Pipe makers poised for gains as demand revives after a lull in India & overseas

Mumbai: Stocks of pipe makers such as Jindal Saw, Maharashtra Seamless, Ratnamani Metals, and Welspun Corp, among others, are likely to gain in the mid-to-long term as analysts expect demand revival after four years of struggle.

Besides strong domestic demand for water and oil grid pipelines, analysts expect robust orders from the European Union (EU) and the Middle East & North Africa (MENA) region as well.
"Crude is at nearly eight-year-highs, and the world feels the need to diversify its dependency on Russia and change the years of under-investment in the sector. Due to this, pipeline demand should stay robust for the next 2-3 years, driven by strong demand from EU, MENA, and India, with the US having strong upside potential," said PhillipCapital said in a note.
Since 2018, global pipeline construction has been declining, with 2018-19 marred by low oil prices, oil companies' weak balance sheets, and delays in regulatory approvals. In 2020, global demand suffered because of the Covid-19 outbreak, elections in the US, and market uncertainties regarding energy demand.

According to PhillipCapital, the EU has plans to develop 45,000 km of inter-country pipelines and 25,000 km of cross-county imported pipelines. MENA region's national oil companies have also increased capex, aided by high oil prices, which should bode well for pipeline demand.

Indian companies are looking at a strong future with improving demand due to the water and oil and gas segments across the world, said PhillipCapital.

India will see double-engine growth from the gas grid as well as from water pipeline demand for the next 3-4 years with 19,000 km of oil and gas pipelines and potential demand of 5-6 million tonnes per annum for water pipelines, according to a PhillipCapital estimate.

Pipe stocks such as Welspun Corp, Ratnamani Metals, and Maharashtra Seamless have rallied between 23% and 32% so far this year. According to PhillipCapital, these three stocks, along with Jindal Saw are likely to give returns between 10% and 50% over the next year.

Welspun Corp has a strong balance sheet and best-in-industry growth, while Jindal Saw is the most diversified pipe player in the Indian space. Maharashtra Seamless derives a majority of its profits from its seamless division, whose outlook remains strong, considering current energy prices and increasing rig counts across the globe, said PhillipCapital.

Ratnamani Metals is the other company that is the market leader in manufacturing tubes and pipes in stainless steel and carbon steel welded pipes space. The company has traded significantly higher than its peers due to its superior business mix. PhillipCapital expects its volume growth to be a tad higher, supported by recent capacity expansion, which will translate into better earnings per share (EPS) along with its net cash status.