SECTOR WATCH: Steel Pipes

Q4 Review: Six key steel pipe manufacturers saw an aggregate 17.5 per cent growth in sales and 37.7 per cent rise in profit in the March 2007 quarter. Profit grew at a faster pace than sales following a decline in input costs. The cost of raw materials rose by 9.6 per cent against 17.5 per cent growth in sales.

Operating profit margins increased by 125 basis points on a y-o-y basis, but were still lower by 45-90 basis points compared with those in the previous three quarters. JSW Steel, the leading pipes manufacturer, reported a robust growth in sales at 33.1 per cent, while net profit rose by around 50 per cent.

Welspun Gujarat’s net profit grew 112 per cent on a modest rise in sales, while Maharashtra Seamless’ top line and bottom line rose over 25 per cent each.

Trigger: The Chinese government has cancelled the export rebates on welded steel pipes and reduced the rebates on seamless steel pipes from the current 13 per cent to 5 per cent, effective from July 1.

With a host of global accreditation, industry leaders such as Jindal Saw, Welspun Gujarat Stahl Rohren, PSL, Maharashtra Seamless and Man Industries are well-equipped to cash in on the opportunity unfolding in the space.

Outlook: According to Alchemy Research, demand for steel pipes is emerging from West Asian markets such as Iran, Iraq, UAE and Qatar and markets in Africa such as Algeria, Libya and Nigeria.

The reason: a boom in the oil and gas transportation infrastructure in these regions. Indian pipe companies are likely to ride the demand growth on account of their cost competitiveness. Domestic demand from oil sector players such as ONGC, Reliance, and GAIL India is estimated at 21,000 kms in five years.