Shares of steel pipe makers outperform markets

Shares of steel pipe makers outperform markets
01/08/2017 , by , in ALLIED

After bottoming out in November 2016, the share price of steel pipe manufacturing companies outpaced the benchmark Sensex and Nifty by over seven times due to sudden spurt in the products’ demand from gas and water sectors.

While Sensex and Nifty have gained 19 per cent growth since November 9 when the share price of leading steel pipes manufacturers – Man Industries and Welspun Corp – had hit 52-week low, these individual stocks have gained by 135 per cent and 140 per cent respectively during this period. Trading currently at Rs 93.40 apiece and Rs 130.65 apiece, the share price of Man Industries and Welspun Corp has witnessed a marginal profit booking from its 52-week high of Rs 98.80 apiece and Rs 134.45 apiece on July 18 and July 25 respectively.

Another stock in this segment – Jindal Saw – also followed suit with its share price hitting the bottom on September 2, ’16 before bouncing back to hit 52-week high to Rs 100.90 apiece in intraday trade on Monday before settling down to Rs 99.65 apiece.

These stocks have attracted investors’ attention over the last eight months due to the Prime Minister’s north – east policy which offers immense potential in infrastructure development including transportation of gas and water. The north-eastern states in India have remained under-developed since independence, the government’s geographical change in growth strategy is set to boost demand of steel pipes in the next few years. In fact, the turnaround time has started with the implementation of “Urja Ganga” project by the Gas Authority of India Ltd which has floated a tender for 547,000 tonnes of steel pipe requirement for FY 2017-18.

“GAIL is presently implementing very prestigious project called “Urja Ganga” for connecting the entire eastern India with the gas grid. There was no significant domestic demand for last couple of years. However, the future seems to be exciting as 15,000 km national gas grid is planned for implementation in phases in coming years. The governments focus seems to be very clear as regards to creation of infrastructure especially in energy sector which is set to drive our products’ demand in the next few years,” said R C Mansukhani, Chairman, Man Industries.

Both central and state governments are engaged in addressing infrastructure bottlenecks and pipeline network is an important ingredient of infrastructure for oil, gas, water and sewage transportation. Huge demand for large diametre pies is expected. States like Gujarat, Madhya Pradesh and Telangana are the major drivers for 2017-18 with other states are fast catching up. Such large diameter pipes are just like underground water tunnels.

“Till recently, imports from China were a major challenge for us. However, the same was addressed in recently announced policy by the government. Meanwhile, high interest rate continues to be another major challenge when it comes to creation of basic infrastructure,” said Mansukhani.

“Expansion of national gas grid in India and new water projects across the country could mean higher domestic orders and revenues over the next two years. The policy mandates to provide preference to domestic products in government procurement. Imported steel must undergo a minimum prescribed value addition of 15% in order to be eligible for procurement by government departments. Such policy would be favourable for domestic companies,” said Debanjana Chatterjee, an analyst with HDFC Securities.

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