The Indian Pipe Industry....

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With the burgeoning economic growth, providing adequate infrastructure facilities to a populous country like India is very important. Pipelines used in transportation of oil, gas and water are crucial in developing a nations infrastructure. Transportation through pipes is cheaper and faster as compared to traditional modes of transport like road and rail. Pipes also have a long useful life of approximately 25-30 years for Steel pipes, 25 years for PVC pipes and 70-75 years for Cement pipes. The Indian Pipe Industry is among the top three manufacturing hubs after Japan and Europe. However, the penetration level of pipelines in oil and gas transportation is low at 32% in India as compared to 59% in USA and 79% globally. The pipeline network of India for oil and gas transport stood at 13,517 kms in April 2006. Sanitation levels are also lower at 33% in India compared to 91% in Srilanka and 100% in France. Of 140 mn hectares of cultivable land, only 40% the land is irrigated. The low penetration levels represent the huge scope for growth for the pipe industry. The Indian pipe industry is highly fragmented with Herfindahl Index of Concentration for steel pipes excluding seamless being 0.06, seamless pipes 0.08 and pvc pipes 0.179. This leads to competition and pricing pressures among the players. However, pipe companies catering to oil and gas sector and government orders have limited competition but need to focus on stringent quality norms. The industry is highly raw material intensive with RM cost accounting for more than 70% of total cost for steel and pvc pipe companies. High imports, RM availability issues and rising cost are concerns for the industry. However, larger players operating in the organized sector have been able to pass on price hikes to their customers due to better quality specialized products catering to customer needs for critical applications. Indian companies produce a wide range of steel, cement and PVC pipes which are used in various critical and non-critical applications. Indian steel pipe manufacturing companies have won several certifications and accreditations from major oil and gas companies across the globe in recent past. 1

With the low cost quality products and various certifications, Indian companies have augmented their export sales over the last three to four years and exports from India stood at approximately USD 1.05 bn in 2006. CARE Research expects the positive trend in the Indian pipe industry to continue in the next 3-5 years on the back of high oil and gas discoveries worldwide, increased efforts by GoI on infrastructure development for laying pipelines for oil and gas transport, water and sewage transport and irrigation facilities. Demand triggers for the growth are: GoI increased the annual budget allocation under the Rajiv Gandhi Drinking Water Mission from Rs. 46 bn to Rs. 58 bn in Union Budget 07-08. For the XIth five year plan, GoI is aiming to add 11 mn hectares of irrigational facilities, entailing an investment of Rs. 1,580 bn. Growth in the real estate sector due to growing population and affluence will require investments in water, drainage and sewage systems. GoI in its efforts to reduce crude imports has formulated the New Exploration Licensing Policy for exploration and production of oil and gas. 165 blocks have been awarded till date and the number is set to increase to 245 by 2008. Private players like RIL, Cairn have shown interest in setting up pipe infrastructure for oil & gas transport. National gas grid will also be set up requiring an investment of Rs. 210 bn. City gas pipe is currently available in 10 cities and the coverage is expected to grow to 40 cities in next 5-7 years. In addition to above, replacement demand from USA & European countries, having a vast pipeline infrastructure, will be huge. The growth will mainly be driven by steel pipes especially SAW pipes. The order book position of many pipe companies are almost twice their FY 07 sales. However, the risk to industry growth could be impending slowdown in US economy, raw material availability and increase in raw material costs and reduction/postponement of GoI spending on infrastructure development. 2

For an in-depth analysis and CAREs view on the future of this sector, please refer to the exhaustive Report on Indian Pipe Industry by CARE Research. You can contact us at careresearch@careratings.com

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This report is prepared by CARE Research, a division of Credit Analysis & REsearch Limited [CARE]. CARE Research has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain. However, neither the accuracy nor completeness of information contained in this report is guaranteed. CARE Research operates independently of ratings division and this report does not contain any confidential information obtained by ratings division, which they may have obtained in the regular course of operations. The opinion expressed in this report cannot be compared to the rating assigned to the company within this industry by the ratings division. The opinion expressed is also not a recommendation to buy, sell or hold an instrument. CARE Research is not responsible for any errors or omissions in analysis/inferences/views or for results obtained from the use of information contained in this report and especially states that CARE (including all divisions) has no financial liability whatsoever to the user of this product. This report is for the information of the intended recipients only and no part of this report may be published or reproduced in any form or manner without prior written permission of CARE Research.