Piping Hot: India’s Piping Sector…
India needs to invest in infrastructure if it wants to compete with other emerging market economies—old rhetoric. The harsh reality is India’s CapEx cycle has remained anaemic over the past 8-10 years. Nonetheless, the outlook is encouraging.
India is working towards two important national objectives—achieving energy security and fulfilling the basic aspirations of millions of citizens. As the newly-elected government strives to accomplish them, some exciting investment opportunities might knock on your door.
Oil and Gas sector: adding capacities and improving distribution
The country’s oil production is likely to improve from 34.1 MMT in FY18 to 38.3 MMT in FY22. Similarly, the new policy initiatives are expected to push India’s natural gas output to 72 BCM by FY22 from 35 BCM in FY18. Likewise, India is expanding its refining capacities from 248 MMTPA in FY18 to 307 MMTPA by FY22.
As a result, the demand for metal pipes is expected to jump substantially over the next few years. A growing thrust on City Gas Distribution (CGD) and an uptick in the global Exploration and Production (E&P) activities will boost the demand further.
Key triggers for the demand for metal pipes from the oil & gas sector:
For seamless pipes (including stainless)
- Global recovery in E&P spends
- Thrust on domestic E&P activity
- Revamp of refining capacities to cater to BS-VI norms
- Hydrocarbon Vision 2030, which attempts to make North East an energy hub
- Improvement in the share of liquid fuel and gas in the energy mix
- Replacement of India’s aged oil & gas transmission pipelines and rollout of the national gas grid by GAIL India Ltd
- Pan India CGD rollout
Water transmission infrastructure: now or never…
To sustain the world’s second-largest population, preserving water resources and using them judiciously becomes extremely crucial. So far, India’s performance on this front has been utterly discouraging.
India has only 4% of the world’s renewable water resources but is home to ~18% of the world’s total population. The country’s per capita water availability is 1,188 cubic meter per year (as per World Bank data), which is significantly lower than the threshold limit of 1,700 cubic meters for a water-stressed country.
Ironically India is considered to be one of the wettest countries in the world, given that it has 1,911 km³ of annual precipitation. India has 20 river basins, which collectively handle 4,000 BCM of water and the average annual surface flow out of this is 1,869 BCM, the rest being lost in infiltration and evaporation. Out of the 1,869 BCM, utilizable water is only 690 BCM (according to Central Water Commission).
Water availability is unevenly distributed across the country due to the uneven monsoon pattern in India. The country experiences both floods and droughts periodically and with inefficient rainwater harvesting infrastructure available, excess water storage is next to impossible.
Despite all this, India is a water surplus country. All it needs is an efficient water transmission infrastructure to handle the available water. It needs feeder pipelines from rivers and canals to ensure efficient water supply and its availability for irrigation and basic sanitation.
The government has taken a series of measures which should boost the demand for metal pipes mainly SAW, ERW & DI pipes. They include:
- Increase in budgetary allocation for water segments
- The network of water transmission pipelines to interlink rivers, canals and other water bodies across the country.
- Infrastructure to improve the utilization of Ganga – Brahmaputra – Meghna river basin
- AMRUT scheme launched to enhance sewage treatment capacities
Investment in metal pipes stocks is a compelling story
Given the intense demand scenario and operational ability of key players in the respective segments, we recently initiated coverage on the metal pipe stocks with a BUY rating on Maharashtra Seamless Ltd, Ratnamani Metals & Tubes Ltd, Welspun Corp Ltd & Man Industries Ltd.
We highly recommend that you read our detailed report for more insights.
We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:
We do not have any financial interest of any nature in the company.
We do not individually or collectively hold 1% or more of the securities of the company.
We do not have any other material conflict of interest in the company.
We do not act as a market maker in securities of the company.
We do not have any directorships or other material relationships with the company.
We do not have any personal interests in the securities of the company.
We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships.
We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.