to national average.
➢ Indian farmers depend heavily on monsoon
Nearly 60% of domestic population’s livelihood is dependent on agriculture

and hence directly dependant on the monsoon precipitation. During times of
drought there is increasing reliance on ground water. Groundwater extraction
is at a global high and the aquifer has been significantly depleted. So much so
that in areas of abundant rainfall like the Ganges plain ground water aquifer is
found nearly 68 m deep, double the average depth of extraction.
Groundwater fulfils ~80% of India’s drinking water and ~70% of irrigation

requirements. Over the last 4 decades, ~80-85% of total addition to irrigation
coverage has been catered to by groundwater resources. The contribution of
canal irrigation has been declining in India over time, while groundwater
(especially through tube wells) has grown. The ground water resources are
expected to continue to remain under stress due to competing uses for
drinking water, household usage and industrial requirement.
- 27 - Monday 20th May, 2019
Groundwater abstraction increased its depth in India
Depth of groundwater in India (in meters) Groundwater abstraction (in km³ per year)
251
36.2 37.0
34.5 34.8 35.0
31.9 31.4 32.7
29.1
25.8 25.6 112 112
60 64
29 35
14 14 23
USA
Saudi Arabia
Indonesia
Mexico
Italy
Bangladesh
Iran
China
India
Pakistan
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: Ministry of Water Resources, CGWB & Ventura Research
➢ Irrigation infrastructure lagging demand is a legacy issue
Despite announcement of numerous schemes and allocation by the

government, the ground reality has been that irrigation projects have been
hampered by infinite delays and lack of political will to address the issue on
hand. The resultant has been that only 35% of India’s total cropped area of
68.5 million hectares is penetrated.
India’s expanding irrigation coverage is still lagging global standards
Area (in Million Ha) Area (in Million Ha)

70 35% 50
45
68 34% 40
66 33% 35
30
64 32% 25
20
62 31% 15
60 30% 10
5
58 29% 0
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 North East West Central South NER
Area under irrigation by source (Mn Ha), LHS Net Cropped Area Net Irrigated Area
Source: NITI Aayog report, Ministry of Agriculture & CGWB
- 28 - Monday 20th May, 2019
Despite stress, India has one of the lowest irrigation coverage
100%
92%
64%
38%
16%
7%
Brazil USA India China Pakistan Israel
Source: The World Factbook by CIA
➢ Water intensive crop selection further accentuates the stress
India is one of the largest producers of rice, sugar and cotton and the water
consumption for these crops is significantly higher than global standards.
Water use for crop production (in cubic meters per ton)
India China USA
Rice 2,800 1,321 1,275
Sugarcane 159 117 103
Wheat 1,654 690 849
Cotton 8,264 1,419 2,535
Source: National Water Footprint Account
Despite China and USA having better per capita water availability than India,
their water usage in agriculture is significantly more efficient than that of India.
➢ Most irrigation water conduit is through open canals
Most of the irrigation projects use open canals as conduits for water
transportation. India being a tropical country transportation losses are
significant, given
• The higher rate of evapo transpiration,
• Water seepage given poor quality of canal construction, and
• Water theft
This has resulted in agricultural usage accounting for bulk of the water
consumption.
- 29 - Monday 20th May, 2019
Sectoral water requirement (as % of total regional)
North East West Central South NER India
Pan India agriculture accounts Agriculture 93.9 82.5 85.4 90.3 82.3 49.3 88.1
for 88% of the consumption Domestic 4.8 9.7 9.3 5.5 11.7 41.5 7.7
while particularly in North India
Industrial 0.5 5.6 2.8 1.5 3.8 3.5 2.4
this is significantly higher at 93%
Energy
0.8 2.2 2.5 2.7 2.2 5.7 1.8
Production
The other significant usages of water are for the purpose of drinking water,
industrial and energy production in that order (as shown in above table)
❖ Lack of sewage disposal is causing increasing river pollution which in

turn impacts clean water availability
Increasing urbanization & industrial activities has resulted in significant

increase in sewage generation in India. During 2011-17, the total sewage
generated by Tier I & II cities increased from 40,715 million litres per day
(MLD) to 75,020 MLD, while the sewage treatment capacity increased from
11,000 MLD to 26,000 MLD, indicating that only 33% of the total volume of
sewage generated gets treated. The conditions in Tier III cities is far worse off.
Statewise details of sewage generation and treatment facility

Sewage Operational Under Const Proposed
State / UT Capacity
generation Capacity Capacity Capacity
Andhra Pradesh 2,871 247 156 91
Assam 703 0 0
Bihar 1,879 125 100 421
Delhi 4,155 2,694 2,671 94
Goa 145 75 35 40
Gujarat 4,119 3,063 2,112 360 94
Haryana 1,413 853 805 45 70
Himachal 110 115 80
J&K 547 265 146 117
Jharkhand 1,270 117 117 16
Karnataka 3,777 1,304 1,112 192
Kerala 2,552 153 113 37
Maharashtra 8,143 5,160 4,684 132
Madhya Pradesh 3,214 482 475
Odisha 1,121 386 158 228
Punjab 1,664 1,245 921 277 32
Rajasthan 2,736 866 385 149 332
Tamil Nadu 5,599 1,800 1,141 521 133
Telangana 1,671 686 635 51
Uttar Pradesh 7,124 2,647 2,372 170 494
Uttarakhand 495 153 91 39 155
West Bengal 4,667 417 235 184
Total 59,975 22,851 18,543 2,448 2,024
Source: CPCB & Ventura Research
- 30 - Monday 20th May, 2019
Polluted river stretches (state-wise mix)
UP, 18%
Others, 26%
Telangana, 6%
Orissa, 5%
AP, 6%
Maharashtra, 17%
MP, 7%
Assam, 5%
Gujarat, 5%
Karnataka, 5%
Source: CPCB
❖ How Indian government is addressing the water problem:
• Increase in budgetary allocation for water segment
GOI increased its budgetary allocation for water during FY17 & FY18 and the
actual investments on water were higher than the budgetary allocation by
28.5% during FY16-18. Investments have grown at a CAGR of 65.8% during
FY14-18, which shows the centre’s dedication to improve efficiency
Actual expenditure crossing budget allocation, showing GOI’s thrust

18000 200%
Fig are in Rs. Crore 180%
16000
14000 Govt spending has surpassed 160%
12000
budgetary allocatyion in in 140%
past 3 years 120%
10000
100%
8000
80%
6000
60%
4000 40%
2000 20%
0 0%
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Budgeted, LHS Actuals, LHS Actuals as % of Budgeted, RHS
Source: Union Budgets & Ventura Research
- 31 - Monday 20th May, 2019
• Laying a network of transmission pipes to interlink the rivers and water
bodies across India
GOI is currently working on over Rs.1,00,400 Cr worth of water transmission

projects, out of which Rs.96,230 Cr worth of projects are under construction.
Break-up of spending on water transmission pipeline
23,496 Rs.1,00,400 worth of

projects for water
15,124 transmission pipeline
11,713 10,684
7,940
4,841 4,780
3,108 2,990 2,313
1,924 1,829 1,816
Karnataka
Kerala
Maharashtra
Tamil Nadu
Madhya
Pradesh
Assam
Odisha
Haryana
Telangana
Rajasthan
West Bengal
Uttar Pradesh
Pradesh
Andhra
Source: PPP in India (by Dept of Economic Affairs)
Telangana is spearheading water investments with its ambitious Kaleshwaram

Lift Irrigation Scheme (KLIS) worth Rs.80,000 Cr of which Rs.23,000 Cr is
towards transmission pipeline networks. After completion it will provide 18 lac
acres of land in 13 districts and stabilise another 17 lac acres in 7 districts,
thereby covering the entire state of Telangana. This project is divided into 7
links & 28 packages, provided by the state government, which will include 20
reservoirs in 13 districts with the total capacity of hold 145 TMC water. All
these reservoirs will be interconnected through a vast network of transmission
pipes (SAW pipes) and canals of around 330 kms.
Like KLIS, another major project on the Narmada river by NVDA will cater to
the drought in Madhya Pradesh. The completed projects currently cater to 4.0
lac hectares of irrigation area, while the under construction and proposed
projects are likely to cover 7.6 and 2.6 lac hectares of irrigation area.
Govt is implementing new projects to enhance utilization of Narmada

NVDA Project Status Estimated Cost Irrigation Area
Completed projects 3.98 lac hectares
Under construction projects 21,224 Cr 7.62 lac hectares
Proposed projects 10,737 Cr 2.63 lac hectares
Source: NVDA
- 32 - Monday 20th May, 2019
The GOI is working on other key river linking projects in various states, which
are expected to be implemented in the coming years:
• Ken-Betwa link projects, which is expected to irrigate 8.98 lac
hectares of land annually in the drought prone areas of Uttar Pradesh
& Madhya Pradesh. The project will provide drinking water to around
15 lac people and generate 78 MW of hydropower.
• Damanganga-Pinjal project, which is expected to provide 895 million
m³ of water annually to Mumbai along with 5 MW of hydropower.
• Par-Tapi-Narmada project, which is expected to provide irrigation to
the area of 2.32 lac hectares of land annually. The project will also
provide drinking water to 27.5 lac people in Valsad, Navsari, Dang,
Tapi, Bharuch, Vadodara and Narmada districts of Gujarat. The project
is anticipated to generate 22 MW of hydropower.
• Project for diversion of Godavari water up to Cauvery basin, which
is expected to transfer 20,796 million m³ of water from Mahanadi &
Godavari to Cauvery basin through various links connected via canals
and transmission pipes.
Along with the above projects, government has also launched a ‘Flood
Management Program’ with an expenditure of Rs.18,000 Cr to develop
reservoirs to support river linking projects. This is also expected to lead to
network pipeline requirement.
➢ Infrastructure to improve utilization rate of GBM river basin
GBM river basin (>59% of India’s total water reserves) is lagging behind in
water utilization, compared to other river basins (refer ‘River basin utilization’
chart on Page 25). Lack of infrastructure for water usage & treatment in UP,
Bihar, West Bengal & North East has impacted the utilization of GBM basin.
Amount sanctioned towards Namami Gange

25,000 75 80
70
20,000 56
60
in Rs Crores
In numbers
15,000 50
34 40
10,000 30
20
5,000
10
0 0
2008-14 2014-17 2018-20
Amount sanctioned towards Ganga, LHS Number of Projects, RHS
Source: Government Documents & Industry Reports
- 33 - Monday 20th May, 2019
Namami Gange Project
A total of 221 projects have been taken up under Namami Gange program at
a cost of Rs.22,240 Cr. Out of 221 projects, 60 projects have been completed
and balance are at various stages of implementation.
A total of 97 towns have been identified along the main river Ganga, which are
approximately generating 3,800 MLD of sewage, while the sewage treatment
capacity is only 1,650 MLD (43% of the demand). In Phase 1, 95 sewage
projects are being implemented across 61 towns (out of 97). This is projected
to create 1,950 MLD capacity (cost of Rs.15,000 Cr). 952 grossly polluting
industries have been identified on river Ganga and water treatment agencies
are working with them on zero liquid discharge monitored through CPCB
server. 764 industries have already been connected to CPCB server and
letters have been issued to remaining for installation and connectivity to CPCB
server.
The focus of the program would be on 10 major towns – Haridwar, Kanpur,

Pryag Raj (earlier Allahabad), Varanasi, Farrukhabad, Patna, Bhagalpur,
Kolkata, Howrah & Bally, which contribute 64% of the total sewage discharge
Focus on large cities of Ganga river

Sewage Ongoing
States Existing
Generation Projects
Haridwar 150 63 82
Kanpur 457 456 45
Allahabad 234 270 72
Varanasi 310 102 310
Farrukhabad 45 0 35
Patna 320 0 350
Bhagalpur 60 0 65
Kolkata 615 589 26
Howrah 160 40 45
Bally 41 40 40
Source: Namami Gange report
In addition, government is working on 10 projects on Ganga tributaries, such

as Yamuna, Ramganga, Saryu and Kosi. These projects are for creating 1400
MLD sewage treatment capacity at a cost of Rs.3,100 Cr.
In the next phase, which is under proposed stage, government is planning to

work on towns along major tributaries of Ganga, a preliminary study is in
process to identify the sewage treatment infrastructure in these areas.
- 34 - Monday 20th May, 2019
• AMRUT has been rolled out to enhance sewage treatment capacities
To overcome the gap between the discharge and treatment capacities, GOI
has rolled out the Atal Mission for Rejuvenation and Urban Transformation
(AMRUT) scheme. The purpose of this scheme is to ensure that every
household has access to a tap with assured supply of water and a sewerage
connection
States where 1st phase of AMRUT work has been approved

State No of Municipalities Amt Approved (Rs Cr)
Madhya Pradesh 34 7,201
Gujarat 31 4,884
West Bengal 60 4,035
Rajasthan 29 3,223
Andhra Pradesh 33 2,890
Punjab 16 2,767
Bihar 27 2,469
Odisha 9 1,599
Jammu & Kashmir 5 593
Mizoram 1 140
Chandigarh 1 85
Goa 1 80
Tripura 1 64
Source: AMRUT Report
With over 500 cities covered under AMRUT program, the volume growth
opportunity for Ductile Iron (DI) pipes is expected to be 3.0-5.0x of the current
demand
- 35 - Monday 20th May, 2019
❖ Demand requirement in various segments
The growth is expected to come across all segments of metal pipe industry.
Government is targeting to secure India’s energy resources by expanding
E&P, which will drive seamless pipe demand. Rise in E&P activity will increase
demand for necessary transmission infrastructure, which is expected to drive
demand for SAW pipes and ERW pipes.
Metal pipe demand various segments
Volume in 000 TPA 738 Volume in million TPA 3.1

651 2.8
590 2.5
540
514
2.1
2.0
367 1.7
357 1.5 1.4
293
FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E
Volume in million TPA Volume in million TPA 2.7

9.7 2.5
9.0 2.3
8.4 2.1
7.9
7.4 1.8
6.9
6.4 1.5
6.0 1.5
1.1
Source: Company reports & Ventura Research
- 36 - Monday 20th May, 2019
➢ Very low competitive intensity
❖ Strong entry barriers for new players and anti dumping duties on
Chinese imports to ensure limited competition for seamless pipe
manufactures
To strengthen the domestic metal pipe industry, government imposed anti-

dumping duties on imports of seamless pipes (used in oil & gas exploration
and refining) from China (duties ranging from $961/MT to $1611/MT) in
Q1FY17. This step reduced the competitive intensity in the domestic seamless
pipe sector
Setting up a new seamless pipe manufacturing unit requires heavy capex

compared to SAW pipes (Rs.0.8-1.0 Cr to setup 1,000 MTPA capacity).
Therefore, the entry of new players is limited. Further, peers of MSL – JSAW
& ISMT are in huge debt, which is restricting them from expanding their
capacities. This puts MSL in a very sweet spot to gain maximum from the
incumbent opportunity.
➢ Big ticket orders from oil & gas majors for laying trunk pipeline and
government’s pan India water projects have eliminated competition from
local players
GAIL, ONGC & IOC are laying a pipeline network across India and generating
bulk orders for the metal pipe manufacturers. The state governments issue
orders to lay pipes from rivers and canals for the irrigation and water supply.
Only the best quality pipes can handle the high pressure of fossil fuels and
water. Quality and ability to fulfil large orders in the given time frame are the
eligibility criteria to qualify for procurement in such projects. Only the organized
SAW and ERW pipe manufacturers are eligible to take large government
orders for oil & gas and water pipeline projects, which has eliminated
competition from local players.
➢ Volatility seems to be over and steel prices to remain stable
Billets are the key raw material for the seamless pipes; while HRC & HR plates
are the raw material for SAW and ERW pipes. The price stability is necessary
to sustain the gross margins in the metal pipe business. The pipe companies
pass-on higher input cost to the customers in a rising steel price scenario (on
a quarterly basis); and take the hit of inventory loss on falling steel prices.
Therefore, steel price stability is important to protect profitability in the metal
pipe segment.
- 37 - Monday 20th May, 2019
Domestic billet prices
40,000
Billet price in Rs per Ton
38,000
36,000
34,000
32,000
30,000
28,000
26,000
24,000
22,000
20,000
Jun-16
Jun-17
Jun-18
Apr-16
Aug-16
Apr-17
Apr-18
Apr-19
Dec-16
Aug-17
Dec-17
Aug-18
Dec-18
Feb-17
Feb-18
Feb-19
Oct-16
Oct-17
Oct-18
Source: Steelmint
Domestic HR Plates and HRC prices
50,000 HR Plates price in Rs per Ton 50,000 HRC price in Rs per Ton
48,000 48,000
46,000 46,000
44,000 44,000
42,000 42,000
40,000 40,000
38,000 38,000
36,000 36,000
34,000 34,000
32,000 32,000
30,000 30,000
Apr-16
Jun-16
Apr-17
Jun-17
Apr-18
Jun-18
Apr-16
Jun-16
Apr-17
Jun-17
Apr-18
Jun-18
Dec-17
Aug-16
Dec-16
Feb-17
Aug-17
Dec-17
Feb-18
Aug-18
Dec-18
Feb-19
Aug-16
Dec-16
Feb-17
Aug-17
Feb-18
Aug-18
Dec-18
Feb-19
Oct-16
Oct-17
Oct-18
Oct-16
Oct-17
Oct-18
Source:Steelmint
- 38 - Monday 20th May, 2019
Key risk and concern areas for the metal pipe industry
• Fall in crude oil prices to impact E&P activity: Any significant

decline in global crude oil prices impacts investments in the E&P
space. Such a scenario could considerably reduce demand for carbon
steel seamless pipes impacting MSL adversely.
• Above normal volatility in the currency market could impact the
fuel cost of coal importers: The metal pipe manufacturers use
Australian coal as a fuel, and import it at spot rates. The payment for
these imports happens in USD. The very high volatility in the currency
market could bring forex losses and impact the profitability of the
company.
• Infrastructure bottleneck due to land acquisition issues could
slowdown demand for high diameter pipes: Land acquisition is the
major issue in laying high diameter trunk pipelines. Most of the pipeline
projects are stuck due to a delay in land clearances and the major one
is Petronet LNG’s Kochi Mangalore pipeline.
• Foray of international players in the domestic market to adversely
impact domestic players: Even though domestic metal pipe
companies have a strong hold on the Indian market with their superior
product profile and strong B2B relations, there could be serious
competition in case global players decide to invest in India with their
state-of-the art facilities and technology. Sandvik and Sumitomo are
already operating in the domestic market.
• Business cyclicality: Metal pipe business is cyclical in nature as it
entirely depends on the investment momentum in the underlying sector
(mainly oil & gas and water).
- 39 - Monday 20th May, 2019
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- 40 - Monday 20th May, 2019
Maharashtra Seamless Ltd.
Target: Rs.595 CMP Rs.458 (0.7x FY22E P/B) BUY

Index Details MSL manufactures seamless pipes (market leader) and ERW pipes. It
Sensex 37,931 recently enhanced its seamless pipe facility with the takeover of 3,50,000
Nifty 11,262 MTPA Telangana based facility of USTL in the NCLT auctions. MSL is well
positioned to capture the ongoing capex momentum in India’s oil & gas
BSE Metal 10,460
E&P space given:
Industry Metals
• It has the largest seamless pipe capacity of 9,00,000 MTPA (5,50,000
MTPA of existing capacity & 3,50,000 MTPA of USTL), which is
Scrip Details
almost 50% of industry (post acquisition of USTL).
Mkt Cap (Rs Cr) 3,231 • Lowered threat of imports given the anti-dumping duty imposed on
O/S Share (Cr) 6.7 imports of seamless pipes from China
3 M Avg Vol (000) 35.3 • Both its peers ISMT & JSAW as a result of having overly leveraged
52 Wk H/L (Rs) 532/406
balance sheets, face implicit restrictions on any further capacity
expansion, benefitting MSL.
Div Yield (%) 1.31
FVPS (Rs) 5.0 We expect overall sales volume of seamless pipes to enhance to 7,98,750
MT (28% CAGR) by FY22 from 2,94,580 MT recorded in FY18 driven by
STOCK POINTER
Shareholding Pattern heavy capex undertaken for E&P activities particularly NG exploration.
Shareholder % Currently the bulk of the production is to be carried out at its existing
Promoters 61.78
facilities. The USTL’s facility is being upgraded at an outlay of Rs.125 Cr
and the facility is expected to be operational in phases - 75,000 ton in FY20,
Institutional 10.17
125,000 ton in FY21 and 150,000 ton in FY22. The ERW plant (capacity of
Public 28.05
200,000 MTPA) located at Nagothane, Maharashtra operates at a mere 20-
Total 100.0 30% utilization. With CGD & water pipeline segment gaining traction, we
expect ERW sales volume to improve by 23.4% CAGR to 1,29,300 MT by
MSL vs. Sensex FY22 from the current 55,744 MT recorded in FY18
600 50,000
500 40,000
Without accounting for any sharp spurt in realization, we expect a revenue
400
30,000
CAGR of 33.9% to Rs.6,916 Cr by FY22. While MSL reported an average
300
20,000
EBITDA per ton of Rs.15,710 in 9MFY19, we forecast a lower EBIDTA per
200
10,000
ton of Rs.13,887 / Rs.12,745 / Rs.11,603 in FY20 / FY21 / FY22 given the
100
highly cyclical nature of the industry. We expect EBIDTA to grow at a 36.4%
0 0
Apr-16 Apr-17 Apr-18 Apr-19 CAGR to Rs.1,077 Cr by FY22 while PAT is expected to grow at 41.1%
MSL Sensex
CAGR to Rs.659 Cr over the same period
Key Financials (in ₹ crores)
EBITDA Margin PAT Margin EPS BV RoE RoCE P/E P/BV EV/EBITDA
Sales EBITDA PAT
(%) (%) ₹ ₹ (%) (%) (x) (x) (x)
FY18 2,150 311 166 14.5 7.7 24.8 437.3 5.7 6.6 18.5 1.0 11.8
FY19E 2,839 556 340 19.6 12.0 50.8 478.0 10.6 12.4 9.0 1.0 6.2
FY20E 3,742 683 446 18.3 11.9 66.5 531.2 12.5 13.7 6.9 0.9 5.7
FY21E 5,112 866 528 16.9 10.3 78.8 602.1 13.1 15.6 5.8 0.8 4.4
FY22E 6,916 1,077 659 15.6 9.5 98.4 700.5 14.0 17.4 4.7 0.7 3.6
- 41 - Monday 20th May, 2019
MSL capacities and utilization
FY18 FY19E FY20E FY21E FY22E
Existing seamless capacity (in MTPA) 5,50,000 5,50,000 5,50,000 5,50,000 5,50,000
USTL seamless capacity (in MTPA) 75,000 2,00,000 3,50,000
Seamless sales volume (in MT) 2,94,582 3,00,200 4,05,240 5,72,288 7,98,746
Seamless capacity utilization (%) 53.6 54.6 64.8 76.3 88.7
ERW capacity (in MTPA) 2,00,000 2,00,000 2,00,000 2,00,000 2,00,000
ERW sales volume (in MT) 55,744 69,500 86,875 1,06,856 1,29,296
ERW capacity utilization (%) 27.9 34.8 43.4 53.4 64.6
Blended Average Realization (Rs/Ton) 61,362 76,800 76,032 75,272 73,415
Blended Average EBITDA/Ton (in Rs) 8,878 15,028 13,887 12,745 11,603
We have valued the stock on a P/BV basis as historically the P/E has not
proven to be a reliable indicator given its extreme fluctuations. At the
CMP of Rs.458, the stock currently trades at the P/B of 0.68x FY22 BV.
We initiate with the BUY for a price objective of Rs.595 (0.85x FY22),
which represents an upside potential of 30%.
Our optimism stems from the following:
➢ Domestic carbon seamless pipe industry is expected to grow at a

CAGR of 10% between FY18-22 due to favourable government
policies. With reduced competition from Chinese players and
ready to use capacity in the form of USTL, MSL is expected to
outperform the industry growth
➢ Barring MSL, which is debt free, the entire industry is in the
doldrums. Major peers JSAW (Rs.6,000 Cr debt) and ISMT
(negative net-worth and debt of Rs.1,400 crore) are prey to the
effect of overly debt laden balance sheets. This leaves MSL in a
sweet spot, and likely to benefit indirectly from the woes of
competition.
➢ Stable crude oil prices resulting from cut backs in oil production
from OPEC members and sanctions on oil producers Venezuela
and Iran is expected to keep the oil prices buoyant. This will
encourage E&P spends and lead to improved demand for carbon
seamless pipes. India in its bid to improve domestic output has
been spending heavily on E&P capex creating good demand
visibility for carbon seamless pipes. This provides a good
opportunity to MSL in both domestic as well as export market.
- 42 - Monday 20th May, 2019
MSL annual performance analysis
Revenue in Rs Cr Figures in Rs Cr
8,000 60% 900
7,000 50% 800
6,000 40% 700
30% 600
5,000
20% 500
4,000
10% 400
3,000
0% 300
2,000 -10% 200
1,000 -20% 100
0 -30% 0
Net Sales YoY Growth
LT Borrowing ST Borrowing
EBITDA Margin PAT Margin
Realization per ton in Rs EBITDA per ton in Rs
15,028
13,887
76,800
76,032
75,272
74,519
12,745
11,603
61,362
58,962
50,845
48,137
8,878
7,973
1,817
4,591
25%
Return Ratios 400
20%
Figures in Rs Cr
300
200
15%
100
10% 0
(100) FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E
5%
(200)
0% (300)
FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E (400)
-5%
(500)
RoE RoIC RoCE CFO FCFF
- 43 - Monday 20th May, 2019
MSL’s financial performance in Rs Cr
P/B band for MSL

800
700
600
500
400
300
200
100
0
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Jan-18
Apr-18
Apr-19
Jan-14
Jan-15
Jan-16
Jan-17
Jan-19
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
Oct-18
Price 0.35x 0.58x 0.81x 1x 1.27x
Source: Bloomberg & Ventura Research
- 44 - Monday 20th May, 2019
Financials and Projections for MSL
Figures are in Rs Cr FY17 FY18 FY19E FY20E FY21E FY22E Figures are in Rs Cr FY17 FY18 FY19E FY20E FY21E FY22E
Profit & Loss Statement Per Share Data
Net Sales 1,434.2 2,149.7 2,839.3 3,741.6 5,112.0 6,915.7 Adjusted EPS 17.3 24.8 50.8 66.5 78.8 98.4
% Change 49.9 32.1 31.8 36.6 35.3 Adjusted Cash EPS 27.9 41.2 62.7 78.7 95.5 115.4
Total Expenditure 1,209.3 1,838.6 2,283.7 3,058.3 4,246.5 5,838.8 Dividend Per Share 2.5 5.0 10.2 13.3 7.9 0.0
% Change 52.0 24.2 33.9 38.9 37.5 Free Cash Flow Per Share 14.4 -0.2 7.6 -61.8 -6.7 -15.5
EBITDA 224.9 311.0 555.6 683.4 865.6 1,076.8 Cash Yield (%) 31.8 -1,950.7 60.1 -7.4 -68.0 -29.5
EBITDA Margin (%) 15.7 14.5 19.6 18.3 16.9 15.6 Book Value Per Share 409.9 437.3 477.8 533.4 612.1 728.8
Depreciation 71.0 76.2 79.7 81.3 112.1 113.7
Depreciation to Net Block 6.5 6.2 6.8 5.2 7.5 8.1 Capital, Liquidity & Return Ratios
EBIT 153.9 234.8 475.9 602.1 753.5 963.2 Total Debt to Equity (x) 0.1 0.2 0.2 0.2 0.2 0.2
EBIT Margin (%) 10.7 10.9 16.8 16.1 14.7 13.9 Current Ratio (x) 2.2 4.2 3.6 3.0 3.0 2.9
Other Income 76.3 65.0 88.7 100.3 80.4 80.1 Return on Equity (%) 4.2 5.7 10.6 12.5 13.1 14.0
Exceptional Items 0.0 0.0 0.0 0.0 0.0 0.0 Return on Capital Employed (%) 4.5 6.6 12.4 13.7 15.6 17.4
Interest Expenses 33.9 41.7 40.8 16.5 21.5 28.9
Interest Coverage Ratio 4.5 5.6 11.7 36.4 35.1 33.4 Valuation Ratios
PBT 196.3 258.1 523.8 685.8 812.5 1,014.4 P/E 26.5 18.5 9.0 6.9 5.8 4.7
Tax Provisions 80.5 92.0 183.3 240.0 284.4 355.0 P/CEPS 16.4 11.1 7.3 5.8 4.8 4.0
Tax Rate (%) 41.0 35.6 35.0 35.0 35.0 35.0 P/BV 1.1 1.0 1.0 0.9 0.7 0.6
PAT 115.8 166.2 340.5 445.8 528.1 659.4 EV/Sales 2.4 1.7 1.2 1.0 0.8 0.6
PAT Margin (%) 8.1 7.7 12.0 11.9 10.3 9.5 EV/EBITDA 15.6 11.8 6.2 5.7 4.4 3.6
Min Int & Share of Assoc -0.0 34.0 0.0 0.0 0.0 0.0
Net Profit 115.8 200.1 340.5 445.8 528.1 659.4 Efficiency Ratios
Net Margin (%) 8.1 9.3 12.0 11.9 10.3 9.5 Receivable Days 67 59 60 60 60 60
Inventory Days 114 83 120 120 120 120
Balance Sheet Payable Days 40 26 35 35 35 35
Share Capital 96.1 33.5 33.5 33.5 33.5 33.5 Net Working Capital Days 141 117 145 145 145 145
Reserves & Surplus 2,650.3 2,896.5 3,168.9 3,525.5 4,000.8 4,660.1
Total Shareholders Fund 2,746.4 2,930.0 3,202.4 3,559.0 4,034.3 4,693.6 Cash Flow Statement
Total Debt 640.0 626.4 635.6 821.2 811.5 841.1 Profit Before Tax 196.5 292.5 523.8 685.8 812.5 1,014.4
Deferred Tax Liabilities 235.6 256.8 256.8 256.8 256.8 256.8 Depreciation 71.0 76.2 79.7 81.3 112.1 113.7
Other Current Liabilities 234.3 232.4 299.4 399.1 552.0 756.9 Adjustments -26.1 -276.0 -281.4 -506.9 -708.2 -916.2
Total Liabilities 3,856.2 4,045.6 4,394.1 5,036.0 5,654.5 6,548.4 Cash Flow from Operations 241.4 92.7 322.1 260.2 216.3 211.9
Gross Block 1,769.2 1,997.7 2,022.7 2,499.7 2,524.7 2,549.7 Capital Expenditure -133.0 -102.2 -25.0 -477.0 -25.0 -25.0
Less: Accumulated D&A 674.2 762.6 842.3 923.6 1,035.6 1,149.3 Other Investment Activities 31.9 114.5 72.9 -59.2 -98.4 -219.0
Net Block 1,095.0 1,235.1 1,180.4 1,576.1 1,489.0 1,400.4 Cash Flow from Investing -101.1 12.2 47.9 -536.2 -123.4 -244.0
Capital Work in Progress 119.0 17.4 4.0 75.6 4.0 4.0 Changes in Equity 0.0 62.6 0.0 0.0 0.0 0.0
Non Current Investment 1,170.6 1,287.0 1,287.0 1,287.0 1,287.0 1,287.0 Changes in Borrowings -116.2 -124.5 9.1 185.6 -9.7 29.6
Long Term Loans & Advances 31.5 24.8 32.8 43.2 59.0 79.9 Dividend & DDT -16.8 -33.5 -68.1 -89.2 -52.8 0.0
Net Current Assets 769.4 1,120.0 1,362.2 1,353.6 1,851.4 2,463.3 Cash Flow from Financing -132.9 -95.4 -59.0 96.4 -62.5 29.6
Other Non Current Assets 670.7 361.2 527.6 700.4 964.0 1,313.9 Net Cash Flow 7.4 9.5 311.1 -179.6 30.4 -2.5
Total Assets 3,856.2 4,045.6 4,394.1 5,036.0 5,654.5 6,548.4 Opening Cash Balance 5.8 13.1 22.6 333.7 154.1 184.6
Closing Cash Balance 13.1 22.6 333.7 154.1 184.6 182.1
- 45 - Monday 20th May, 2019
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- 46 - Monday 20th May, 2019
Ratnamani Metals & Tubes Ltd.
Target: Rs. 1,114 CMP Rs.847 (11.4x FY22E P/E) BUY

Index Details Apart from international players Sumitomo and Sandvik, RMTL is the only
Sensex 37,931 domestic player manufacturing stainless steel seamless pipes (28,000
Nifty 11,262 MTPA capacity), which find usage primarily in the refining space. The
Indian PSU refineries are undertaking a large capex of Rs 40,000 Cr to
BSE Metals 10,460
upgrade and comply with BS VI norms. To cater to this opportunity, RMTL
Industry Metals
recently undertook a capex of Rs.400 Cr to expand its stainless steel (SS)
pipe capacity by 20,000 MTPA to 48,000 MTPA with an objective to enhance
Scrip Details its leadership position in the industry (from its market share of ~35%).
Mkt Cap (Rs Cr) 3,960 RMTL’s enhanced SS pipe capacity of 48,000 MTPA will not only cater to
O/S Share (Cr) 4.67 the PSU refiners, but will also increase supply to defence, aerospace,
3 M Avg Vol (000) 25.1 power and nuclear energy.
52 Wk H/L (Rs) 1,065/736
Apart from the above expansion, RMTL has also undertaken a Rs.200 Cr
Div Yield (%) 0.70 capex to expand its capability to manufacture large diameter pipes carbon
FVPS (Rs) 2.0 steel pipes (which are used in oil & gas distribution and water supply).
Apart from stainless steel and carbon steel pipes, the company is also
STOCK POINTER
Shareholding Pattern present in the ERW space. This segment is gaining momentum on
%
increased procurement from the CGD and water supply segments.
Shareholder
Promoters 60.09
On the back of a favourable demand environment we expect overall sales
Institutional 20.35
to grow at a 22.6% CAGR to Rs.3,997 Cr by FY22. Over the same period, we
Public 19.56 expect the EBITDA to grow at a CAGR of 21.8% to Rs.585 Cr, while net
Total 100.0 earnings are expected to deliver a CAGR of 22.9% to Rs.347 Cr
respectively. Return ratios – RoE and RoCE, are also set to improve to
RMTL vs. Sensex 14.2% (+255 bps) and 17.1% (+226 bps), respectively, by FY22
1,200 50,000
1,000
At the CMP of Rs.847, the stock currently trades at the P/E of 11.4x FY22
40,000
800 earnings. We initiate with a BUY for a price objective of Rs.1,114 (15x FY22),
30,000
600 which represents an upside potential of 31.5%.
20,000
400
200 10,000
0 0
Apr-16 Apr-17 Apr-18 Apr-19
RMTL Sensex

Our optimism
EBITDA Margin stems from the
PAT Margin EPS following:
BV RoE RoCE P/E P/BV EV/EBITDA
Sales EBITDA PAT
(%) (%) ₹ ₹ (%) (%) (x) (x) (x)
FY18 1,767 266 152 15.1 8.6 32.5 280.1 11.6 14.8 26.1 3.0 15.2
FY19E 2,814 408 255 14.5 9.0 54.5 331.9 16.4 21.1 15.5 2.6 9.5
FY20E 3,106 452 288 14.6 9.3 61.6 390.4 15.8 18.3 13.7 2.2 9.3
FY21E 3,539 517 295 14.6 8.3 63.2 450.4 14.0 17.8 13.4 1.9 7.5
➢
FY22E 3,997 585 347 14.6 8.7 74.3 524.7 14.2 17.1 11.4 1.6 7.4
- 47 - Monday 20th May, 2019
RMTL capacities and utilization
Stainless Steel pipe capacity (in MTPA) 28,000 28,000 48,000 48,000 48,000
Stainless Steel pipe sales volume (in MT) 21,054 20,537 25,671 31,576 38,207
Stainless Steel pipe capacity utilization (%) 75 73 53 66 80
Carbon Steel pipe capacity (in MTPA) 3,50,000 3,50,000 3,50,000 3,50,000 4,00,000
Carbon Steel pipe sales volume (in MT) 1,98,802 2,96,461 3,11,329 3,42,462 3,73,283
Carbon Steel pipe capacity utilization (%) 57 85 89 98 93
➢ Strong near-term visibility on the back of refinery capex related to

BS VI norms, which is expected to generate strong demand for SS
seamless pipes in the next 15 months.
➢ Most of the metal pipe manufacturers find applications for their
products in 1 or 2 sectors. RMTL’s products are used across
multiple sectors in a myriad of operations. This provides for a
more diversified demand base than that of its peers.
➢ RMTL operates in a segment where the prequalification criteria
are stringent and therefore, businesses operate on B2B
relationships and repeat orders. This caters an entry barrier for
new players.
➢ Core infrastructure sector growth is expected to outstrip the
domestic GDP growth in the short to medium term. This is
expected to sustain growth momentum of RMTL‘s product
segments.
- 48 - Monday 20th May, 2019
RMTL Annual Performance
Revenue in Rs Cr 400
Figures in Rs Cr
4,500 70%
4,000 60% 350
3,500 50%
300
3,000 40%
30% 250
2,500
20% 200
2,000
10%
1,500 150
0%
1,000 -10% 100
500 -20% 50
0 -30%
0
FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E
EBITDA Margin PAT Margin LT Borrowing ST Borrowing

1,01,502
18,942
95,412
92,941
16,666
90,851
90,525
87,187
75,477
74,099
12,999
12,661
12,481
68,930
12,262
12,096
12,072
11,712
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22
30%
Return Ratios 400
25% Figures in Rs Cr
300
20%
200
15%
100
10%
0
5% FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E
(100)
0%
RoE RoIC RoCE (300) CFO FCFF
- 49 - Monday 20th May, 2019
RMTL’s financial performance in Rs Cr
P/E band for RMTL

2,500
2,000
1,500
1,000
500
0
Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18 Apr-19
Price 4x 12x 20x 28x 36x
- 50 - Monday 20th May, 2019
Financials and Projections for RMTL
% Change 30.0 60.2 10.3 13.9 12.9 Free Cash Flow Per Share 18.7 -29.3 -43.3 3.3 45.3 -49.4
EBITDA 256.4 264.9 408.3 452.4 516.6 584.7 Cash Yield (%) 2.2 -3.5 -5.1 0.4 5.3 -5.8
Depreciation 59.7 60.6 63.6 67.2 99.3 102.9
PBT 205.2 227.9 382.9 432.6 443.6 521.6 P/E 27.5 26.1 16.8 15.8 14.6 12.7
Tax Rate (%) 29.8 33.4 33.5 33.5 33.5 33.5 P/BV 3.3 3.0 2.6 2.2 1.9 1.6
PAT 144.1 151.8 254.6 287.7 295.0 346.8 EV/Sales 2.7 2.3 1.4 1.4 1.1 1.1
Min Int & Share of Assoc 0.0 -0.0 -19.4 -37.7 -24.6 -34.9
Inventory Days 78 93 150 145 140 135
Total Debt 0.0 78.9 80.9 277.5 246.0 372.7 Profit Before Tax 205.2 227.9 382.9 432.6 443.6 521.6
Other Current Liabilities 178.8 316.6 377.1 399.0 400.8 409.4 Adjustments -130.4 -361.2 -243.6 -502.8 -250.1 -265.5
Total Liabilities 1,413.8 1,747.3 2,050.8 2,542.6 2,793.2 3,275.2 Cash Flow from Operations 134.5 -72.7 202.9 -3.0 292.8 359.0
Gross Block 559.8 616.5 641.5 866.5 891.5 1,416.5 Capital Expenditure -65.6 -69.6 -25.0 -225.0 -25.0 -525.0
Less: Accumulated D&A 111.7 171.1 234.7 301.9 401.3 504.2 Other Investment Activities -36.9 90.8 -39.1 -27.9 34.2 -225.2
Net Block 448.1 445.4 406.8 564.6 490.2 912.3 Cash Flow from Investing -102.5 21.2 -64.1 -252.9 9.2 -750.2
Non Current Investment 0.0 0.0 0.0 0.0 0.0 0.0 Changes in Borrowings -27.6 67.3 -20.5 202.8 -62.6 108.0
Long Term Loans & Advances 11.7 10.9 16.9 18.6 21.2 24.0 Dividend & DDT 0.0 -25.7 -12.7 -14.4 -14.7 0.0
Net Current Assets 733.4 845.1 1,153.2 1,359.3 1,772.8 1,565.0 Cash Flow from Financing -27.6 41.6 -33.3 188.4 -77.4 108.0
Other Non Current Assets 182.3 399.0 461.5 487.6 496.4 511.4 Net Cash Flow 4.4 -9.9 105.6 -67.5 224.6 -247.3
- 51 - Monday 20th May, 2019
Welspun Corp Ltd.
Target: Rs. 192 CMP Rs.131 (4.4x FY22E P/E) BUY

Index Details Welspun Corp operates across the geographies of India, Saudi Arabia and
Sensex 37,931 the United States with multi-locational manufacturing facilities for SAW
Nifty 11,262 (85% of total capacity) and ERW pipes. While its Indian & US operations
continue to be profitable, the Saudi geography had accumulated losses as
BSE Metals 10,460
an outcome of aggressive bidding for certain water orders and
Industry Metals
unfavourable input price trends. Its US operations too were not optimal
given the general slow-down due to lethargic local business conditions.
Scrip Details
Mkt Cap (Rs Cr) 3,467 However the fortunes of WCL are now ramping up given the improvement
O/S Share (Cr) 26.52 in the US order book (3.9 lac ton) under the “Melt and Make in US”
3 M Avg Vol (000) 782.7 campaign of the Donald Trump government, judicious bidding for water
projects in Saudi Arabia (8.2 lac ton) and strong demand visibility for the
52 Wk H/L (Rs) 187/89
Indian markets (4.5 lac ton) both from the oil & gas and water transmission
Div Yield (%) 0.38 segments. With all three geographies set to enter the next leg of profitable
FVPS (Rs) 5.0 growth, we expect substantial improvement in the operating performance,
debt deleveraging (from sale of its plate & coil and captive power
STOCK POINTER
Shareholding Pattern operations for Rs.940 Cr) leading to a re-rating of the stock. WCL has
%
approved the buyback of 2.78 Cr shares at a maximum price of Rs.140.
Shareholder
Promoters 48.65
We expect revenues to grow at a CAGR of 8.7% to Rs. 12,478 Cr over the
Institutional 14.90
period of FY19-22. Similarly, EBITDA per Ton is expected to significantly
Public 36.45 improve from Rs.4,481 (FY19) to Rs.8,406 by FY22E, leading to an EBITDA
Total 100.0 CAGR of 26.2% to Rs.1,454 Cr. WCL reported 188% YoY growth in ‘Other
Expenses’ in Q4FY19, on account of 100% provisions made on its bond
WCL vs. Sensex investments in IL&FS and Reliance Capital Ltd. Any recovery from these
investments will be positive for EBITDA.
250 50,000
200 40,000
Post the reduced gearing and share buyback, we expect the PAT to grow
150 30,000
at a CAGR of 55.8% to Rs.870 Cr by FY22. Consequently, return ratios, RoE
100 20,000
and RoCE are also set to improve to 22.5% (+1716 bps) and 31.5% (+2374
50 10,000
bps) respectively over the same period
0 0
Apr-16 Apr-17 Apr-18 Apr-19
WCL Sensex

Sales EBITDA PAT
(%) (%) ₹ ₹ (%) (%) (x) (x) (x)
FY18 7,543 684 239 9.1 3.2 6.0 107.7 8.4 7.4 21.9 1.2 5.5
FY19 8,953 573 148 6.4 1.7 2.3 105.6 5.3 7.7 58.0 1.2 6.0
FY20E 9,792 999 481 10.2 4.9 14.8 103.5 17.5 19.6 8.8 1.3 3.2
FY21E 11,233 1,238 671 11.0 6.0 22.0 121.9 20.8 25.8 6.0 1.1 2.0
WCL capacities and utilization
FY22E 12,478 1,454 870 11.7 7.0 29.5 146.2 22.5 31.5 4.4 0.9 1.2
- 52 - Monday 20th May, 2019
FY18 FY19 FY20E FY21E FY22E
US pipe capacity (in MTPA) 5,25,000 5,25,000 5,25,000 5,25,000 5,25,000
US pipe sales volume (in MT) 2,22,000 4,00,000 4,50,000 4,94,000 5,16,000
India pipe capacity (in MTPA) 16,00,000 16,00,000 16,00,000 16,00,000 16,00,000
India pipe sales volume (in MT) 7,64,000 6,00,000 7,43,000 8,64,000 9,78,000
Saudi Arabia pipe capacity (in MTPA) 3,00,000 2,73,000 3,00,000 3,00,000 3,00,000
Saudi Arabia pipe sales volume (in MT) 96,000 2,10,000 1,92,000 2,25,000 2,47,000
The stock is currently trading at the FY22 P/E of 4.4x. We are valuing WCL
at the FY22 P/E of 6.5x at the target price of Rs.192, which suggests an
upside potential of 46.5%. We recommend BUY at current price of Rs.131

➢ Rise in drilling activities in Permian Basin (US) & Mexican Gulf
has led to an increase in E&P, necessitating additions to the oil &
gas transmission infrastructure. WCL being a local manufacturer,
is a natural beneficiary of the import barriers imposed on SAW
pipes. Improving capacity utilizations will lead to higher
operational efficiencies which in turn will improve the profitability
(current EBITDA/ton at $200 is ~2.0x that of the Indian operations).
We expect the annual sales volume in US to improve at CAGR of
8.4% to ~5.0 lac MT over the period FY19-22.
➢ Reforms in the Indian oil & gas sector have increased demand for
transmission pipes (WCL has 20-25% share in the domestic
market). Water segment is also displaying improved visibility with
various State Govts tendering for large diameter SAW pipes used
in irrigation projects. WCL shifted its manufacturing plant from
Anjar (Gujarat) to Bhopal (Madhya Pradesh) to take advantage of
opportunities in the water segment in central India in the coming
years. As a result, we expect strong traction in the order flows for
SAW pipes to benefit WCL. While domestic sales volumes are
expected to grow at a CAGR of 6.4% to 10 lac tonnes by FY22, we
forecast sustenance of higher EBITDA per ton of Rs.5,700.
➢ WCL booked Saudi orders in 3 phases and bid aggressively in the
1st phase, which reduced its profitability. The rise in steel price
additionally impacted WCL’s Saudi business and it went into
losses. However, the project mix recently changed with the start
in execution of the other 2 phases of orders which have better
profitability. WCL’s sales volume performance in Saudi to remain
modest (5-6% CAGR during FY19-22); and the region will witness
improvement in profitability. We are expecting an EBITDA/t of
~Rs.5,000 (keeping the currency rates constant) for FY22
- 53 - Monday 20th May, 2019
WCL Annual Performance
14,000 40% 3,000
12,000 30% 2,500
10,000 20%
2,000
8,000 10%
1,500
6,000 0%
4,000 -10% 1,000
2,000 -20% 500

0 -30% 0
FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E
8,406
73,370
7,872
72,125
7,312
7,213
71,411
7,071
70,704
70,004
69,709
6,317
5,475
65,793
4,481
63,020
FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22
35%
Return Ratios Figures in Rs Cr
30% 2,000
25% 1,500
1,000
20%
500
15%
0
10% FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E
(500)
5% (1,000)
0% (1,500)
FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E
- 54 - Monday 20th May, 2019
WCL’s financial performance in Rs Cr
P/B band for WCL

250
200
150
100
50
0
Jul-16
Jul-14
Jul-15
Jul-17
Jul-18
Apr-19
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Oct-14
Oct-15
Oct-16
Oct-17
Oct-18
Price 0.5x 0.83x 1.16x 1.49x 1.82x
- 55 - Monday 20th May, 2019
Financials and Projections for WCL
Figures are in Rs Cr FY17 FY18 FY19 FY20E FY21E FY22E Figures are in Rs Cr FY17 FY18 FY19 FY20E FY21E FY22E
% Change 27.3 22.2 4.9 13.7 10.3 Free Cash Flow Per Share 3.1 30.4 13.0 13.3 27.4 34.0
EBITDA 512.4 683.5 573.1 999.0 1,238.2 1,454.3 Cash Yield (%) 2.4 23.2 9.9 10.2 20.9 26.0
Depreciation 386.1 379.3 259.7 272.2 309.7 322.2
EBIT 126.3 304.2 313.4 726.8 928.5 1,132.1 Total Debt to Equity (x) 0.6 0.5 0.4 0.3 0.1 0.0
PBT 115.2 250.1 270.6 687.6 959.2 1,243.1 P/E 131.0 21.9 58.0 8.8 6.0 4.4
Tax Rate (%) 22.4 4.5 45.2 30.0 30.0 30.0 P/BV 1.2 1.2 1.2 1.3 1.1 0.9
PAT 89.4 238.9 148.4 481.3 671.4 870.2 EV/Sales 0.8 0.5 0.4 0.3 0.2 0.1
Min Int & Share of Assoc -63.0 -80.6 -88.5 -88.5 -88.5 -88.5
Inventory Days 87 92 79 140 137 134
Total Debt 1,741.8 1,284.3 1,252.1 962.5 364.3 214.6 Profit Before Tax 115.2 250.1 270.6 687.6 959.2 1,243.1
Other Current Liabilities 3,386.1 3,308.5 3,994.2 5,468.5 6,153.7 6,715.6 Adjustments -98.8 351.9 -638.7 520.2 -457.2 -534.8
Total Liabilities 8,317.8 7,790.1 8,261.7 9,391.5 9,967.4 11,022.0 Cash Flow from Operations 402.5 981.4 -108.3 1,480.0 811.7 1,030.6
Less: Accumulated D&A 767.9 1,145.6 1,405.3 1,677.6 1,987.3 2,309.5 Other Investment Activities 699.2 231.0 297.7 -525.0 281.4 -9.4
Net Block 3,355.8 3,045.0 1,551.7 1,579.4 1,369.7 1,147.5 Cash Flow from Investing 619.0 182.3 197.7 -825.0 181.4 -109.4
Capital Work in Progress 25.0 14.4 46.5 139.4 46.5 46.5 Changes in Equity 1.0 0.0 0.0 -390.0 0.0 0.0
Non Current Investment 218.5 151.8 126.9 126.9 126.9 126.9 Changes in Borrowings -963.7 -744.8 -32.2 -289.6 -598.2 -641.6
Long Term Loans & Advances 338.3 352.7 259.5 283.8 325.6 361.7 Dividend & DDT -16.0 -16.0 -14.8 -57.8 -94.0 -139.2
Net Current Assets 1,274.5 1,359.6 2,209.4 1,728.9 1,868.0 2,535.9 Cash Flow from Financing -978.7 -760.9 -47.1 -737.3 -692.2 -780.8
Other Non Current Assets 3,105.8 2,866.7 4,067.8 5,532.9 6,230.8 6,803.5 Net Cash Flow 42.8 402.8 42.3 -82.3 300.9 140.4
Total Assets 8,317.8 7,790.1 8,261.7 9,391.5 9,967.4 11,022.0 Opening Cash Balance 555.6 598.4 1,001.2 1,043.5 961.2 1,262.1
Closing Cash Balance 598.4 1,001.2 1,043.5 961.2 1,262.1 1,402.5
- 56 - Monday 20th May, 2019
Man Industries Ltd.
CMP Rs.58 (2.0x FY22E P/E) Not Rated

Index Details MIL is a focused SAW pipe player with a total capacity of 1.0 million MTPA
Sensex 37,931 (500,000 MTPA and LSAW capacity of 500,000 MTPA) having a strong
Nifty 11,262 global presence across the markets of USA, Middle East, Africa, South
America and Asia Pacific. Its order book as on Jan 2019 end stands at
BSE Metals 10,460
Rs.1,250 Cr. With low current capacity utilization there is significant
Industry Metals
opportunity to improve performance without any capacity addition and
additional capex, hence we do not foresee any major capex requirements
Scrip Details over the forecast period.
Mkt Cap (Rs Cr) 334
O/S Share (Cr) 5.71 Overall, we expect volume growth of 20.3% CAGR to 4.98 lac tonnes
3 M Avg Vol (000) 92.3 between FY18-22E. Average realization per MT increased by ~2% in
9MFY19 and we are expecting a sustained growth in realization for the
52 Wk H/L (Rs) 132/55
coming years. Therefore, revenue is expected to grow at a CAGR of 21.3%
Div Yield (%) 2.55 to Rs.3,405 Cr during FY18-22E. Similarly, EBITDA/ton is expected to
FVPS (Rs) 5.0 improve from Rs.5,165 in FY18 to Rs.6,085 in FY22E. In-line with the
operating performance, PAT is expected to grow at a CAGR of 26.2% to
STOCK POINTER
Shareholding Pattern Rs.169 Cr during FY18-22E. Consequently, RoE and RoCE are also set to
%
improve to 15.6%(+576bps) and 17.3%(+646bps) respectively by FY22E.
Shareholder
Promoters 42.90
The stock is currently trading at the FY22 forwarded P/E of 2.0x. Despite
Institutional 20.35
the stock having high growth prospects the valuations continue to remain
Public 19.56 supressed given corporate governance issues. (These are enumerated in
Total 100.0 detail in the report). We have not rated the stock.
MIL vs. Sensex Our optimism stems from the following:

200 50,000
➢ Neglect towards oil & gas and water transmission impacted
40,000
150
domestic SAW pipe industry. However, during the last couple of
30,000
100 years, the metal pipe industry witnessed improvement in SAW pipe
20,000
50
procurement demand for both oil & gas and water transmission
10,000
segments. With an opportunity of Rs.30,000 crores in the SAW pipe
0 0
Apr-16 Apr-17 Apr-18 Apr-19 industry, prospects for MIL looks favourable.
MIL Sensex

Sales EBITDA PAT
(%) (%) ₹ ₹ (%) (%) (x) (x) (x)
FY18 1,572 123 67 7.8 4.2 11.7 114.4 9.8 10.8 5.1 0.5 4.4
FY19E 2,585 221 92 8.6 3.5 16.1 120.4 13.3 11.4 3.7 0.5 2.4
FY20E 2,858 253 135 8.8 4.7 23.7 141.0 16.8 12.3 2.5 0.4 2.1
FY21E 3,134 278 151 8.9 4.8 26.4 163.9 16.1 13.6 2.2 0.4 1.9
FY22E 3,405 303 169 8.9 5.0 29.5 189.7 15.6 17.3 2.0 0.3 1.8
- 57 - Monday 20th May, 2019
➢ Steel pipe manufacturers have added significant capacities in the
past few years in anticipation of strong domestic as well as export
demand and got stranded with spare capacity. With no significant
capacity addition due to entry barriers and a gradual improvement
in demand the capacity utilisation of pipe makers is expected to
improve.
➢ MIL seems well poised in the SAW pipe segment in Madhya
Pradesh with The Madhya Pradesh Urban Development Company’s
(MPUDC)-announcement of the implementation of a water supply
scheme at Betma, Depalpur and Gautampura Nagar Parishads in
Indore district, likely to fuel its order book due to its locational
advantage.
➢ To meet the growing demand for water for irrigation and drinking
purposes the emphasis of the National Water Development Agency
on River Linking projects can be a major growth driver for the water
sector.
MIL capacities and utilization

SAW pipe capacity (in MTPA) 10,00,000 10,00,000 10,00,000 10,00,000 10,00,000
SAW pipe sales volume (in MT) 2,37,777 3,84,680 4,23,148 4,61,231 4,98,130
- 58 - Monday 20th May, 2019
MIL Annual Performance
500
4,000 80% 450
3,500 400
60%
3,000 350
2,500 40% 300
2,000 20% 250
1,500 200
0% 150
1,000
-20% 100
500
50
0 -40%
FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E 0
EBITDA Margin PAT Margin Long-Term Borrowings Short Term Borrowings
Revenue in Rs per ton EBITDA in Rs per ton

1,14,402
9,654
93,146
7,841
84,163
68,349
67,941
67,536
67,200
6,085
66,128
6,030
5,974
5,757
5,165
3,620
35% Return Ratios Figures in Rs Cr

350
30%
300
25% 250
200
20%
150
15% 100
10% 50
0
5% (50) FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E
0% (100)
- 59 - Monday 20th May, 2019
MIL’s financial performance in Rs Cr
Man Industries(India)Ltd Q3FY19 Q2FY19 YoY QoQ Q1FY19 Q4FY18 Q3FY18 Q2FY18 Q1FY18 Q4FY17 FY18 FY17 YoY
Net Sales 516 803 7.2% -35.8% 633 489 481 284 318 291 1,608 1,060 51.6%
Total Expenditure 494 718 7.6% -31.3% 570 428 459 269 294 280 1,483 1,012 46.5%
EBITDA (excl OI) 22 84 -0.3% -74.2% 62 62 22 16 24 11 125 48 157.7%
EBITDA Margin % 4.2% 10.5% 9.9% 12.6% 4.5% 5.5% 7.5% 3.7% 7.7% 4.6%
Depreciation 11 12 11.1% -8.8% 11 10 10 10 10 10 39 40 -2.1%
EBIT (excl OI) 11 72 -9.9% -85.2% 51 52 12 6 14 1 85 8 933.9%
EBIT (excl OI) Margin % 2.1% 9.0% 8.1% 10.6% 2.5% 2.0% 4.4% 0.2% 5.3% 0.8%
Other Income 27 -29 19.9% -194.1% 4 9 23 17 10 21 57 72 -21.5%
EBIT 38 43 9.7% -11.9% 56 60 35 23 24 22 142 81 76.2%
EBIT Margin % 7.4% 5.4% 8.8% 12.3% 7.2% 8.0% 7.4% 7.4% 8.8% 7.6%
Interest 16 18 55.0% -12.6% 18 14 10 9 10 7 43 36 18.5%
Exceptional Items 0 0 #DIV/0! #DIV/0! 0 -4 0 0 0 0 -4 0 #DIV/0!
PBT 22 25 -8.9% -11.4% 38 43 24 14 14 15 95 44 115.2%
PBT Margin 4.3% 3.1% 6.0% 8.7% 5.1% 4.8% 4.3% 5.0% 5.9% 4.2%
Tax 7 10 -9.1% -31.9% 13 16 7 4 4 3 32 11 195.0%
Tax Rate 30.4% 39.6% 33.4% 37.9% 30.5% 32.0% 27.0% 22.6% 33.2% 24.2%
PAT 16 15 -8.9% 2.0% 25 26 17 9 10 11 64 34 89.7%
PAT Margin % 3.0% 1.9% -15.0% 58.7% 4.0% 5.4% 3.5% 3.3% 3.2% 3.9% 4.0% 3.2%
P/E band for MIL

400
350
300
250
200
150
100
50
0
Nov-17
Nov-18
Aug-18
May-13
May-17
May-18
May-19
Aug-13
Nov-13
May-14
Nov-14
May-15
Aug-14
Nov-15
May-16
Aug-15
Aug-16
Nov-16
Feb-17
Aug-17
Feb-18
Feb-19
Feb-14
Feb-15
Feb-16
Price 3x 6x 8.9x 11.9x 14.9x
- 60 - Monday 20th May, 2019
Financials and Projections for MIL
% Change 46.5 59.4 10.2 9.6 8.6 Free Cash Flow Per Share -16.8 -1.3 7.5 26.7 30.1 33.7
EBITDA 48.3 124.5 221.4 252.8 278.1 303.1 Cash Yield (%) -25.1 -1.9 11.3 39.8 45.0 50.3
Depreciation 40.1 39.2 44.4 57.3 60.4 63.6
Depreciation to Net Block (%) 11.6 11.0 10.7 15.0 17.5 20.7 Capital, Liquidity & Return Ratios
Exceptional Items 0.0 -3.7 0.0 0.0 0.0 0.0 Return on Capital Employed (%) 1.1 10.8 11.4 12.3 13.6 17.3
PBT 44.3 95.4 128.4 149.8 178.4 199.1 P/E 11.4 6.0 4.2 2.8 2.5 2.3
Tax Rate (%) 24.2 33.2 36.0 38.7 36.2 36.3 P/BV 0.6 0.6 0.6 0.5 0.4 0.4
PAT 33.6 63.7 82.2 91.9 113.9 126.8 EV/Sales 0.5 0.3 0.2 0.2 0.2 0.2
Inventory Days 49 130 55 55 55 55
Reserves & Surplus 569.7 623.6 658.7 776.5 907.6 1,054.4
Total Shareholders Fund 598.3 652.2 687.2 805.0 936.1 1,083.0 Cash Flow Statement
Total Debt 356.7 263.8 277.1 326.7 277.5 304.8 Profit Before Tax 44.3 95.3 91.7 132.8 157.6 175.6
Other Current Liabilities 364.5 746.3 994.7 939.2 888.7 830.2 Working Capital Change -146.9 0.4 -131.0 193.0 -142.0 119.0
Total Liabilities 1,356.4 1,697.6 1,996.0 2,107.9 2,139.3 2,254.9 Cash Flow from Operations -74.8 132.0 130.0 135.0 138.0 151.0
Gross Block 423.0 471.6 574.2 599.2 624.2 649.2 Capital Expenditure -22.9 -110.5 0.0 0.0 0.0 0.0
Less: Accumulated D&A 77.5 116.2 160.2 217.5 278.0 341.5 Other Investment Activities 43.5 5.6 -1.8 -64.9 -88.7 -139.4
Net Block 345.6 355.4 414.0 381.7 346.3 307.7 Cash Flow from Investing 20.6 -104.9 -1.8 -64.9 -88.7 -139.4
Capital Work in Progress 5.3 63.0 5.0 3.0 3.0 3.0 Changes in Share Capital 0.0 0.0 0.0 0.0 0.0 0.0
Non Current Investment 103.0 102.3 131.0 131.0 131.0 131.0 Changes in Borrowings 89.6 -93.0 13.3 49.7 -49.3 27.4
Net Current Assets 289.1 186.0 267.4 102.8 325.6 400.0 Cash Flow from Financing 41.2 -115.2 -69.6 -25.3 -28.3 -14.2
Other Non Current Assets 582.6 908.5 1,142.4 1,449.4 1,289.5 1,365.6 Net Cash Flow -13.0 -88.1 58.6 44.7 59.0 -2.6
- 61 - Monday 20th May, 2019
Jindal SAW Ltd.
Target Price: Rs.119 CMP: 75 (0.3x FY22E P/B) BUY

Index Details JSAW is a well-diversified domestic & global play in the metal pipe industry
Sensex 37,931 with a considerable presence in the SAW (20 lac MTPA capacity), Seamless
Nifty 11,262 (2.5 lac MTPA capacity) & DI (10 lac MTPA capacity) pipe segments. In
9MFY19, the capacity utilisation for SAW pipes stands at 32% (+530bps
BSE Metals 10,460
YTD), while that for seamless & DI pipes stands at 68% (67bps YTD) & 54%
Industry Metals
(710bps YTD) respectively. Over the period FY19-22 we expect the capacity
utilization across three segments to improve to – 47.3% / 94.5% / 75.8%
Scrip Details respectively. In-line with the improving utilization, we expect sale volumes
Mkt Cap (Rs Cr) 2,406 to grow to – 9.46 MT (15.6% CAGR) / 2.36 MT (8.9% CAGR) / 7.57 MT (12.5%
O/S Share (Cr) 4.67 CAGR) respectively leading to an average volume growth of 14.2% to 19.9
3 M Avg Vol (000) 803.8 lac tons over the period FY18-22. On the back of a favourable environment,
we expect revenues to grow at 17.8% CAGR to Rs.14,044 Cr by FY22. Over
52 Wk H/L (Rs) 110/68
the same period, we expect EBITDA to grow at a CAGR of 12.4% to Rs.1,583
Div Yield (%) 1.59 Cr, while net earnings are expected to deliver CAGR of 17.6% to Rs.795 Cr.
FVPS (Rs) 2.0
JSAW reported >13% EBITDA margin during FY16-19. However,
STOCK POINTER
Shareholding Pattern management indicated that sustaining these margins would be an arduous
%
task given the increasing share of fixed price bulk contracts for large
Shareholder
projects. Management is upbeat on sustaining the EBITDA margin of more
Promoters 63.01
than 11% in the coming years. Return ratios – RoE and RoCE are also set
Institutional 13.24
to improve to 9.9% (+287 bps) and 12.4% (+511 bps) respectively by FY22
Public 23.75
Total 100.0 Poor performance of its unrelated diversifications into the sectors of
shipping, mining & pallet manufacturing has led to company falling into a
JSAW vs. Sensex debt trap at consolidated level. As of Mar 18, consolidated net debt of the
company stood at Rs.6,166 Cr, while the consolidated EBITDA of FY18 was
200 50,000
a paltry Rs.947 Cr, leading to a net debt to EBITDA of 6.5x. While pressures
40,000
150
from the poor performance of the subsidiaries ails at the consolidated
30,000
100 level, the financial profile has improved considerably for the standalone
20,000
50
parent entity. JSAW reduced the standalone debt from Rs.4,218 Cr in Mar
10,000
2018 to Rs.3,645 Cr in Sep 2018, and maintained its EBITDA margins well
0 0
Apr-16 Apr-17 Apr-18 Apr-19 above the level of 13.5% over the same period. Easing debt burden and
JSAW Sensex
strong margin profile improved interest coverage from 1.89x to 2.05x
during H1FY19. JSAW management has guided for the net debt to come
down to Rs.2,500 Cr by FY21 due to annual debt repayment of Rs.250 Cr.
Sales EBITDA PAT
(%) (%) ₹ ₹ (%) (%) (x) (x) (x)
FY18 7,287 992 415 13.6 5.7 13.0 185.0 7.0 7.3 5.8 0.4 6.6
FY19E 10,078 1,307 541 13.0 5.4 16.9 200.2 8.5 9.4 4.4 0.4 5.1
JSAW capacities and utilization
FY20E 11,591 1,295 502 11.2 4.3 15.7 214.3 7.3 9.3 4.8 0.3 5.3
FY21E 12,896 1,453 651 11.3 5.0 20.4 231.6 8.8 10.9 3.7 0.3 4.8
- 62 - Monday 20th May, 2019
FY22E 14,044 1,583 795 11.3 5.7 24.9 251.5 9.9 12.4 3.0 0.3 4.4
SAW pipe capacity (in MTPA) 20,00,000 20,00,000 20,00,000 20,00,000 20,00,000
SAW pipe sales volume (in MT) 5,30,360 6,36,432 7,47,808 8,59,979 9,45,977
SAW capacity utilization (%) 26.5 31.8 37.4 43.0 47.3
Seamless pipe capacity (in MTPA) 2,50,000 2,50,000 2,50,000 2,50,000 2,50,000
Seamless pipe sales volume (in MT) 1,68,100 1,69,781 1,95,248 2,14,773 2,36,250
Seamless capacity utilization (%) 67.2 67.9 78.1 85.9 94.5
DI pipe & Pig Iron capacity (in MTPA) 10,00,000 10,00,000 10,00,000 10,00,000 10,00,000
DI pipe & Pig Iron sales volume (in MT) 4,73,400 5,44,410 6,26,072 6,88,679 7,57,547
DI pipe & Pig Iron capacity utilization (%) 47.3 54.4 62.6 68.9 75.8
At the CMP of Rs.75, the stock currently trades at the price to standalone
BV of 0.33x FY22 earnings. Subsidiaries form ~10% to the overall
business of JSAW and have negative net-worth.
Book value estimates for JSAW

JSAW Standalone BV per share for FY22 Rs.251
Subsidiaries BV per share Negative Rs.13
Consolidated BV per share for FY22 Rs.238
Source: Ventura Research
We initiate with a BUY for a price objective of Rs.119 (0.5x FY22), which
represents an upside potential of 59%.
➢ Metal pipe manufacturers in the organized space have a presence

in 1 or 2 categories of pipes, while JSAW has a presence in all
three key product categories – SAW, Seamless & DI pipes, where
traction is expected to come in the next 3-5 years. While Stable
crude prices should lead to increased demand for seamless
pipes, work on transmission infrastructure in both oil & gas and
water is expected to trigger demand for SAW and DI pipes.
➢ Management has put all capex plans on hold, except for annual
maintenance capex guidance of Rs.300 Cr, which is expected to
be incurred from internal accruals. No near-term capex and the
annual debt repayment of Rs.250-300 Cr is anticipated to
gradually reduce long term and improve balance sheet health in
long run.
- 63 - Monday 20th May, 2019
JSAW Annual Performance
16,000 50% 5,000
14,000 40% 4,500
12,000 4,000
30% 3,500
10,000
20% 3,000
8,000 2,500
10%
6,000 2,000
4,000 0% 1,500
1,000
2,000 -10%
500
0 -20% 0
9,677
75,556
74,616
73,870
73,131
72,400
9,240
63,832
62,180
54,767
8,465
8,414
8,287
8,251
8,242
8,159
18%
Return Ratios Figures in Rs Cr
16% 1,500
14%
1,000
12%
10% 500
8%
0
6%
4% (500)
2%
(1,000)
0%
(1,500)
- 64 - Monday 20th May, 2019
JSAW’s financial performance in Rs Cr
P/B band for JSAW

250
200
150
100
50
0
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Jan-18
Apr-18
Apr-19
Jan-14
Jan-15
Jan-16
Jan-17
Jan-19
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
Oct-18
Price 0.2x 0.39x 0.58x 0.77x 0.96x
- 65 - Monday 20th May, 2019
Historical Financials for JSAW
% Change 30.2 39.3 17.4 11.1 8.9 Free Cash Flow Per Share 29.1 4.0 -28.6 -6.4 0.7 6.3
EBITDA 861.8 992.0 1,307.1 1,294.7 1,453.3 1,582.7 Cash Yield (%) 38.8 5.3 -38.2 -8.6 0.9 8.4
Depreciation 229.4 256.2 283.0 285.8 288.7 291.6
EBIT 632.4 735.8 1,024.1 1,008.9 1,164.7 1,291.1 Total Debt to Equity (x) 0.7 0.7 0.7 0.6 0.4 0.3
Exceptional Items -31.2 -29.1 0.0 0.0 0.0 0.0 Return on Capital Employed (%) 6.8 7.3 9.4 9.3 10.9 12.4
PBT 470.7 547.9 784.1 740.1 896.1 1,027.3 P/E 7.8 6.2 4.4 4.8 3.7 3.0
Tax Rate (%) 34.6 29.6 31.0 36.5 39.1 41.7 P/BV 0.4 0.4 0.4 0.3 0.3 0.3
PAT 307.7 385.8 541.0 469.7 545.7 599.3 EV/Sales 1.1 0.9 0.6 0.5 0.4 0.3
Inventory Days 111 93 175 175 175 175
Total Debt 3,752.9 4,218.5 4,483.6 3,988.4 3,276.8 2,391.9 Profit Before Tax 470.7 547.9 784.1 772.8 1,001.2 1,222.7
Other Current Liabilities 1,211.1 1,192.0 1,711.5 2,078.8 2,413.5 2,742.6 Adjustments 616.7 -230.7 -774.1 -337.0 -290.8 -250.3
Total Liabilities 10,936.6 11,782.8 13,054.3 13,378.5 13,554.8 13,634.8 Cash Flow from Operations 1,316.8 573.4 293.0 721.6 999.1 1,263.9
Less: Accumulated D&A 662.2 863.4 1,146.4 1,432.2 1,720.9 2,012.5 Other Investment Activities 40.4 -259.6 499.3 -176.8 -152.5 -134.1
Net Block 5,773.0 5,637.5 5,604.5 5,568.7 5,530.0 5,488.5 Cash Flow from Investing -111.0 -453.6 249.3 -426.8 -402.5 -384.1
Non Current Investment 591.5 648.6 648.6 648.6 648.6 648.6 Changes in Borrowings -1,242.5 -101.7 265.0 -495.1 -711.6 -884.9
Net Current Assets 1,255.5 1,719.1 1,867.6 2,074.4 2,385.3 2,785.2 Cash Flow from Financing -1,277.6 -136.9 210.9 -545.4 -809.2 -1,043.9
Other Non Current Assets 3,029.0 3,401.5 4,437.5 4,534.9 4,391.0 4,070.4 Net Cash Flow -71.7 -17.1 753.3 -250.5 -212.6 -164.0
- 66 - Monday 20th May, 2019
Annexure – Steel pipe manufacturing process
Seamless pipe manufacturing process
83-85% is the input-output ratio in this manufacturing process
L – SAW pipe manufacturing process
H – SAW pipe manufacturing process
- 67 - Monday 20th May, 2019
ERW pipe manufacturing process
Ductile Iron pipe manufacturing process
- 68 - Monday 20th May, 2019
Disclosures and Disclaimer
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- 69 - Monday 20th May, 2019

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-1- Wednesday 18th February, 2019

Ventura view on incumbent players 7

Industry Overview & Key Demand Drivers

Key demand drivers for metal pipes in water segment 21

Demand requirement in sub-segments of metal pipes 36

Low competitive intensity 37

Steel prices to remain stable 37

Key risk and concern areas 39

Financial performance analysis on incumbent players

Maharashtra Seamless Ltd 41

Ratnamani Metals & Tubes Ltd 47

Welspun Corp Ltd 52

Man Industries Ltd 57

Jindal SAW Ltd 62

Annexure – Steel pipe manufacturing process 67

-2- Monday 20th May, 2019

Oil & Gas

-3- Monday 20th May, 2019

For seamless pipes (including stainless)

-4- Monday 20th May, 2019

-5- Monday 20th May, 2019

Seamless Pipes SAW Pipes ERW Pipes DI Pipes

Key players in different metal pipe categories

Type of pipes Usage Competitive intensity Companies

Carbon Steel Seamless Reduced after anti-

Stainless Steel Reduced after anti- RMTL, Sandvik &

High for low ticket size

City gas pipeline and SRL, WCL, RMTL &

High for low ticket size

MSL = Maharashtra Seamless Ltd

-6- Monday 20th May, 2019

Maharashtra Seamless Ltd (MSL): Timely acquisition of USTL to boost

-7- Monday 20th May, 2019

In FY19, RMTL’s capacity utilization improved significantly to ~85% from a

We expect RMTL’s sales volumes to grow at a CAGR of 17.0% to 4.11 lacs

Welspun Corp Ltd (WCL): Geographically diversified player with

WCL is expected to witness a strong performance across all its three

-8- Monday 20th May, 2019

We expect revenues to grow at a CAGR of 8.7% to Rs. 12,478 Cr over the

Man Industries Ltd (MIL): Focused only on the transmission opportunity

-9- Monday 20th May, 2019

On the back of a favourable environment, we expect revenues to grow at

The poor performance of its unrelated diversifications into the sectors of

- 10 - Monday 20th May, 2019

- 11 - Monday 20th May, 2019

- 12 - Monday 20th May, 2019

Revenue in Bn per Ton

EBITDA in 000 Rs per Ton

Profitability - EBITDA Margin (LHS) & PAT Margin (RHS)

Return Ratios - RoE (LHS) & RoCE (RHS)

30% Maharashtra Ratnamani Metals Welspun Man Jindal

- 13 - Monday 20th May, 2019

➢ Global recovery in E&P space augurs well for seamless pipes

Active rig counts improved significantly since mid-2016

Source: Baker Hughes

Rebound in global E&P spend

Annual change in global

Source: Energy Information Administration

- 14 - Monday 20th May, 2019

Wells drilled by ONGC (in Nos)

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

Source: Company Report

India’s oil production to improve gradually