Why Pipemakers Have A Muted Outlook Despite Rising Margin
Lower raw material prices and higher volume growth drove up margin for most of the steel pipemakers for the quarter ended December. But the absence of new order inflows in an election year may dent revenue during the second half of FY20.
The price of hot-rolled coil—a key raw material used in manufacturing of steel pipes—has been on a downtrend since November 2018, aiding the cost efficiency of most of steel pipe producers.
Steel pipe manufacturers are expected to sustain their margin level given the softness in steel prices, Saurabh Kapadia, an analyst at IndiaNivesh said. The companies, according to him, are better positioned to protect their margin on an annual basis due to their ability to hike prices to offset the input cost pressures.
Robust demand from oil & gas and water division kept the volumes higher for steel pipemakers, according to companies’ investor presentations. While the volume expansion has been the fastest for Maharashtra Seamless Ltd. and Man Industries (India) Ltd., it was relatively steady for Jindal Saw Ltd. and Welspun Corp Ltd.
Most of the steel pipemakers have received orders for the next six to nine months, Kapadia said. The companies registered growth of 31-80 percent in order book, led by Welspun Corp.
Steel pipemakers expect demand to return only after the general election once new government is in place. “We do not see exponential growth in domestic order book in 2019 since demand usually remains static in the election year,” Vipul Mathur, managing director and chief executive officer at Welspun Corp said.
The robust order book, he said, is expected to reflect well into the top line growth of the company for the remaining nine to 12 months. “We expect upsurge in demand only in H2FY20 once uncertainties related to election is past us.”