Demand from oil & gas, water segments to boost this sector; pick your right stock now

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The upcoming boom in demand from the oil & gas and water sectors bodes well for the piping industry due to robust demand visibility. In February 2021, prime minister Narendra Modi announced that the government plans to invest around Rs 7.5 trillion in oil and gas infrastructure over the next five years. In Budget 2021, the finance minister announced that the government would add 100 more districts to the City Gas Distribution Network in three years. Also, the government is working on Har Ghar Jal mission to provide tap water supply to every rural household by 2024.

However, market watchers believe that India’s existing pipeline infrastructure falls well short of what is required to cater for the demand in the coming future. Therefore, investors should keep an eye on plastic and steel pipes major on Dalal Street to get a lucrative return in the long run. Select shares from the pipe sector have already delivered a robust return to investors in the long run. For instance, APL Apollo Tubes has gained 783% to Rs 1,660 on August 11, 2021 from Rs 187.99 on August 12, 2016. Astral Ltd and Jindal Saw have also gained 595% and 172%, respectively, during the same period.

Know the industry

Plastic pipes: The domestic pipe industry is dominated by plastic pipes, which have a market size of around Rs 31,500 crore, with the organised players accounting for more than 70% of the market share in this segment. Plastic pipes are growing faster than other pipes because they are lightweight and come with ease of transportation, installation, and a longer life span.

According to William O’Neil India, the country’s PVC demand is projected to grow at a CAGR of 6.81% during CY 2019-30 to reach 6,779 KTPA by 2030. The key growth drivers are a growing agriculture sector, rapid industrialisation, infrastructure development, favourable government policies, rising urbanisation, and incremental usage of PVC in flooring applications across private, commercial, and industrial premises.

“India’s demand for PVC pipes and fittings currently stands at 20 Lakh MT and is projected to grow at a CAGR of 14.7% between FY 2018–26. PVC pipes and fittings have end-user applications in building and construction, irrigation, water supply, and other purposes,” the research house said.

Market watcher further added that various government initiatives also create opportunities to zero in on the sector. The government has taken various initiatives to invest in irrigation, housing, and sanitation, through schemes such as ‘Housing for All,’ ‘Atal Mission for Rejuvenation and Urban Transformation’ (AMRUT), and ‘Pradhan Mantri Krishi Sinchayee Yojana’ (Prime Minister’s Agriculture Irrigation Scheme).

Steel Pipes: In 2040, gas is projected to become the second-largest energy source with an estimated share of 25%, an increase of more than 3% from 2015 levels. The majority of the increase in gas demand is expected to come from China, the Middle East, and Europe, which covered almost 85% of the global YoY increase in gas consumption in 2017. The global demand for natural gas is projected to grow at 65% from 2010 to 2040, the largest volume in any energy resource. It is anticipated that the natural gas consumption is mainly concentrated in the non-OECD countries where demand is expected to grow twice as fast as the OECD countries.

“In India’s total energy mix, the share of oil and gas is likely to increase to 45% in 2025 from 36% in 2017. Energy demand is expected to grow at 4.5–5% and would propel SAW pipe volume demand in absolute terms till 2025,” William O’Neil India said in a report.

Stocks to watch

Astral: Astral Poly Technik manufactures and markets a wide variety of piping and drainage systems for residential, commercial, industrial, and agriculture applications. The company’s six manufacturing units across the country have automated material handling and feeding systems. Astral is one of the leading players in the CPVC and PVC piping segment and an emerging player in the adhesive segment.

Finlex Industries: The company operates in two key business segments: a) PVC pipes and fittings and b) PVC resin. Finolex is the largest manufacturer of PVC pipes and resins in India. It has state-of-the-art manufacturing plants in Pune and Ratnagiri in Maharashtra and Masar in Gujarat. The company has a nationwide presence, with a robust network of over 22,000 dealers, sub-dealers, and retailers.

APL Apollo Tubes: The company is India’s largest producer of electric-resistance welded (ERW) steel pipes and sections. It has an installed capacity of more than 1.3M tonnes per annum. The company has a vast country-wide distribution network and over 800 distributors and more than 50,000 retailers selling its products. It also exports products to more than 20 countries. Apollo’s brands include Apollo Structural, Apollo Z, Apollo Galv and Apollo Tricoat.

Jindal Saw: Jindal SAW is a leading global manufacturer and supplier of iron and steel pipe products, pipe accessories, and pellets. It is one of the largest exporters of steel pipes in India. It has set up manufacturing units in India, the US, and the UAE (MENA).

Indian Hume: Indian Hume Pipe Company was established in 1926. The company has specialisation in executing turnkey water supply, sewage projects, and has also developed Prestressed Concrete Pipes (PSC), Prestressed Concrete Cylinder Pipes (pccp), Bar Wrapped Steel Cylinder (bwsc), and hume steel pipes.

Maharashtra Seamless: The company is a key player in the domestic seamless pipe and electric-resistance welded (ERW) pipe segments. It has the largest capacity of 550,000 MTPA for seamless pipe, which constitutes nearly 31% of the industry’s total pipe capacity. Realisations for seamless pipes have been protected in the last few years due to the anti-dumping duty imposed on seamless pipe imports from China. William O’Neil India believes this benefit will continue over the next couple of years and realisations would hold up, going ahead. Some of the oil & gas customers are BPCL, HPCL, IOCL, ONGC, Reliance, Cairn, and British Gas. Infrastructure customers include DLF, Adani, GMR, BHEL, NTPC, and Jaypee Group.