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A Deeper Look at the Indian Steel Pipe Industry


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Let us take a deeper look at the steel pipe industry. Steel pipes are used in various industries – oil & gas, petrochemicals, power, water supply and sanitation, irrigation and construction. They are primarily used to move liquids and gasses and find increased usage in residential, commercial and industrial construction.

India has emerged as the top 3 manufacturing hubs of steel pipes in the world after Europe and Japan. We have lower costs of production and quality+geographical advantages. .

We had earlier covered the plastic pipe industry, let us delve deeper into its counterpart – Steel Pipes.

The key points covered in this post are

  • Size of the Global and Indian steel pipe industry 
  • Structure of the steel pipe industry, types of steel pipes and their key features
  • Why is Electric resistance weld pipe (ERW) the fastest growing segment in the steel pipe industry?
  • Key factors to focus on when looking at a steel pipe company 
  • Companies in this space and their financial profile – how APL Apollo inspite of having the lowest margins has the best ROE and ROCE’s?
  • What will drive future growth for the industry?


India was the 2nd largest global crude steel producer in CY19, it produced 111.2 million tonnes (MT) of crude steel. It displaced Japan as the world’s second largest steel producer during the year. India’s steel consumption is about 100 MT and the country is among the top 3 consumers of steel in the world.

Top 10 Steel Producing Countries


Note: China is a behemoth. It makes 9x more steel than India, and is greater than the next 9 producers combined.

8%-10% of the steel consumption is for steel pipes. The crude steel production in India from Jan-June 2020 was 43.3 MT.

Steel Pipes

The global steel pipe market is estimated to be $ 90 billion and is expected to grow by 4% CAGR over the next 3 years. Globally, the Oil & Gas sector is the largest consumer of steel pipes and tubes.

The Indian steel pipe market is estimated to be Rs 50,000-55,000 Cr and is 8-9% of the global steel pipe market.

The Indian Steel pipe market is estimated to be Rs 50,000-55,000 Cr. In value terms, 50% of the market is ERW pipes and 50% Stainless Steel and SAW pipes. Click To Tweet

50% of the market in terms of value consists of the Electric Resistance Weld Pipe (ERW) and the other 50% is the Stainless steel and Submerged Arc Weld (SAW) pipes. In terms of volume 70% are ERW pipes and 30% are Stainless steel and SAW pipes. We will look at the applications and usage of these pipes later in the post.

Below is the structure of the Indian steel pipe market

Steel pipe structure

Steel is kind a metal called an alloy. Alloy is two or more natural metals that are melded together to make a new metal. Steel is then a mixture of Iron and one other metal or various other metals.

Carbon steel pipe is basic steel pipe which has combination of iron and carbon. It may have other substances as well but basic components are iron and carbon. Carbon pipes are known for its strength and ability to withstand high temperatures. 

In a stainless steel pipe chromium is added to the alloy. The most significant characteristic of stainless steel pipe is that it doesn’t rust or corrode.

The pipe industry can also be classified on the basis of the end user industry that it caters to – oil & gas and Non oil & gas. In the oil & gas space pipes are used for exploration and production (E&P) and transportation. HSAW, LSAW, ERW and Seamless pipes are used in oil & gas.

In the non oil segment pipes are used in engineering, auto, power plants, water and sewage, metros, airports and malls. HSAW, ERW and Seamless pipes are used in the non oil segment.

Usage of steel in oil and gas

Source: Edelweiss Research

Some of the characteristics of these pipes are

Characteristics of steel pipes

Stainless Steel

Raw steel is processed under two methods, this results in a seamless or welded pipe. Seamless pipes have uniform structure and strength all over the pipe body, as a result it can withstand higher temperature, pressure, mechanical stress and corrosive atmosphere. In a welded pipe, edges of the steel are forced together and sealed with a weld. The weld joint is the weaker part of the pipe and the strength of the pipe is limited to the strength of the weld joint.

The stainless steel domestic market is estimated to be 1 million tonnes. These pipes are used in applications mandating low failure rate and long life. The end users of these pipes are primarily the oil & gas, petrochemicals, refineries and power companies.

Some of the key features of this segment are

  • Higher capital outlay to set up capacities – Rs 2,25,000 per tonne versus Rs 15,000 per tonne for carbon steel pipes. CAPEX required is 15X of carbon steel pipes
  • Small size and long customer approval process deter company’s from entering this space
  • Higher realizations – estimated at Rs 3,70,000/tonne versus Rs 68,000 for carbon steel pipes. Realizations 5.4X of carbon steel pipes
  • Higher margin product – EBITDA margins of 12-18% versus 6-12% for carbon steel pipes

The segment has seen degrowth in the FY14-17 period, there has been some recovery seen from FY18. This is on the back of ADD on seamless pipes from China for a period of 5 years starting from May,2016. The ADD is the range of $960 to $1,600.

The demand for these pipes depends on the CAPEX in the key end user industries – oil & gas, petrochemicals, refineries and power. 7-12% of the CAPEX in the oil & gas and petrochemical industry is on steel pipes. This segment is expected to grow by 5-7% in the next 5 years and we will see what will drive this growth later in the post.

Maharashtra Seamless, DP Jindal group company has seamless pipe capacity of 5,50,000 MT.

Carbon Steel

ERW has been the fastest growing segment in the carbon steel pipe space. India is the leading ERW manufacturing hub, the domestic market for ERW pipes is 8-10 million tonnes. ERW pipe market has grown by 4-5% over the last 5 years and it is expected that the market will be the fastest growing segment in the steel pipe industry, clocking growth of 8-10% over the next few years.

APL Apollo is the leader in the ERW space with a capacity of 2.55 million tonnes. The primary reason this segment has done well over the last few years is its application in various industries. Companies that have been able to bring new products and innovate on their existing product line have done better than the industry. For instance APL Apollo is the first company in the country to bring the DFT technology for hollow sections. In conventional technology, round pipe is converted into square and rectangular shape, however in the case of DFT, square and rectangular sections are formed directly through welding. DFT allows for manufacturing customised sizes and saves 3-10% of raw material cost.

APL Apollo is the leader in the ERW pipe segment. It has capacity of 2.55 million tonnes. It has been the first company in the country to bring the DFT technology for hollow sections Click To Tweet

Some of the areas where DFT hollow sections are used are residential, industrial, commercial construction, amusement parks, metros, fencing, automobiles, cabling and ducting.

In the ERW market Galvanized (GI), Pre Galvanized pipes (GP) and Hollow sections enjoy high margins, where as black pipes have EBITDA margins of only 4-6%.

The ERW segment has the lowest EBITDA margins amongst all the segments in the steel pipe market. APL Apollo’s average EBITDA margin over the last 6 years is 7%. Lower margins act as an deterrent for new players to enter this market. APL thrives in this market because it has scale, its procurement cost of steel is 1-1.5% lower than others in the market. It has continuously innovated, has a strong distribution network and continuously spends on branding.

SAW pipes  are also called line pipes and have two variants

  • Longitudinal submerged arc welded (L-SAW) and
  • Helical / Spiral submerged arc welded (H-SAW)

The difference between the two is the way in which they are welded. These are used primarily in refineries, water pipelines and large diameter water and sewage pipelines. 75% of the demand comes from oil & gas and 25% from the water segments. L SAW pipes have superior margins than H SAW pipes, EBITDA margins are 20-25% in the L SAW segment.

Jindal Saw has a capacity of 2 million tonnes and Welspun Corporation 2.1 million tonnes.

Key Factors

Every business has 2-3 key factors that investors need to track, in this section we look those crucial components for steel pipe companies.

Steel is the major RM to manufacture steel pipes, all the companies pass on increase/decrease of RM prices to the customer or procure steel only when they receive orders. This is the right practice, however the risk lies in the inventory that the company is carrying at that point of time. For instance if a company has huge inventories of steel and the prices crash, the company will have to take a hit on the P&L. Let us illustrate this with help of an example


The above is the snapshot of Q3FY19 results of APL Apollo. Profits for Q3 were 13 Cr as compared to 36 Cr in Q3FY18, drop of 63%. The company recorded an inventory loss of 42 Cr during the quarter due to fall in prices. These hits can have a very big impact where companies operate on wafer thin margins. APL’s average gross profit margins over the last 6 years has been 14%.

As discussed above companies pass on increase/decrease in RM prices to the customer. In this case tracking the topline growth is not the way to look companies in this space. We need to find another metric, which better represents of how the company is faring. The metric in the case of steel pipe companies is EBITDA/Tonne. Ideally the company should be able to maintain this during falling RM prices and should this should inch higher on the back of new product line or running efficient operations.

The EBITDA/Tonne for steel pipe segments are 

  • ERW – 3,000-4,000
  • SAW and Carbon Seamless – 6,000-9,000
  • Stainless Steel – 14,000-15,000

Lastly, end user industries that the companies cater too matter. For instance in the case of Ratnamani 58% of the revenues are from the oil & gas, refineries and petrochemical industry and 24% for water and infrastructure. In the case of APL Apollo construction and building material contribute 70% of the revenues.


Revenues of the top 6 players in the steel pipe industry for the FY16-20 period are


Revenues of Maharashtra Seamless have grown the fastest, 27% CAGR. APL Apollo and Surya Roshini have done well, registering growth of 16% and 23%. Surya Roshini is also in the business of lighting, the above revenues are from the pipe segment.


APL Apollo and Surya Roshini work on very thin gross margins. Gross margins of Surya Roshini is for its whole business. Companies working on such thin gross margins have to run very efficient operations as any increase in costs in the form of inventory losses or increased overheads can spoil the party for the company. We had seen the impact of this earlier while looking at the Q3FY19 results of APL Apollo. Gross margins for these companies are also lower because they operate in the ERW space, where realizations are lower and APL’s strategy over the past few years has been to gain volumes in the market.

EBITDA margins

Maharashtra Seamless and Ratnamani have the best EBITDA margins. One interesting observation from the above chart is the average margins of Welspun is 8% for the 5 year period, as compared to 7% for APL Apollo. This indicates the efficiency with which APL has run its operations, given the average GPM for Welspun is 38% and APL 15%.

PAT margins

Ratnamani has the best net margins amongst all the players, this is because the company is the only one among the 6 that has negligible debt. Margins of Welspun, Jindal Saw and Surya Roshini are low due to higher debt levels. Overall the whole industry works on wafer thin margins.

Test of Efficiency 

We know that companies operating in this space work on thin margins, hence running operations efficiently is very important. Two metrics – fixed asset turnover and cash conversion cycle (CCC) reflect on how efficiently a company is run.

Below are the fixed asset turnover and CCC of the 6 companies


APL Apollo stands out. It’s average fixed asset turnover is 6.6, meaning it generates Rs 6.6 of sales for every 1 Re of fixed assets it has on its books. It’s CCC is 30 days, the next best company is Surya Roshini with CCC of 94 days. A lower cash conversion cycle implies that the company does not have to invest heavily on its working capital requirements.

Welspun, Jindal, Maharashtra Seamless and Ratnamani have CCC in the range of 115-145 days, this is on the back of higher inventory and receivable days. These companies are in the stainless steel and SAW pipe segment.

Silver Lining: Manageable Debt

Debt Profile

In two cases – Welspun and Jindal Saw the absolute amount of debt has reduced. Welspun has reduced its debt by 68% and Jindal by 26%. In the other cases although the absolute debt has increased the debt/equity ratio is less than it was previously, the top 4 companies fulfil this criteria and in the case of the last two the debt is negligible. Overall all the companies are comfortable on this front.

In two cases Welspun and Ratnamani, if we were to consider the cash and cash equivalents at the end of FY20, the companies are debt free. Welspun has cash and investments of Rs 963 Cr and Ratnamani Rs 328 Cr. Jindal Saw has 328 Cr of cash and investments.

Do the company investments pay off? What about the shareholders?

The ROCE measures if the company is earning satisfactory returns on its investment. The ROE indicates the shareholder returns.


Only two companies – APL Apollo and Ratnamani have a satisfactory ROE and ROCE. Their average ROCE and ROE is +15%. In the case of others, these companies have to improve their margins or increase their capital turnover ratio or increase both to earn satisfactory return on its capital and for its shareholders.



All the companies have been regularly incurring CAPEX. A positive thing is that companies are not resorting to heavy debt to expand capacities. Going ahead, the environment is going to be tough due to the pandemic, however since all companies have manageable debt, they are well prepared to counter what comes next. If a company incurs CAPEX on the back of debt and the demand falls, it is a double whammy – the company has to pay the interest on debt and sales take a beating due to tough environment​​​​​​​​​​​​​​. 


7-12% of the total capital allocation in refiners, petrochemicals and oil & gas is allocated towards steel pipes. We highlight the CAPEX lined up for these sectors in the near future, this will drive demand for steel pipes.

7-12% of the total capital allocation in refiners, petrochemicals and oil & gas is allocated towards steel pipes. In the case of power projects 5% of the CAPEX is towards steel pipes. Click To Tweet

India is the second largest refiner in Asia, the country’s refining capacity as on 1st May,2020 was 249.9 million metric tonnes (MMT). The country has a goal of doubling its refining capacity in the next 10 years to 450-500 MMT. In the immediate future, 38.8 MMT of capacity is expected to be set up be the below companies

Refinery capacity

Reliance is planning to expand its Jamnagar oil refining capacity from 35.2 MTPA to 41 MTPA.

Government is planning to invest Rs 70,000 Cr to expand the gas pipeline network across the country. India has a gas pipeline network of 16,905 km, GAIL is the leader with pipeline network of 12,160 km. The government has an ambition of increasing the share of natural gas in the country’s energy basket from 6% in FY19 to 15% in FY30. Natural gas grid project has been launched to achieve this goal, the gas grid will expand from 16,905 km to 27,000 km.

Indian oil plans to set up the country’s longest LPG pipeline of 1,987 kms from Gujarat’s coast to Gorakhpur in Uttar Pradesh.

India is the 4th largest liquefied natural gas (LNG) importer, the country’s imports have increased by 12% CAGR over the FY16-20 period.LNG imports are expected to double over the next 5 years, the country will expand its LNG terminal capacity from 37.5 million tonne to 74 million tonne. 

City gas distribution (CGD) market in India includes compressed natural gas (CNG), used as auto fuel and piped natural gas (PNG), used in domestic, commercial and industrial segment. The CGD market in India is expected to grow from 9,223 MMSCM (Million Metric Standard Cubic Meter) in 2020 to 25,570 MMSCM in 2030. Rising use in domestic, commercial and industrial segments and curb on polluting vehicles will drive the demand for CGD. 2 Cr PNG connections, 3,578 CNG stations and 58,000 km of pipelines are expected to be set up by 2030. ERW pipes are used extensively in setting up the CGD network.

The government’s Jal Shakti Abhiyaan, Nal Se Jal, River linking, AMRUT and Namami Gange programmes will increase the demand for H SAW pipes.

Domestic power plant (thermal, nuclear and other renewable sources) capacity stands at 330 GW as of March,2020 and is expected to reach 480 GW by 2025-27. 5% of total CAPEX invested in a power plant goes towards steel pipes and tubes.

Replacement demand in all sectors will also help the steel pipe companies.

Final Thoughts

The steel pipe industry may face headwinds in the near future. In the oil & gas sector, investments depend on the price and demand-supply equation of crude prices. If crude prices fall as we had seen recently, investments in the sector are delayed. In the case of ERW pipes, where majority of pipes are used in construction, slowdown in real estate will impact this segment. However with the investments lined up and the government taking up projects, spending can be delayed but not put off completely.

Companies do not have to worry of CAPEX as utilization levels are not at the peak and CAPEX has been continuously incurred over the last 5 years. For instance APL Apollo has indicated that it will only incur maintenance CAPEX over the next 2 years as it has sufficient capacities. This will help companies tide over the uncertainty that we are witnessing currently. The run way for steel pipe companies is huge as quantum of investments lined up will always lead to demand for steel pipes.

But how are the steel pipe companies stacked on the valuation front?


On the looks of it the PE and EV/EBITDA of some of the companies in the above table may indicate that these are available at cheap valuations. However scroll up and look at the ROE and ROCE’s and these companies do not make/barely make cost of capital. We need to bet on companies where the spread between what the company is making (ROCE) and the cost of capital is high. For understanding PE ratios, refer to our article of 2018, where we explain why companies trade at the PE ratios that they do and the reasons behind it.  However if these companies do show improvements and shown signs of improving their ROE and ROCE’s profile, we will take a look at these again.

As John Maynard Keynes said “When the facts change, I change my mind – What do you do sir?”

The companies where the spread is high and which have decent ROE’s are APL Apollo and Ratnamani. We do have APL Apollo in our long term multicap portfolio and detailed note on the company can be read here. ERW pipes have a huge run way and the company is the leader in the segment, it will get stronger going ahead.

Ratnamani derives majority of its revenues from the oil & gas segment, while the company does tick all the right boxes, we will have to wait and watch how investments in the oil & gas shape up. We will keep a look and revisit, when the right opportunity arrives.

Please note that this analysis provides an overview of this sector, but doesn’t recommend individual stocks. We’re just providing a valuation context.

With this article we complete the overview of the pipe industry – plastic and steel. We hope that readers have benefitted from our analysis.

NOTE: As a disclosure some Capitalmind authors may own the above company in their stock portfolios. There is no other relationship between Capitalmind and the above company. Please do not consider this article as a recommendation, It is purely for informational purposes only.

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