Pipe Industry Report

Industry Pointer
“Profits in the Pipeline”
PIPE INDUSTRY REPORT

-1- Monday, October 05, 2009
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Industry Pointer
CONTENTS
Section 1: Industry
Executive Summary……………………………………………………………………………... 3
Energy Demand key driver for pipeline projects…….……………………………………...... 4
E&P continues despite fall in crude prices……………………………………………………. 5
International Demand Outlook…………………………………………….............................. 6
US Expenditure on Projects…………………………………………………………….………. 7
Replacement market in US & Russia……………………………………………………......... 7
International Supply Outlook……………………………………………………………………. 8
Demand Supply Situation……………………………………………………………………….. 9
Domestic Scenario………………………………………………………………………………. 9
Water Infrastructure Projects: A key driver for HSAW & DI Pipes………………………….. 11
Product Wise Demand Scenario: Seamless Pipes…………………………………………... 12
Product Wise Demand Scenario: DI Pipes……………………………………………………. 13
Product Wise Demand Scenario: SAW Pipes………………………………………………… 14
HSAW Technology takes over LSAW applications…………………………………………... 16
Porter Analysis…………………………………………………………………………………… 17
Accreditation Process: A significant entry barrier…………………………………………….. 17
Competitive Edge for Indian Players over other exporters………………………………….. 18
Industry Concerns……………………………………………………………………………...... 19
Section 2: Companies
PSL Limited (PSL)…….…………………………………………………………………………. 20
Welspun Gujarat Stahl Rohren Limited (WGSRL)…………………………………………… 29
Jindal Saw Limited (JSL)………………………………………………………………………... 37
Section 3: Glossary
Pipes: Types, Applications, Size, Raw Materials & Key Differentiators……………………. 46
Pipes: Classification………….….................................................................……………….. 47
Section 4: Appendix
Appendix 1: World GDP by Region ……………………………………………….................. 48
Appendix 1: World Liquid / Oil Consumption by Region..................................................... 49
Appendix 1: World Natural Gas Consumption by Region…………………………………… 50
Industry Pointer
Executive Summary: Pipe Industry
Commensurate with the global recovery, the pipe industry is expected to
Pipes in Focus: SAW Pipes benefit considering the quantum of investments proposed for the pipeline
projects across the globe. The business potential for the SAW pipe
Estimated Supply (MTPA) 19,461,000
manufacturers from these projects is pegged at US$ 117 billion over the
Estimated Demand (MTPA) 19,558,440 next four to five years. The Indian Pipe manufacturers which have majority
Excess Demand (MTPA) 97,440 of the revenues coming from exports & having accreditations from oil &
gas majors across the globe are expected to garner a sizeable share from
these projects. In addition to the new projects, the replacement market in
Key Demand Drivers North America would be an additional demand driver for the Indian pipe
manufacturers. The demand-led growth coupled with healthy order
710 pipeline projects worldwide totaling US$ 117 bn book and capex plans augurs well for the Indian players. We are
Huge replacement market yet to open up initiating coverage on the Pipe Industry with the top three picks being
Huge domestic Investments in Pipelines led by GAIL
PSL, Welspun Gujarat & Jindal Saw.
Water projects another demand driver Key Investment Highlights
Demand driven growth to continue
Top Players & Capacity (MTPA) The global pipeline requirements is expected to be ~98 million tons with a
total of 710 projects and an opportunity of more than $117 billion across
Jindal Saw 1,690,000
the globe for the next five years. Thus the addressable market for the pipe
Welspun Gujarat Stahl Rohren 1,500,000 manufacturers is pegged at $23.4 billion per annum while the tonnage
PSL 1,475,000 requirement is estimated at 19.6 million tons per annum. With the close
proximity to the ports coupled with lower labor cost & locational advantage,
Indian players are expected to bag sizeable share of these orders. Further
Capacity Additions planned (MTPA) we believe the Indian companies is set to benefit from the proposed gas
pipeline network to be built by GAIL, GSPL, and other domestic players,
Jindal Saw 460,000 who have announced plans to construct pipeline transmission networks in
Welspun Gujarat Stahl Rohren 600,000 India worth over Rs 20,000 crore.
PSL 225,000 High revenue visibility inspires confidence
Indian pipe manufacturers have strong order book despite the challenging
Listed Pipe Manufacturers Vs SENSEX circumstances prevalent in the economy. These order books are set to
galore with the demand for pipes likely to pick up over the next few years.
This provides high revenue visibility for these companies.
Positive outlook especially for SAW pipe manufacturers
While the demand for seamless & ERW pipes remain sluggish, the
demand for SAW pipes is likely to remain firm as these pipes are basically
oil & gas transportation pipes required for setting up oil & gas pipelines.
While PSL is purely a SAW pipe manufacturer, Jindal Saw & Welspun
Gujarat have majority of the revenues coming from this segment.
Our Recommendation
PSL WGSRL JSL
CMP 177.0 262.0 765.0
EPS - FY11e 33.3 30.0 82.4
PE - FY11e 5.3 8.7 9.3
Target PE 7.5 12.0 10.0
Target Price 250.0 360.0 825.0
Upside (%) 41.0 37.5 7.8
Source: Simdex, Ventura Estimates
Recommendation BUY BUY BUY ON DIPS
Industry Pointer
Energy Demand key driver for Pipeline Projects
Increasing GDP to drive energy demand

Economic growth & Development tends to be directly correlated with increased energy
consumption. The International Energy Outlook for 2009 suggests that the World GDP
would grow at a CAGR of 3% from 2006 to 2030, primarily led by growth in developing
countries (GDP pegged at growing at a CAGR of 5.1% driven by China & India) while the
developed economies are expected to grow at a CAGR of 2.1% till 2030. (Refer
Appendix 1 for World Gross Domestic Product by Region)
Energy Demand to grow at a CAGR of 1.5%
Commensurate with the increase in world GDP, the energy demand is likely to grow at a
CAGR of 1.5%, led by growth in Non OECD countries which is pegged at 2.3%, while
demand for energy for the OECD countries is likely to grow at a CAGR of 0.6% till 2030.
World Total Energy Consumption by Fuel, 1990-2030 (Quadrillion Btu)
Region History Projections CAGR
1990 2005 2006 2010 2015 2020 2025 2030 (%)
Total OECD
Liquids 83.6 99.4 98.8 92.4 94.0 95.8 97.2 99.4 0.0
Natural Gas 37.3 53.6 53.9 56.7 59.6 62.6 65.7 66.8 0.9
Coal 43.5 46.9 46.9 47.3 47.8 47.9 48.3 50.7 0.3
Nuclear 17.3 23.2 23.3 24.0 24.7 25.6 26.0 27.0 0.6
Other 16.0 18.3 18.8 22.4 26.3 29.5 32.3 34.3 2.5
Total 197.7 241.3 241.7 242.8 252.4 261.3 269.5 278.2 0.6
Commensurate with the increase in Total Non-OECD
world GDP, the energy demand is
likely to grow at a CAGR of 1.5%, led Liquids 52.9 71.0 73.6 82.3 89.3 98.4 107.4 116.4 1.9
by growth in Non OECD countries
Natural Gas 38.0 53.5 54.2 61.7 71.4 79.1 85.5 91.2 2.2
which is at 2.3%, while demand for
energy for the OECD countries is Coal 45.7 74.8 80.6 93.3 102.9 113.8 126.9 139.6 2.3
likely to grow at a CAGR of 0.6% till
2030 Nuclear 3.1 4.3 4.4 5.0 7.2 9.9 12.2 13.2 4.7
Other 10.3 17.2 18.0 23.1 28.4 33.2 35.8 39.8 3.4
Total 149.9 220.7 230.8 265.4 299.1 2334.4 367.8 400.1 2.3
Total World
Liquids 136.4 170.4 172.4 174.7 183.3 194.2 204.6 215.7 0.9
Natural Gas 75.3 107.1 108.1 118.5 131.0 141.7 151.3 158.0 1.6
Coal 89.2 121.7 127.5 140.6 150.7 161.7 175.2 190.2 1.7
Nuclear 20.4 27.5 27.8 29.0 31.9 35.4 38.1 40.2 1.6
Other 26.3 35.5 36.8 45.6 54.6 62.8 68.1 74.1 3.0
Total 347.7 462.1 472.4 508.3 551.5 595.7 637.3 678.3 1.5
Source: International Outlook 2009, Release Date: May 2009

While the global demand for oil (liquid) would grow at a CAGR of 0.9% from 2006 to
2030, the demand for natural gas is expected to exhibit a CAGR of 1.6%. The oil
demand of 0.9% is expected to come from developing economies only where as the
demand for natural gas from the developing economies is expected to grow at 2.2% as
compared to 0.9% growth to be driven by the developed economies.

Industry Pointer
The demand for oil is likely to be driven by Asia which would grow at a CAGR of 2.7% till
2030, led by China & India where the oil consumption is likely to grow at a CAGR of
3.2% & 2.4% respectively. Brazil too is not far left behind, where the oil demand is likely
to grow at a CAGR of 2.1%. (Refer Appendix 2 for World Liquid/Oil Consumption by
Region)
The Energy Information Administration (EIA) forecasts natural gas to form 24% of total
energy usage by 2020, with the share of oil falling to 34%. This is largely driven by higher
demand for natural gas which is pegged at a CAGR of 1.6% globally while oil is likely to
grow at a CAGR of just 0.9%. (Refer Appendix 3 for World Natural Gas Consumption by
Region)
E&P continues despite fall in crude prices

When the Oil & Gas prices are high, many E&P companies invest their resulting strong
cash flows in the development of existing properties & exploration for new reserves.
These activities results in an increase in drilling activities which remains high until oil &
natural gas prices begin to fall, at which point drilling activity (rig utilization rate) also
declines. Thus rig utilization rate is one of the key factors in assessing the quantum of
E&P activities. The table shown below lists the rig utilization rates for the different region
& the variation over the last 12 months.
18th Sep, 2009 18th Sep, 2008
Region Rigs Total Rig Rigs Total Rig
Wkg Rigs Utn Wkg Rigs Utn
Africa - Other 0 3 0.0 1 2 50.0
Africa - West 45 65 69.2 54 62 87.1
Asia - Far East 22 23 95.7 14 18 77.8
Asia - South 34 35 97.1 31 31 100.0
Asia - SouthEast 60 77 77.9 60 79 75.9
Australia 16 17 94.1 17 17 100.0
The sustainability in E&P activities Black Sea 3 3 100.0 3 3 100.0
along with the scenario of crude
prices likely to move up on account Europe - East 2 3 66.7 2 2 100.0
of depleting oil reserves & rising Europe - North Sea 63 75 84.0 65 69 94.2
demand augurs well for the pipe
transportation sector which forms Mediterranean 12 19 63.2 16 17 94.1
the last leg in the entire chain MidEast - Persian Gulf 70 93 75.3 73 85 85.9
MidEast - Red Sea 10 15 66.7 15 15 100.0
N. America - Canadian Atlantic 2 3 66.7 2 2 100.0
N. America - Canadian Pacific 0 1 0.0 0 1 0.0
N. America - Mexico 36 39 92.3 32 32 100.0
N. America - US Alaska 0 1 0.0 1 1 100.0
N. America - US GOM 45 77 58.4 73 86 84.9
S. America - Brazil 41 48 85.4 33 38 86.8
S. America - Other & Carib. 2 3 66.7 2 4 50.0
S. America - Venezuela 13 13 100.0 10 10 100.0
Total 476 613 77.7 504 574 87.8
Source: RIGZONE

Industry Pointer
Though the rig utilization rates have reduced by around 10% from 88% to 78%, the fall is
lower than the fall in the relative crude prices over the same period. Crude prices during
the period under review had taken a hit of more than 20%. The sustainability in E&P
activities along with the scenario of crude prices likely to move up on account of
depleting oil reserves & rising demand augurs well for the pipe transportation
sector which forms the last leg in the entire chain.
To make available these oil finds (resulting from E&P activities) to the end consumer,
pipelines are extremely important mode of transport, recognized as the safest as well as
the most economical way of distributing the vast quantities of oil & natural gas from
production fields to refineries & from refineries to customers.
International Demand Outlook

To meet the increasing energy needs of global economies, oil & gas companies are
investing in laying huge pipelines spanning thousands of kilometers. The following table
indicates that more than 325,000 kms of pipeline projects would be laid down in the next
four to five years.
**Business
Total Length *Qty (In million
Region Projects Potential (US$
(kms) MT)
Bn)
North America 192 73,736 22.1 26.5
The global pipeline requirements is Latin America 56 35,053 10.5 12.6
expected to be ~98 million tons with
a total of 710 projects and an Europe 101 44,784 13.4 16.1
opportunity of more than $117 billion
Africa 49 17,452 5.2 6.3
across the globe for the next five
years Middle East 111 43,626 13.1 15.7
Asia 142 95,003 28.5 34.2
Australasia 59 16,339 4.9 5.9
Total 710 325,974 97.7 117.3
Source: Simdex, US, May’09 Update, * Conversion rate of 300 ton per km, ** Conversion rate of $1,200 per ton
Based on these projects, the global pipeline requirements is expected to be ~98 million
tons with a total of 710 projects and an opportunity of more than $117 billion across the
globe for the next five years. Thus the addressable market for the pipe manufacturers is
pegged at $23.4 billion per annum while the tonnage requirement is estimated at 19.6
million tons per annum.
Geography wise share of Expected Demand until 2014
Australasia North
5% America
23%
Asia
29%
Latin
America
11%
Middle East Europe

13% Africa 14%
5%

Industry Pointer
According to CRU Analysis 2007 report (the Five-Year Outlook for API Pipe Steel), the
demand for pipe will continue to remain bullish in near future owing to sturdy demand in
energy consumption. Much of this growth will come from the large diameter pipes above
20". Thus, a considerable share of consumption will be for line pipe in the diameter range
of 20"+ for crude oil transportation.
US Expenditure on Projects
Despite US facing recessionary

pressures & cutting spend across
various projects, its Crude &
products pipeline as well as Natural
Gas pipelines would witness an
incremental spend of 16.5% & 63.6%
respectively in CY09
As per the table above, despite US facing recessionary pressures & cutting spend across
various projects, its Crude & products pipeline as well as Natural Gas pipelines would
witness an incremental spend of 16.5% & 63.6% respectively in CY09. This inspires
confidence among global pipe manufacturers who are the key exporters to US.
Replacement market in US & Russia: Huge opportunity yet to be open up
The expected replacement demand for line pipes is much larger than for new pipes. A
recent entrant to the growth drivers is the demand arising from the replacement of old
pipelines, predominantly in the US & Russia. These pipes were laid in the late 1960s &
1970s. The average life of a pipe used for transportation of oil & gas is approximately 25
The expected replacement demand to 30 years.
for line pipes is much larger than
that for new pipes, especially in US & US Oil & Gas Pipeline Mileage
Russia, which is yet to open up
1960s 1970s 1980s 1990s
Oil Pipeline 190,944 218,671 218,393 208,752
Gas Pipeline 630,900 913,300 1,051,800 1,189,200

Industry Pointer
More than 1 million miles of gas pipelines out of the 1.5 million miles in the US were laid
prior to 1975. These pipelines which have outlived their economic life have a pressing
need for replacement to ensure smooth flow of operations.
However while calculating the demand for line pipe, we have included only demand
coming from new projects as the replacement demand has not yet open up. However we
expect this segment to be highly demand accretive (as & when it comes) as the US
companies alone will not be in a position to satisfy this additional demand, thereby being
an excellent opportunity for Indian Saw Pipe manufacturers to service this demand,
especially the ones (PSL & Welspun Gujarat) who have set up manufacturing facilities
there.
International Supply Outlook
The increasing investments across the globe on the pipeline projects are thriving
capacity additions to fill the demand supply gap. The region wise global capacities in the
world in SAW pipes are as follows:
Global Pipe Capacities HSAW LSAW Total
North America 680,000 2,150,000 2,830,000
Western Europe 1,430,000 3,285,000 4,715,000
Eastern Europe 125,000 44,000 169,000
CIS 240,000 2,350,000 2,590,000
Asia 3,191,000 3,762,000 6,953,000

According to the industry sources,
the pipe manufacturers across the
globe are likely to add 2.7 million Middle East 845,000 980,000 1,825,000
tons of HSAW and 2.3 million tons of
LSAW respectively by CY2010 South Africa 150,000 470,000 620,000
Africa 246,000 0 246,000
Other World 3,212,000 1,900,000 5,112,000
Total World 10,119,000 14,941,000 25,060,000

Source: Welspun Gujarat Annual Report 2008-09
Incremental additions of capacities (announced)
According to the industry sources, the pipe manufacturers across the globe are likely to
add 2.7 million tons of HSAW and 2.3 million tons of LSAW respectively by CY2010.
Thus the total capacity of SAW pipes post additions is pegged at 29,940,000 MTPA. At
an average capacity utilization of 65%, the production of saw pipes is estimated at
19.5 million tons.

Industry Pointer
Demand Supply Situation
Total expected production of SAW Pipes (Supply) p.a. 19,461,000
Total Demand (excluding Replacement Demand) p.a. 19,558,440

There is likely to be a demand supply
mismatch ~100,000 MTPA over the
next few years. The gap is expected Excess of Demand over Supply per annum 97,440
to widen only, once the replacement
market opens up which would be
much higher than the demand for As witnessed above, there is likely to be a demand supply mismatch of ~100,000
new pipes MTPA. However while calculating the demand for linepipes; we have not taken into
account the replacement demand which is expected to kick start soon & would be
even higher than the demand coming from the new projects. Thus clearly the
demand supply imbalance is likely to remain in favor of demand atleast for next
few years.
Domestic Scenario
The domestic demand scenario for pipes is expected to remain firm over the next few
years. The demand is expected to rise due to the following reasons:
¾ Lower penetration of pipeline in oil & gas transportation
¾ High transportation cost via rail & road
¾ New projects announced by oil & gas transmission companies
Lower penetration of pipeline in oil & gas transportation

The pipeline network in India for oil & gas transportation is approx. 13,517 kms with a
penetration level of 32% which is much below the global standards. With large
investments by both public & private players in India, the share of transportation of oil &
gas through pipeline is expected to increase in future.
Pipe penetration levels
79%
75%
80%
59%
70%
60%
The pipeline network in India for oil
& gas transportation is approx. 50%
13,517 kms with a penetration level 32%
of 32% which is much below the 40%
global standards
30%
20%
10%
0%
India USA France Global
The Ministry of Petroleum & Natural Gas (MOP&NG), India estimates that the share of
pipelines might touch around 45% over the next 2-3 years.

Industry Pointer
High transportation cost via rail & road
Globally, the transportation of petroleum products & natural gas is usually preferred by
pipeline to other modes of transportation due to operational economies, coupled with
benefits of a cleaner distribution chain. Pipelines are generally the most cost-effective
way of transporting petroleum products and natural gas. It costs approximately Rs
1.30/Km as compared to rail Rs 2.20/Km & road Rs 3.02/Km.
New projects announced by oil & gas transmission companies
India has relatively under-developed gas pipeline infrastructure which is rapidly scaling
up in tandem with the increasing demand & ramp up in supplies. Currently, the country’s
gas requirements are serviced primarily through GAIL’s pipeline network, supported by
some pipelines of other PSU’s like ONGC, and some regional players like Gujarat State
Petronet (GSPL).
With Reliance Industries also jumping into the fray and last mile connectivity receiving a
fillip due to entry of many players into the City Gas Distribution (CGD) domain, the
bottleneck of pipeline connectivity is set to be alleviated.
Huge Plans of some major domestic players
Business Potential
Company Total Length (Kms) Quantity (Tons)
(US$ Bn)
GAIL, GSPL, and other domestic GAIL 6,215 1,864,500 2.2
players have announced plans to
construct pipeline transmission Reliance Industries 3,630 1,089,000 1.3
networks worth over Rs 20,000 crore GSPL 2,711 813,300 1.0
Total 12,556 3,766,800 4.5
Proposed Pipeline of GAIL
Additional Cap.
Pipeline – Phase I (by 2011) Length (Kms) Cost (Rs Cr)
(MMSCMD)
Dahej – Vijaipur / Grep Upgradation 1,115 5,000 66
Dadri – Bawana – Nangal 640 2,500 31
Chainsa – Jhajjhar – Hissar 450 1,000 35
Sub Total 2,205 8,500 132
Additional Cap.
Pipeline – Phase II (by 2012) Length (Kms) Cost (Rs Cr)
(MMSCMD)
Jagdishpur – Haldia 1,690 6,600 32
Dabhol – Bangalore 1,480 4,000 16
Kochi – Mangalore – Bangalore 840 3,500 16
Sub Total 4,010 14,100 64
Grand Total 6,215 22,600 196
The table above indicates the plans of some major pipelines in India announced by GAIL
in two phases with a total capex of more than Rs 220 billion. The plans discussed above
are for few large players in the domestic market. Thus the overall domestic market size
would be much bigger.
- 10 - Monday, October 05, 2009

Industry Pointer
CGD poised to take off: The City Gas Distribution (CGD) in India is too poised to take
off in a big way with the extension of the project to thirty cities in different states by 2009
besides Mumbai & Delhi. Currently CGD is operational only in Mumbai, Delhi & several
cities in Gujarat while it is under implementation stage in more than half a dozen sates
The City Gas Distribution (CGD) in
including Uttar Pradesh, Rajasthan, Madhya Pradesh, Maharashtra, Karnataka, Kerela,
India is too poised to take off in a big
way with the extension of the project Andhra Pradesh & West Bengal.
to thirty cities in different states by
2009 besides Mumbai & Delhi With investments of over US$ 2 billion, the network would be further expanded at a later
stage to cover 200 cities in 15 states, providing gas to 160 million people. As of now,
CGD accounts for just about 5-6% of the total gas consumption, at 5-6 mmscmd. But in
the next four years, consumption is likely to grow to 20 mmscmd.
Water Infrastructure Projects: a key driver for HSAW & DI Pipes
Economic growth, population expansion and the influx of people into cities have sharply
raised India's water requirements while increasing pollution risks. Asian Development
Bank (ADB) is infact doubling its investment on water from $1.2 billion in 1999 to $2
billion in 2010 in the South and Southeast Asia region. Over 800 million people in the
region face problems in accessing portable water of which nearly 50 percent are Indians.
India has dismal sanitation levels as compared to global counterparts as displayed
below:
In order to improve the sanitation

levels as also to make available
water to common man, the GOI has
launched the various reform linked
schemes which would drive demand
for HSAW & DI Pipes
In order to improve the sanitation levels as also to make available water to common man,
the GOI launched the reform linked Jawaharlal Nehru National Urban Renewal Mission
(JNNURM) along with Urban Infrastructure Development Scheme for Small and Medium
Towns (UIDSSMT) in December 2005. The total outlay for the Urban Infrastructure and
Governance component of JNNURM is Rs 315 billion for the Mission period i.e. 2005-
2012.
Water and Sanitation sector which covers water supply, sewerage, solid waste
management and storm water drainage accounts for about 73.4% of the total number of
projects sanctioned under JNNURM as on date and 80.8% of the total cost of projects
sanctioned. In absolute terms, the number of such projects sanctioned is 340 out of a
total of 463 projects sanctioned under the scheme.

Industry Pointer
Further under the Urban Infrastructure Development Scheme for Small and Medium
Towns (UIDSSMT), out of a total of 969 projects, the water and sanitation sector
accounts for 828 projects. The share of the water and sanitation sector in terms of cost is
around 92% i.e. Rs 184 billion out of Rs 198 billion.
Looking at the quantum of spend under the aforesaid schemes, this provides a huge
opportunity for manufacturers of HSAW & Ductile Iron Pipes which would see heightened
activities in terms of increasing order flows as the disbursements are likely to speed up. It
may also be noted that the GOI has increased the annual budget allocation under the
Rajiv Gandhi Drinking Water Mission from Rs 65 billion to Rs 73 billion in the Union
Budget 2008-09.
Product wise demand scenario: Seamless Pipes

Seamless pipes & tubes are used both in oil & non-oil sector. Nearly 65% of the demand
for these pipes comes from the oil & gas sector (E&P activities in particular) alone while
the balance comes from shipbuilding, chemical, general engineering & automobile
industries. Seamless pipe market is far more consolidated than welded pipe market (top
5 catering to almost 60% of the demand world-wide). This has led to greater pricing
power for the seamless pipe manufacturers. USA is by far the largest consumer of the
Seamless pipes.
The slump in E&P activities world
wide (on account of stupendous fall However the current economic meltdown has had a material impact on the demand for
in crude prices) over the last year seamless pipes. The slump in E&P activities world wide (on account of stupendous fall in
has resulted in steep fall in demand
for seamless pipes
crude prices) over the last year has resulted in steep fall in demand for seamless pipes.
The resultant inventory pile up of seamless pipes had pushed prices to $1,000 per ton
after having touched a high of $1,800 per ton.
However in the last three months prices have recovered to $1,200 per ton on account of
resurgence in E&P activities in Middle East & Asia. Indian manufacturers are now eyeing
Middle East, Asian & North American market for supply of Seamless pipes. Even though
there is a huge fall in demand in the North American market, it still remains a major
market contributing nearly 40% of the total seamless pipe demand globally.
Domestic Market Share of Seamless Pipes
Seamless Pipes: Players & Market Share
Maharashtra Seamless
15%
Jindal Saw
50%
25% ISMT
10% Imports

Industry Pointer
In the domestic market, over the years, ONGC has been only source of demand for the
seamless pipes. However with RIL & Cairn India increasing their E&P activities, there
has been a spurt in demand for these pipes. Thus the demand for these pipes in India is
likely to increase going forward. However, the global demand is likely take nearly 6-9
months to stabilize.
Product wise demand scenario: Ductile Iron (DI) Pipes

DI Pipes are used for transportation of water & sewage distribution. Rising population in
country has resulted in an increase in demand for safe water. This in turn has increased
the demand for transporting good quality water from potential sources to distant cities
without contaminating it.
Demand drivers & Domestic Market Share of DI Pipes:
DI Pipes: Players & Market Share
Tata Metallics
7%
13%
Electrosteel Castings
27%
Jindal Saw
53%
Electrotherm India
Given the increasing demand & low penetration of water distribution and sewage
infrastructure in the country, the growth prospect for this segment is favorable. India has
16% of the world’s population but is estimated to have just 4-5% of the world’s water
resources. This is because slow implementation of water supply projects in India due to
The demand for DI Pipes is expected issues on funding of such projects.
to grow at a CAGR of 15% for next
couple of years with only few players However with the multilateral finance institutions like ADB and World Bank, recognizing
present in this segment
the need for pipeline network transmission of water in recent times, coupled with
increasing focus of the Central Government, State Government & local bodies the path
has been cleared for the development of the infrastructure.
The demand for DI Pipes is expected to grow at a CAGR of 15% for next couple of
years. With only few players present in this segment, Jindal Saw which is targeting
to double its capacity from 200,000 MTPA to 400,000 MTPA in next couple of years
is all set to reap these benefits in the coming years.

Industry Pointer
Product wise demand scenario: Saw Pipes
The demand for Submerged Arc Welded (SAW) Pipes is expected to remain strong not
only in India but globally too considering huge projects announced for laying pipelines
across the globe. Typically Saw Pipes are classified according to its manufacturing
process as LSAW pipes (Longitudinal SAW pipes) & HSAW pipes (Helical / Spiral SAW
pipes). While both these pipes are used for transporting oil & gas at high pressure, there
is a basic difference between the two. While LSAW pipe is used for both offshore as well
as onshore applications (on account of its tensile strength), HSAW can be used only for
onshore applications. It may also be noted that since HSAW pipes are larger diameter
pipes they are also used for water transportation.
LSAW pipes
The total capacity of LSAW (Longitudinal SAW) Pipes across the globe stands at ~15
million. Asia, Europe & CIS put together contribute nearly 63% of LSAW pipe capacities
as showed below:
Region wise Global Capacities - LSAW

13%
North America
14%
3% Western Europe
In the current scenario, the demand Eastern Europe
7%
for LSAW pipes has taken a hit on
account of cheaper HSAW pipes CIS
which have the same applications as
of the former 22%
Asia
Middle East
25%
South Africa
0%
Other World
16%
In the current scenario, the demand for LSAW pipes has taken a hit on account of
cheaper HSAW pipes which have the same applications as of the former. However for
offshore applications, only LSAW pipes are used. Middle East Region, where lots of E&P
activities are shaping up are witnessing resurgence in demand for LSAW pipes. On the
other hand North America, another major market for LSAW pipes have seen a structural
shift to HSAW pipes resulting in lower demand for LSAW pipes.
Further with the incremental capacities of 2.5 million pipes coming over the next one
year, this is likely to put additional pressure on the demand for LSAW pipes.
Capacity
Country
(MTPA)
China 400,000
India 300,000
Ukraine 200,000
Saudi Arabia 300,000
Iran 400,000
Iraq 350,000
Brazil 90,000
Russia 500,000
Total 2,540,000

Industry Pointer
HSAW pipes
The total capacity of HSAW (Helical / Longitudinal SAW) Pipes across the globe stands
at ~10 million. Asia, Europe & Middle East put together contribute nearly 55% of LSAW
pipe capacities as showed below:
Region wise Global Capacities - HSAW

7% North America
14% Western Europe
In the current scenario, the demand 32%
for HSAW pipes has increased Eastern Europe
substantially on account of its lower
1% CIS
cost as compared to HSAW pipes &
wider acceptance than envisaged
2%
earlier Asia
Middle East
South Africa
2%
Africa
1%
8% 33% Other World
In the current scenario, the demand for HSAW pipes has increased substantially on
account of its lower cost & wider acceptance than envisaged earlier. With the demand
supply mismatch likely to remain in the near future along with the replacement demand
particularly in US & Russia expected to take off soon, many players are expanding in this
space as under:
Capacity
Country
(MTPA)
USA 920,000
Russia 70,000
China 150,000
Turkey 200,000
Central Asia 200,000
Iraq 150,000
Indian Players setting up in USA
*Welspun Gujarat 350,000
*PSL 300,000
Total 2,340,000
* already Commissioned
With these expansions, the total capacity of HSAW pipes globally over the next one year
is pegged at 12.5 MTPA.
Industry Pointer
HSAW Technology takes over LSAW applications
In the current environment, demand for HSAW pipes have gained prominence and has
replaced LSAW applications in majority of the cases. This is due to inherent advantages
of manufacturing HSAW pipes as compared to LSAW pipes, both of which are used for
high pressure oil & gas transportation.
The merits of HSAW over LSAW pipes include:
Availability of raw materials and at lower cost: HSAW pipes are made from long
rolled strips of steel known as HR Coils, whereas LSAW pipes are made from large flat
plates of steel, known as plates. It is possible to procure an adequate supply of HR Coils
domestically, whereas supply of plates is limited. Further, limited availability of plates in
India makes plates more expensive than HR Coils. Currently the difference between the
two is around $70-$ 100.
Lower capital costs: LSAW pipe manufacturers require heavy equipment such as
the HSAW pipes being comparatively
cheaper than LSAW pipes primarily
presses which require heavy foundations. These are built out of heavy steel components
due to usage of HR Coils vis-à-vis by specialized manufacturers. In contrast, HSAW pipe mills require lighter equipment.
costlier steel plates along with the Therefore, PSL has lower capital costs to build and operate its pipe mills.
former technology now at par with
the latter, has managed to replace a
majority of LSAW applications
Most suitable for large diameter pipelines: The HSAW technology provides for
manufacture of large pipes using HR Coils. Diameter of pipes can be as large as 120
inches compared to about 56 inches using LSAW technology. Thus for water projects,
where large diameter pipes are used, HSAW pipes are invariably used.
Pipes LSAW HSAW
Diameter (inches) 16” – 56” 18” – 120”
Thickness (mm) 4.8” – 38” 5” – 25”
Pressure High High
This limitation on LSAW pipes is because plates of such width are not widely
manufactured by steel mills. Thus large diameter pipelines have to necessarily be
manufactured using HSAW technology.
To sum up, the HSAW pipes being comparatively cheaper than LSAW pipes
primarily due to usage of HR Coils vis-à-vis costlier steel plates (used for
manufacturing of LSAW pipes) along with the former technology now at par with
the latter, has managed to replace a majority of LSAW applications.

Industry Pointer
Porter Analysis
Accreditation Process: A Significant Entry Barrier

The Pipe industry is a highly consolidated industry with few large players capturing
nearly 85-90% of the total market. Given that oil & gas transportation is hazardous, there
are stringent quality norms set by global oil majors for pipe manufacturers.
The accreditation process requires

approvals not only for the quality of
pipes but also for the plant facilities.
This eventually acts a as a strong
entry barrier for the new entrant
which takes atleast 3-5 years to
cement its place in the industry

Industry Pointer
Thus in order to serve these global oil majors, it becomes essential for the pipe
manufacturers to bide by the norms which are laid down by the American Petroleum
Institute (API) besides having client accreditations.
The accreditation process requires approvals not only for the quality of pipes but also for
the plant facilities. This eventually acts a as a strong entry barrier for the new entrant
which takes atleast 3-5 years to cement its place in the industry.
Competitive edge for Indian Players over other Exporters

North America, Middle East & Asian markets are amongst the key export destinations
where the robust demand is likely to sustain over the next 5 years on account of various
pipeline projects announced in the region. Of the total estimated length (325,974 Kms) of
pipelines to be laid across the globe, North America (73,736 Kms), Middle East (43,626
kms) & Asia (95,003 Kms) constitute more than 65% of the total pie.
The Indian pipe industry is among the world’s top three manufacturing hub after Europe
& Japan. However India is always likely to have cost competitiveness advantage as
compared to European & Japanese manufacturers while exporting pipes to Middle East,
Asian & North American region on account of India’s geographical proximity to the region
and also due to lower cost of conversion from plates/coils to pipes on account of lower
labour costs.
Thus Indian pipe manufacturers are expected to garner a larger pie of orders on account
of the inherent cost advantage. We expect Welspun Gujarat & Jindal Saw to benefit the
India is always likely to have cost
most as they have substantial revenues coming from the export markets.
competitiveness advantage as
compared to European & Japanese India Advantage as compared to European & Japanese counterparts:
manufacturers while exporting pipes
to Middle East, Asian & North Cost Advantage for Indian manufacturers on supplies to North America
American region on account of
India’s geographical proximity to the US$ / ton Indian European Japanese
region and also due to lower cost of Cost of Plate 800 800 800
conversion from plates/coils to pipes
on account of lower labour costs Conversion Cost 125 175 225
Cost of Pipe 925 975 1025
Freight 175 150 200
Landed Cost 1,100 1,125 1,225
Cost Advantage +25 -25
Cost Advantage for Indian manufacturers on supplies to Middle East & Asia
US$ / ton Indian European Japanese

Cost of Plate 800 800 800
Conversion Cost 125 175 225
Cost of Pipe 925 975 1025
Freight 100 150 250
Landed Cost 1,025 1,125 1,225

Industry Pointer
Industry Concerns
• Slowdown in oil & gas capex – Demand for SAW pipes is mainly dependent on
oil & gas transportation expenditure. Any slowdown in the capex plans of oil &
gas majors would severely impact the SAW pipe industry. However with the
global recovery underway, we believe that the investments (for laying pipelines)
are likely to speed up especially in US & European markets where the same was
put on hold on account of the worst meltdown seen in many decades.
• High volatility in raw material prices – Prices of HR Coils & Steel plates which
form 70-75% of the total cost of pipes have been very volatile during the past two
years. However to mitigate this volatility, the pipe companies have started to tie
up raw material prices at the time of bidding for new orders thereby enabling
them to maintain margins.
• Non Availability / Shortage of steel plates – Steel Plate industry is a highly

consolidated industry with very few players across the globe. Delay in availability
of quality steel plates can be a cause of concern for the pipe producers.
However companies like Welspun Gujarat have taken the lead in setting up plate
cum coil mill to enable them timely sourcing of plates.
• Alteration / tampering of custom duties – The GoI had imposed a duty of 10%
on export of pipes w.e.f. May 10, 2008. However, it was withdrawn w.e.f. June
13, 2008. The duty impacted the export sales of major pipe companies in Q1
FY09. Any such interference by the GoI in future would impact the export
revenues of pipe companies.
• Currency Fluctuations – Rupee too has been very volatile in the recent past.
Since majority of the Indian companies have bulk of the revenues coming from
exports, it does have an adverse impact on the profitability of these companies.
However the companies are now entering into forward contracts to mitigate the
sharp fluctuation in the rupee.
• Import threat from China – Although China is a significant manufacturer of

SAW pipes, it does not pose a serious threat in the SAW pipe business in the
near future because of strong domestic demand in China. However, in the
seamless and DI pipes business, imports from China might lead to increased
competition and thus affect realizations for Indian pipe manufacturers. However,
the decision by the US government and the European Union to impose an anti-
dumping duty on Chinese imports mitigates this risk to a certain extent.

Industry Pointer
PSL Limited CMP Rs 177 P/E 5.3x FY11e &BUY
PSL Limited is the largest manufacturer of high grade large diameter
PRICE TARGET Rs 250/- (12 Months) Helical Submerged Arc Welded (HSAW) pipes in India. The company
manufactures & supplies pipes certified to API (American Petroleum
Index Details
Institute) standards for oil, gas as well as water transmission projects. PSL
Sensex 17,135 has a total manufacturing capacity of 1,475,000 MT per annum.
Nifty 5,083
BSE Small Cap 7,587
Key Investment Highlights
PIPE
Industry INDUSTRY Surge in HSAW pipes demand augurs well for PSL
The HSAW pipes are comparatively cheaper than LSAW pipes by $150 to
Scrip Details
$200 primarily due to usage of HR Coils vis-à-vis costlier steel plates used
Mkt Cap (Rs in crores) 946.2 for manufacturing of LSAW pipes. Further with the former technology now
Book Value (Rs) 162.2 at par with the latter, HSAW has managed to replace a majority of LSAW
Eq Shares O/s (Cr) 5.4 applications. PSL is well positioned to cater to this growing demand, being
Avg Vol 150,901 the largest manufacturer of HSAW pipes.
52 Week H/L 226 / 59.5 Commands a healthy market share in India
Dividend Yield (%) 2.8 PSL is a dominant player in the HSAW pipes space in India having a
Face Value (Rs) 10 market share of more than 40%. The company’s leadership position in this
space is evident from the fact that PSL has bagged majority of the large
BSE Code 526801
orders placed by GAIL.
NSE Code PSL Order book set to take off
The company’s order book stands at Rs 4,586 crore which is ~1.2x its
Shareholding Pattern (30th June 09) FY09 revenues with 30% alone being contributed by GAIL, its biggest
Shareholders % holding customer. The company expects to bag a large share of orders for the
Promoters 49.1 proposed gas pipeline network to be built by GAIL, GSPL, and other
Indian Institutions 14.2
domestic players, who have announced plans to construct pipeline
transmission networks worth over Rs 20,000 crore.
FII’s 13.8
Non Promoter Corporate 11.7 Valuation & Recommendation
Public 11.2
Total 100.0
At CMP of Rs 177, the stock is trading at 7.5x & 5.3x its FY10 & FY11
earnings of Rs 23.7 & Rs 33.3 respectively. With the company
consolidating its position as the largest manufacturer of HSAW pipes in
PSL Limited Vs Sensex
India coupled with the strong order book & positive industry outlook, we
recommend a BUY on the stock at current levels with a price target of Rs
250, an upside of more than 41% for a time horizon of 9 to 12 months.
Key Financials:
Y/E March, (Rs in crore) FY09 FY10e FY11e
Net Revenues 3,648.9 4,125.0 5,250.0
EBIDTA 310.1 341.5 441.0
PAT 94.9 126.5 178.2
EPS (Rs.) 22.3 23.7 33.3
EPS Growth (%) 12.3 17.3 40.9
ROCE 13.1 13.2 15.4
RONW 15.1 15.6 17.7
P/E (x) 7.9 7.5 5.3
EV/EBIDTA (x) 5.4 5.1 4.0

Industry Pointer
Company Background
PSL Limited is the largest domestic manufacturer of high grade large-diameter spiral
(helical) submerged arc welded pipes or HSAW pipes with a current capacity to produce
upto 1,475,000 MPTA. The company manufactures & supplies pipes certified to API
(American Petroleum Institute) standards for oil, gas as well as water transmission
projects. It manufactures pipes at 13 HSAW pipe mills, 11 of which are located in five
locations geographically spread throughout India and one each in the UAE & in North
America.
HSAW pipes are manufactured using both conventional process (in 11 of its pipe mills
having an installed capacity of 825,000 MTPA) and a two-step process (in two of its pipe
mills with an installed capacity of 650,000 MTPA). It may be noted that the pipe mills
using conventional process are portable, which means they can be relocated when
required, leading to lower pipe delivery transportation costs for the end users.
Installed Capacity
Location Pipe / Coating Mill
(MTPA)
Chennai 1 HSAW Pipe Mill – Conventional 75,000
5 HSAW Pipe Mill – Conventional 375,000

Kandla
1 HSAW Pipe Mill – Two Stage 350,000
PSL is the largest domestic
manufacturer of high grade large- Vizag 1 HSAW Pipe Mill – Conventional 75,000
diameter HSAW pipes with a
capacity to manufacture 1,475,000 Ahmedabad 1 HSAW Pipe Mill – Conventional 75,000
MTPA & 13 HSAW mills located at
strategic locations Jaipur 1 HSAW Pipe Mill – Conventional 150,000
Sharjah, UAE 1 HSAW Pipe Mill – Conventional 75,000
Mississippi, USA 1 HSAW Pipe Mill – Two Stage 300,000
Total HSAW Pipe Mill Capacity 1,475,000
*Two Step Mill – Pipe Manufacturing & Welding is processed at two different stages
PSL manufactures HSAW pipes which are typically used for transmission of oil, gas &
water. It produces large diameter (18” upto 120”) HSAW pipes of varying thickness
between 5mm to 25mm. All its pipe mills conform to the American Petroleum Institute
(API) standards which makes it eligible to manufacture pipes for transportation of Oil &
Gas.
Other Allied services

Apart from its core activity of manufacturing pipes, the company provides pipe coating
services which include pipe corrosion protection. Its pipe coating services are provided
for both onshore & offshore pipe projects.
In addition to Pipe manufacturing & pipe coating which contributes 95% (80% for pipe
manufacturing & 15% for coating services) to the revenues, PSL also provides various
other types of ancillary products and services related to the pipe industry such as
induction pipe bending, sacrificial anodes (a form of corrosion protection for under water
pipes) and turnkey HSAW plant and machinery manufacturing.

Industry Pointer
Single Product Strategy: A Competitive advantage
PSL which manufactures only HSAW pipes (also a largest player under this segment)
has a distinct competitive advantage vis-à-vis its peers which manufacture variety of
other piping products viz LSAW pipes, Electric Resistance Welded (ERW) pipes and
Seamless pipes.
While the demand for ERW & Seamless pipes has been suppressed on account of the
economic slow down, the demand for HSAW pipes have gained prominence and has
In the current environment, demand
for HSAW pipes have gained
replaced LSAW applications in majority of the cases. This is due to inherent advantages
prominence and has replaced LSAW of manufacturing HSAW pipes as compared to LSAW pipes, both of which are used for
applications in majority of the cases high pressure oil & gas transportation.
The HSAW pipes being comparatively cheaper than LSAW pipes primarily due to usage
of HR Coils vis-à-vis costlier steel plates (used for manufacturing of LSAW pipes) along
with the former technology now at par with the latter, has managed to replace a majority
of LSAW applications. PSL is well positioned to cater to this growing demand.
Commands a healthy market share in India

PSL which is a largest manufacturer of HSAW Pipes in India is a dominant player in this
space having a market share of more than 40% in the terms of the total HSAW pipe
capacity.
Players by HSAW Capacities in India & Market Share
Jindal Saw
500,000 500,000
19% PSL
19%
A dominant player in the HSAW pipe
space having a market share of more
550,000
than 40% in the terms of the total Welspun Gujarat
HSAW pipe capacity in India 1,100,000
21%
Man Industries
41%
The company’s leadership position in this space is evident from the fact that PSL has
bagged majority of the orders placed by GAIL. Further since the company has facilities at
13 strategic locations, it stands an edge over its competitors as far as the freight cost
component is concerned, thereby putting it in the L1 position in most of the bids.

Industry Pointer
Presence across multiple locations: A strategic Advantage
Large diameter pipes are costly to transport since a single trailer is able to carry only a
limited number of pipes, resulting in high transportation costs per tonne. Therefore, it is
economical for purchasers to order pipes from a source near the place of usage. PSL
has pipe mills in five locations throughout India, namely Chennai, Kandla, Vizag, Jaipur
and Ahmedabad.
Its geographical dispersion across

Its geographical dispersion across India along with in-house design & engineering
India enables it to relocate its capabilities enables it to relocate its conventional HSAW pipe mills to a location that is
conventional HSAW pipe mills to a near to where the pipes are to be used, which in turn means lower transportation costs
location that is near to where the for delivery and also provides it with the advantage of bidding for any large contracts at
pipes are to be used
very competitive rates.
PSL has in-house design & engineering capabilities for developing equipments key for
setting up pipe mills. This provides PSL with competitive edge in plant relocation. For
example, in FY05, it relocated two of its HSAW pipe mills to Kandla, which is near a port,
for the Sudan project to lower its transportation costs and relocated a pipe mill from
Ahmedabad to Jaipur in FY06 for similar reasons.
Production ramp up at the US facility to drive growth

The recently inaugurated North American facility at Mississippi having a capacity of
300,000 MTPA commenced commercial operations in Oct’08. The production ramp up
from this facility as well as the incremental domestic demand arising from the proposed
projects would result in higher volume growth over the next two years.
Installed Capacity & Production details

1,600,000 50.0
1,400,000 45.0
40.0
1,200,000
35.0
1,000,000 30.0
The company which has produced 800,000 25.0
0.47 million tons of pipes in FY09 is 20.0
expected to ramp up its production 600,000
significantly to 0.55 million tons & 15.0
400,000
0.70 million tons in FY10 & FY11 10.0
respectively 200,000 5.0
- -
FY07 FY08 FY09 FY10 FY11
Installed Capacity Production Cap Utiln (%)
The company which has produced 0.47 million tons of pipes in FY09 is expected to
ramp up its production significantly to 0.55 million tons & 0.70 million tons in FY10 &
FY11 respectively thereby improving its capacity utilization from 32% in FY09 to 48% in
FY11e. Thus PSL is expected to be in a higher growth trajectory both in terms of
revenues as well as profitability for the next two years.

Industry Pointer
Future expansion to supplement growth
Considering the increasing demand for HSAW line pipes domestically as well as globally
PSL is contemplating to upgrade / expand its Indian facilities. For the said purpose, the
company has recently raised ~ Rs 150 crore through issue of Qualified Institutional
Placements (QIP). The use of these proceeds arising out of the issue is expected to be
used for the following:
1. Procurement of capacity enhancing equipments, balancing equipments and

quality enhancing equipments for its various Indian facilities including Chennai,
Kandla, Vizag & Mahudi. The cost in this regard is expected to be ~Rs 50 crore.
Capacity expansion at Vizag plant
from 75,000 tons to 300,000 &
modernization of its domestic 2. Capacity expansion at Vizag plant from 75,000 tons to 300,000 at a cost of
facilities to supplement growth Rs 200 crore. This plant has a strategic significance being close to KG Basin
wherein huge investment in terms of laying pipelines is expected over the next
two to three years. PSL is expected to bag a larger pie of orders connected to
these pipelines due to its freight cost competitiveness as compared to its peers.
With the aforesaid expansion cum modernization plans, total capex is pegged at Rs 250
crore. While Rs 150 crore has been raised through the QIP, the balance is expected to
be raised through the External Commercial Borrowings (ECBs).
Order Book set to take off

The company’s order book stands at Rs 4,586 crore which is ~1.2x its FY09 revenues.
The company which has already completed the first five orders from GAIL by laying over
1,100 km of pipeline of varying diameters, has recently bagged the sixth order for
supplying X-80 grade large diameter steel line pipes.
Details of major projects under execution
Contract Value
Major Projects Name of Customer
(Rs in crore)
Oil & Gas related
Vijaipur-Dadri Pipeline GAIL 1,480
Mundra-Bhatinda Pipeline – I IOCL 935
We believe the company is likely to
bag a large share of orders for the Dahej-Vijaipur Pipeline GAIL 500
proposed gas pipeline network to be Mundra-Bhatinda Pipeline – II HPCL-Mittal Pipelines 409
built by GAIL, GSPL, and other
domestic players over the next 3 to 5 FGT Project Florida Gas Trans Co 222
years
Dahej-Vijaipur Pipeline Coating GAIL 212
Water related
Barmer Lift water supply – I L&T 308
Indore Municipal Corporation Pratibha Industries 51
DJB Dwaraka water supply L&T 23
Others
Indira Gandhi Super TPP Aravali Power Co. Pvt Ltd 61
Coimbatore Project ETL Infra Services 41
Coimbatore Muncipal Corp. Nagarjuna Construction 36

Industry Pointer
As seen in the table, PSL has successfully executed large projects for some of the big
players in the oil & gas sector namely GAIL, HPCL & OIL. Further down the line we
believe the company is likely to bag a large share of orders for the proposed gas pipeline
network to be built by GAIL, GSPL, and other domestic players, who have announced
plans to construct pipeline transmission networks worth over Rs 20,000 crore.
GAIL’s upcoming pipelines: A Huge Opportunity for PSL
Of the unexecuted order book of Rs 4,586 crore, GAIL has contributed nearly Rs 1,500
crore representing more than 32% thereby being its key customer. Going forward GAIL
has aggressive capex plans (nearly Rs 20,000 crore over the next 3-5 years) for
expansion of its pipeline network by laying new pipelines to cater to most part of the
Of the unexecuted order book of Rs
southern, western, northern & far eastern regions of India.
4,586 crore, GAIL has contributed
nearly Rs 1,500 crore representing
more than 32% thereby being its key GAIL also aims to create the National Gas Grid (primarily in conjunction with Reliance
customer Gas Transmission Infrastructure Limited (RGTIL) that has significant network coming up
in eastern India. This represents a huge opportunity for PSL which has the best track
record for bagging majority of the orders placed by GAIL.
Orders bagged by PSL from GAIL
S Order Approx Size (Rs Year of

Project
N Date MT in crore) completion
1 Dec’05 Dahej Uran Pipeline – I 47,000 240 2007
2 May’06 Dahej Uran Pipeline – II 36,000 181 2007

Last six out of seven large orders
placed by GAIL have been bagged by
PSL 3 Jul’06 Dabhol Panvel Pipeline – I 31,600 220 2007
4 May’07 Dabhol Panvel Pipeline – II 27,700 111 2008
5 Jun’08 Vijaipur Dadri Bawana Pipeline 229,200 1,480 2010
6 Aug’09 Dahej Vijaipur Pipeline Upgradation 100,000 500 2011
GAIL’s proposed Pipeline projects
S Length Capex (Rs Expected

Project
N (Km) in crore) completion
1 Dadri Bawana Nangal pipeline 640 2,360 2011

Going forward GAIL has aggressive
capex plans (more than Rs 20,000 2 Chainsa Jhajjar Hissar Pipeline – II 450 1,250 2011
crore over the next 3-5 years) for
expansion of its pipeline network by 3 Dahej Vijaipur Pipeline – II 1,115 4,400 2011
laying new pipelines to cater to most
part of the southern, western, 4 Dabhol Bangalore Pipeline 1,480 4,060 2012
northern & far eastern regions of
India.
5 Kochi – Mangalore / Bangalore Pipeline 840 3,500 2012
6 Jagdishpur Haldia Pipeline 1,690 7,000 2012

Industry Pointer
US Replacement Market: Another driver for PSL’s order book
In addition to the demand created from setting up new pipeline projects, the ageing of
pipelines which needs to be replaced (on account of corrosion) represents a huge
opportunity for the pipe industry. As per TMK, a global pipe player, the probability of
In US, more than 1 million Km of pipelines surviving more than 33 years is low.
pipes were laid prior to 1975. These
pipes have almost outlived their
In US, more than 1 million Km of pipes were laid prior to 1975. These pipes have almost
economic life, requiring a pressing
need for replacement thereby outlived their economic life, requiring a pressing need for replacement. This represents a
representing a huge market for huge market for HSAW pipe manufacturers globally.
HSAW pipe manufacturers globally
PSL after having recently commissioned its commercial operations at its 300,000 MTPA
HSAW plant facility in North America in Oct’08 is well positioned to cater to this
replacement market. The company has already got its first order in this regard from
Florida Gas Company valuing at US$ 418 million even before the new plant was set up.
The successful & timely completion of this order is expected to throw a lot of
opportunities (addressable market) to PSL going forward.
Water Segment: Emerging Opportunities
In addition to oil and gas transportation, water management presents another area of
growth for the pipe industry. There is an increasing need to provide clean and safe
drinking water in the country. This has resulted in a number of State Governments
A number of State Governments are
investing in pipe infrastructure for water management. International organizations like
investing in pipe infrastructure for
water management with International World Bank and Asian Development Bank (ADB) are also funding such projects across
organizations like World Bank and India. Water pipelines are large diameter pipes which can be delivered using HSAW
Asian Development Bank funding technology.
such projects, augurs well for HSAW
pipe manufacturer like PSL
We expect PSL to garner a sizeable share in this segment particularly since it would be
able to aggressively bid for water projects as it has the added advantage of relocating its
pipe mills closer to the location where the pipes are required to be laid thereby lowering
the costs of delivery of pipes.
Financial performance
For the quarter ended Jun’09 (Q1FY10), total revenues were down 4% from Rs 658.9
crore to Rs 633.3 crore. PAT too slid by 13.4% to Rs 22.5 crore backed by higher
interest & depreciation charges which were up 82% & 24% respectively. However the
operational performance was better registering a growth of nearly 13% with OPM rising
by 180 bps on the back of higher EBIDTA / ton which was up 3% YoY. EPS for the
quarter stood at Rs 5.3.
The company’s total revenues for FY09 jumped by 57%, to Rs 3,550 crore from Rs 2,262
crore in FY08. Its PAT for the period was however up marginally by 1.4% to Rs 85.9
crore from Rs 84.8 crore. OPM were down by 230 bps from 10.5% to 8.2%. The EPS for
the year FY09 remained flat at Rs 20.2.

Industry Pointer
Financial Outlook
With the recently commissioned US facility & the incremental demand coming from the
newly announced pipeline projects (Oil, gas & water), we expect the volumes to grow at
a CAGR of 21% from 477,086 tons in FY09 to 700,000 tons in FY11 thereby improving
its capacity utilization from 32% in FY09 to 48% in FY11e. Further we have not taken into
account any volume expansion on account of its capex plans. These would be earnings
We expect the company’s net accretive & we would upgrade the EPS estimates as these capex plans are completed.
revenues & profitability to exhibit a
CAGR of 22% & 44% respectively
over the next two years Thus PSL is expected to be in a higher growth trajectory both in terms of revenues as
well as profitability for the next two years which are expected to exhibit a CAGR of 22%
& 44% respectively. We expect the company’s net revenues to touch Rs 4,125 crore &
Rs 5,250 crore in FY10 & FY11 respectively and the net profit at Rs 120.6 crore & Rs
178.2 crore respectively. EPS for FY10 & FY11 is pegged at Rs 22.6 & Rs 33.3
respectively (on fully diluted basis).
Key Concerns
• HR Coils, key raw material for manufacturing of HSAW pipes constitute more
than 70% of the total cost of production. The prices of the coils have remained
very volatile in the last one year. Any material change in the prices further would
have a material impact on the financials of the company
• The high price differential between the plates & HR Coils has been the prime
reason for the shift from LSAW pipes to HSAW pipes. Any moderation in the
plate prices may reduce the competitive advantage for the HSAW pipes thereby
having a material impact on the demand for this product.
Valuation & Recommendation

At CMP of Rs 177, the stock is trading at 7.5x & 5.3x its FY10 & FY11 earnings of Rs
23.7 & Rs 33.3 respectively. With the company consolidating its position as the largest
manufacturer of HSAW pipes in India coupled with the strong order book & positive
industry outlook, we recommend a BUY on the stock at current levels with a price target
of Rs 250, an upside of more than 41% for a time horizon of 9 to 12 months.

Industry Pointer
Exhibit 01: Financials and Projections
Profit & Loss Statement Key Ratios

Y/E March, Fig in Rs. Cr FY2009 FY2010e FY2011e Y/E March, Fig in Rs. Cr FY2009 FY2010e FY2011e
Net Sales 3,648.9 4,125 5,250 Per Share Data (Rs)
% Chg 59.1 13.0 27.3 EPS 22.3 23.7 33.3
Total Expenditure 3,338.9 3,783.5 4,809 Cash EPS 38.4 38.6 50.2
% Chg 62.4 13.3 27.1 DPS 5.0 5.0 5.0
EBDITA 310.1 341.5 441.0 Book Value 162.2 174.9 202.4
EBDITA Margin % 8.7 8.3 8.4 Capital, Liquidity, Returns Ratio
Other Income 0.0 40.0 40.0 Debt / Equity (x) 1.7 1.4 1.3
PBDIT 310.1 381.5 481.0 Current Ratio (x) 1.1 1.7 1.8
Depreciation 68.8 80.0 90.0 ROE (%) 15.1 15.6 17.7
Interest 102.8 110.0 125.0 ROCE (%) 13.1 13.2 15.4
PBT 138.5 191.5 266.0 Dividend Yield (%) 2.8 2.8 2.8
Tax Provisions 43.7 65.0 87.8 Valuation Ratio (x)
Reported PAT 94.9 126.5 178.2 P/E 7.9 7.5 5.3
PAT Margin (%) 2.6 3.1 3.4 P/BV 1.1 1.0 0.9
EV/Sales 0.5 0.4 0.3
Raw Materials / Sales (%) 70.5 71.0 71.0 EV/EBIDTA 5.4 5.1 4.0
Employee Exp / Sales (%) 1.8 1.6 1.5 Efficiency Ratio (x)
Other Mfr. Exp / Sales (%) 19.7 19.2 19.0 Inventory (days) 300 270 91
Tax Rate (%) 31.5 33.9 33.0 Debtors (days) 46 54 53
Creditors (days) 351 338 132
Balance Sheet Cash Flow Statement

Equity Capital 42.6 53.3 53.3 Profit After Tax 94.9 126.5 178.2
Reserves & Surplus 648.0 881.9 1028.9 Depreciation & W/o 68.8 80.0 90.0
Total Loans 1,142.3 1,315.6 1,410 Working Capital Changes 163.0 -158.8 -185.6
Deferred Tax Liability -14.7 -14.9 -14.9 Others 4.6 12.6 20.0
Operating Cash Flow 331.3 60.2 102.6
Total Liabilities 1,845.4 2,275.9 2,537.3 Capital Expenditure -731.3 -54.9 -100.0
Change in Investment 0.0 0.0 0.0
Gross Block 1,272.0 1,500 1,800 Cash Flow from Investing -731.3 -54.9 -100.0
Less: Acc. Depreciation 347.8 427.8 517.8 Proceeds from equity issue 0.0 149.3 0.0
Net Block 924.2 1,072.2 1,282.2 Inc/(Dec) in Debt 237.6 173.3 94.4
Capital Work in Progress 373.1 200.0 0.0 Dividend Paid -24.9 -31.2 -31.2
Investments 4.3 4.3 4.3 Cash Flow from Financing 212.7 291.4 63.2
Net Current Assets 543.9 999.4 1250.8
Misc. Expd not w/o 0.0 0.0 0.0 Net Change in Cash -187.3 296.7 65.8
Opening Cash Balance 400.5 213.3 510.0
Total Assets 1,845.4 2,275.9 2,537.3 Closing Cash Balance 213.3 510.0 575.8

Industry Pointer
Welspun Gujarat Stahl Rohren Ltd. CMP: Rs 262 P/E 8.7x FY11e &BUY
Welspun Gujarat Stahl Rohren Ltd (WGSRL), the flagship company of
PRICE TARGET Rs 360/- (12 Months) the Welspun Group is a prominent pipe manufacturer in the country, which
caters to the global requirement of high grade Submerged Arc Welded
Index Details
(SAW) pipes both spiral (helical) as well as longitudinal pipes and the
Sensex 17,135 Electric Arc Welded (ERW) pipes. Its unique capability to manufacture
Nifty 5,083 higher end pipes of large diameter has established itself as a dominant
BSE MID CAP 6,302 player in the niche segment.
PIPE
Industry INDUSTRY Key Investment Highlights
Scrip Details Capacity expansion to fuel growth
Mkt Cap (Rs in crore) 4,873.2 With the increasing global demand for critical oil & gas pipelines, the
Book Value (Rs) 83.9 company in the last fiscal i.e. in Feb’09 commissioned its 350,000 MTPA
Eq Shares O/s (Cr) 18.6 HSAW facility at Little Rock, Arkanas, USA at a cost of $150 million.
Avg Vol 1,039,950
Further the company has embarked upon on an expansion plan whereby it
is expected to add another 0.6 million capacity to its current capacity of 1.5
52 Week H/L 278 / 48.5
million linepipe per annum, which would catapult the company into one of
Dividend Yield (%) 0.6
the top global manufacturers of large diameter pipes.
Face Value (Rs) 5.0
Backward Integration to be Margin accretive: Huge positive
After facing initial teething problems, WGSRL has finally stabilized its steel
BSE Code 532144
plate mill at Anjar having a capacity of 1.5 MTPA with a capex of Rs 18
NSE Code WELGUJ billion. This project will not only ensure timely raw material supplies but will
also result in savings in cost of steel plates which are being imported at a
Shareholding Pattern (30th June 09) much higher cost, thereby being margin accretive.
Shareholders % holding Strong Order Book provides earnings visibility
Promoters 44.0 WGSRL has a healthy order book worth Rs 6,975 crore. The exports
Indian Institutions 10.9 constitute nearly 80% of the order book whereas the domestic orders
FII’s 15.2 contribute the balance. While Linepipe along with coating constitutes 90%
Non Promoter Corporate 12.0 of the order book, the balance comes from steel plates.
Public 17.9 Valuation & Recommendation:
Total 100.0 At the CMP of Rs 262, the stock is trading at 11.0x its FY10e earnings of
Rs 23.8 & 8.7x its FY11e earnings of Rs 30. With the company expected
Welspun Gujarat Vs Sensex to witness strong volume growth coupled with its strong order book & the
robust demand likely to prevail over the next three to five years, we
recommend a BUY on the stock at the CMP with a price target of Rs 360,
an upside of 37% from the current levels for 9 to 12 months horizon.
Key Financials:
Y/E March, (Rs in crore) FY09 FY10e FY11e
Net Revenues 5739.5 7400.0 8500.0
EBIDTA 634.8 1070.0 1265.0
PAT 213.5 443.0 559.0
EPS (Rs.) 11.4 23.8 30.0
EPS Growth (%) -40.3 107.5 26.2
ROCE 11.4 20.2 22.5
RONW 13.7 25.1 25.0
P/E (x) 23.0 11.0 8.7
EV/EBIDTA (x) 10.4 5.5 4.4

Industry Pointer
Company Background
Welspun Gujarat Stahl Rohren Ltd (WGSRL), the flagship company of the Welspun
Group is a one stop solutions company for all pipe related requirements providing an
exhaustive size and product range of pipes. It is a leading pipe manufacturer in the
country, which caters to the global requirement of Submerged Arc Welded (SAW) pipes
both spiral as well as longitudinal pipes and the Electric Arc Welded (ERW) pipes.
The only domestic company to

The company has its production facilities at Anjar and Dahej in Gujarat. Further the
successfully manufacture & deliver manufacturing facilities are in close proximity to the major ports of the western coast of
high thickness large diameter pipes India thereby minimizing transportation costs of the company. WGSRL incorporates the
for critical oil and gas applications. best technology from Mannemann Demag, Germany & the Capello Group, Italy for
LSAW & HSAW pipe applications respectively.
WGSRL is the only domestic company & amongst the few in the world to successfully
manufacture & deliver high thickness large diameter pipes for critical oil and gas
applications across continents. Apart from the pipes segment, the company has also
commissioned its state of art plate mill in the last fiscal while its coil mill is expected to
start commercial operations soon.
Industry Pointer
Product Profile
Product Portfolio Outer Diameter Thickness
LSAW – India 15” to 60” Upto 65 mm
HSAW – India 18” to 100” Upto 15 mm
HSAW – USA 24” to 60” Upto 25 mm
ERW – India 0.5” to 16” Upto 13 mm
Plates Upto 4.5 meters Upto 140 mm
Coils Upto 2.8 meters Upto 25 mm
Capacity Additions to fuel growth

With the increasing global demand for HSAW pipes, the company in the last fiscal i.e. in
Feb’09 commissioned its 350,000 MTPA HSAW facility at Little Rock, Arkanas, USA at a
cost of $150 million.
Product Portfolio Dahej Anjar US Facility Total
HSAW 50,000 500,000 350,000 900,000
LSAW 350,000 - - 350,000
ERW - 250,000 - 250,000
Total 400,000 750,000 350,000 1,500,000

WGSRL has embarked upon on an
expansion plan whereby it is Further the company has embarked upon on an expansion plan whereby it is expected to
expected to add another 0.6 million add another 0.6 million capacity to its current capacity of 1.5 million linepipe per annum.
capacity to its current capacity of 1.5 The management is keen on adding 300,000 MTPA of LSAW pipes at its existing facility
million linepipe per annum
in Anjar, Gujarat while it is likely to add another 300,000 MTPA of HSAW pipes in South
East India, possibly Vizag. (Still not decided on the location).
Post
Products Current Additions
Expansion
HSAW 900,000 300,000 1,200,000
LSAW 350,000 300,000 650,000
ERW 250,000 - 250,000
Total 1,500,000 600,000 2,100,000
These expansions are likely to get materialized by Dec’10. This would enhance
WSGRL’s pipe making capacity from the current 1.5 MTPA to 2.1 MTPA by FY11, which
would catapult the company into one of the top global manufacturers of large diameter
pipes.
Industry Pointer
Higher volume growth amidst capacity additions
With the production ramp up to take place at its US facility which commenced its
operations only in Feb’09, we expect the volume to gain further traction with production
for FY10 pegged at 850,000 MTPA, a YoY growth of nearly 16%. (FY09 volume growth
was at 10% over FY08 with volumes of 734,352 MTPA).
Further with the incremental demand for the linepipe likely to increase over the next few
years on account of various projects announced worldwide, we expect the volume
growth for FY11 to be at 18% at 1 million tons.
Installed Capacity & Production details

2,500,000 80.0
70.0
2,000,000
60.0
We expect the volume to gain further
traction with production for FY10 1,500,000 50.0
pegged at 850,000 MTPA, a YoY
growth of nearly 16%. (FY09 volume 40.0
growth was at 10% over FY08 with 1,000,000 30.0
volumes of 734,352 MTPA)
20.0
500,000
10.0
- -
FY07 FY08 FY09 FY10 FY11
Installed Capacity Production Cap Utiln (%)
As per the chart above, the Capacity utilization is expected to improve from 49% in
FY09 to 57% in FY10. However the utilization level is expected to come down in FY11
as the additional capacity of 0.6 million tons would have come into play only by
Q3FY11. Thus we expect the company to reap the benefit of these expansions only
from FY12 onwards where the utilizations are expected to improve to near 60-65%
levels.
Backward Integration
WGSRL used to imports 80% of its steel requirements in the form of steel plates from
Europe & CIS region. LSAW pipes require 1,270 to 4,500 mm wide plates, whereas the
maximum width available in India is 3,200 mm. On account of increasing pipeline
projects being undertaken all over the world along with gradual pick up of demand from
Backward Integration in the form of ship builders (which was largely hit in the current slowdown resulting in correction of
manufacturing high-grade steel plate prices by 40-45%) & boiler manufacturers, there is still a shortage in supply of high-
plates would mitigate the risk of grade steel plates resulting in procurement at higher prices.
availability & high price
sensitiveness of steel plates
To mitigate this, the company has recently set up a backward integration project in the
form of setting up first of its kind in India, a plate cum coil mill at Anjar with a capacity of
1.5 MTPA at a capex of Rs 18 billion. The project was funded through a combination of
preferential warrants, FCCB’s, debt & internal accruals. While the plate mill has stabilized
after the initial teething problems, the coil mill has got delayed & is expected to
commence commercial production soon.
Industry Pointer
In the first year of its operation i.e. in FY09, the plate mill produced 192,569 MT of which
112,043 MT were captively used while 42,073 were sold outright & the balance being
held as closing stock. The management has guided for producing nearly 400,000 MT of
plates for the current fiscal of which 100,000 MT would be commercial grades which are
usually sold outright. The remaining 300,000 MT would be API grade plates, of which
135,000 MT (for which the company has existing orders) would be sold & balance being
captively consumed.
The timely raw material supplies & the savings in cost of steel plates (cost of
manufacturing over the cost of procurement) have resulted in not only meet the short
gestation orders but also in expansion of margins.
By manufacturing steel plates, the
company would saving nearly US$ Steel plates are manufactured from slabs, which unlike the former are widely produced in
125 per ton excluding the India, Ukraine, Brazil & China and are also less sensitive to pricing. Savings on account
depreciation & interest cost incurred of manufacturing vis-à-vis procurement of steel plates is as under:
on putting up the facility
Current Procurement of Steel Plates (A) US$ 800 / ton
Estimated Cost of Producing Steel Plates (B) = (i) + (ii) US$ 675 / ton
Cost of slab (i) US$ 550 / ton
Conversion cost including wastage (ii) US$ 125 / ton
Savings (A) – (B) US$ 125 / ton
Thus by manufacturing steel plates, the company would saving nearly US$ 125 per ton
excluding the depreciation & interest cost incurred on putting up the facility.
Strong Order Book Provides Earnings Visibility

At present, WGSRL has a healthy order book worth Rs 6,975 crore. The exports
constitute nearly 80% of the order book whereas the domestic orders contribute the
balance. While Linepipe along with coating constitutes 90% of the order book, the
balance comes from steel plates. Of the linepipe orders, HSAW constitutes 59% while
LSAW & ERW pipes contribute 23% and 3% respectively to the order book. The orders
are expected to be executed within the next 9 to 12 months.
Break up of Order Book product-wise
Amount Amount
Order Book Tonnage Mix (%)
The current order book of ~70 billion, (In million $) (Rs in crore)
at 1.2x its FY09 turnover; will be
executed over 9 to 12 months.
HSAW Pipes 450,000 820 4,100 59.0
LSAW Pipes 210,000 320 1,600 23.0
ERW Pipes 35,000 45 225 3.0

Plates 135,000 140 700 10.0
Coating Services - 70 350 5.0
Total….. 830,000 1,395 6,975 100.0
Considering the robust demand for pipes in the view of increasing pipeline projects
across the globe & the company creating a niche for critical oil & gas applications, we
expect the order book to sustain on the back of continued order flows.
Industry Pointer
Order Book - Geographic Wise
Top 10 Clients - Order-wise
Ruby – El Paso USA

6% Do mestic
Enterprise – Teppco (TOPS) USA
11% 20%
Transcanada Pipe Line Ltd Canada
No rth A merica
GAIL India
Sonatrach Algeria
M iddle East
PD Oman Middle East
Punj Lloyd India
A frica
63% Saudi Aramco Middle East
Adani India
GWSSB – Gandhinagar India
Global Footprint & Pre-approved with Oil & Gas Majors

The company has been approved (as a vendor) by more than 40 Oil & Gas majors
across the globe including TOTAL; France, PGN; Indonesia, British Gas; UAE,
Marathon; USA to name a few. With the company being bestowed with various
accreditations / certifications, it is technically more than competent to take almost all
international niche projects in the critical high pressure Oil & Gas segment.
The company maintains unflinching quality standards and implements advanced

technologies, which is testimony to being amongst the most preferred and elite group of
suppliers for deep water off-shore critical projects in the global market. The company has
already made successful inroads globally with some of the key pipe supplies in recent
past, which also include pipes supplied for World's Deepest Gas Pipeline in Gulf of
Mexico, US, where the project required the pipes to be laid over 3,000 meters under the
sea. The following is the vast list of large global players which have approved
WGSRL as its vendor:
AGIP NTPC
BECHTEL ONGC
BRITISH GAS PETRO CHINA
BRITISH PETROLEUM PETRONAS, MALAYSIA
CHINA NATIONAL PETROLEUM CORP PDO, OMAN
CPMEC, CHINA PGN, INDONESIA
CHEVRON QATAR PETROLEUM
DOW RELIANCE INDUSTRIES LIMITED
RUBY (ELPASO) SAIPEM, SNAM
EGYPTIAN GENERAL PETROLEUM CORP SAUDI ARAMCO
ENTERPRISE SHELL
EXXON-MOBIL STOLT OFFSHORE – ACERGY
GAIL SONATRACH
GASCO, ABUDHABI TOTAL
GASCO, EGYPT TECHNIP
GAZPROM TRANSCANADA
KINDER MORGAN UNOCAL
MOGE, MYANMER PERU LNG
N.A.O.C. - NIGERIA VIETSOPETRO
Industry Pointer
Financial Performance
The company’s net sales for Q1FY10 jumped by 72.4% to Rs 1,879.8 crore from Rs
1,090.4 crore in Q1FY09 on higher plate sales & 50% growth in pipe volumes from
144,450 MT to 217,117 MT. Its PAT for the quarter went up by 94.3% to Rs 138.2 crore
from Rs 71.2 crore. However after excluding extraordinary income of Rs 37.5 crore by
way of reversal of foreign exchange provisions, PAT still showed an impressive rise of
41.5% to Rs 100.7 crore. EPS for Q1FY10 excluding extraordinary income stands at Rs
5.4.
For FY09, the company reported 44% rise in its revenues at Rs 5,739.5 crore. PAT on
the other hand was down 37.3% to Rs 213.5 crore from Rs 340.8 crore mainly due to
foreign exchange provision to the tune of Rs 131.4 crore due to sharp fluctuation &
volatility of foreign exchange rates. EPS for FY09 too was down 40.3% to Rs 11.4 from
Rs 19.2 in FY08.
Financial Outlook
We expect the company’s net revenues to touch Rs 7,400 crore in FY10 & Rs 8,500
crore in FY11 on the back of higher volume growth in line pipes as well as plates. Further
higher output from the plate mill will result in gradual increase in savings which would
Going forward, we expect profits to increase the OPM margins from 11.1% in FY09 to 14.9% in FY11.
grow at a CAGR of 62%, from FY09
to FY11. PAT is expected to exhibit a CAGR of ~62% over the next two years from Rs 213.5 crore
in FY09 to Rs 559 crore in FY11. EPS for FY10 & FY11 is pegged at Rs 23.8 & Rs 30
respectively.
Key Concerns
• Any delay in further ramping up the production at its plate mill would have an
adverse impact on the financials of the company.
• Since majority of the revenues come from exports, wide fluctuations in foreign
exchange will impact the financials of the company. However the company
mitigates the risk by conservatively entering into forward contracts in case of its
import & export transactions.

The increasing oil and gas demand should benefit pipe industry as more and more new
pipe lines project are being announced. The Company today is accredited by almost all
oil and gas majors and thus is automatically qualified to bid for most of the projects.
These approvals, coupled with experience & expertise of successfully supplying pipes for
most challenging projects and establishing itself as a niche player globally in the high-
pressure oil and gas segment, shall enable the Company to reap the robust demand
prevalent over the next 5 years.
At the CMP of Rs 262, the stock is trading at 11.0x its FY10e earnings of Rs 23.8 & 8.7x
its FY11e earnings of Rs 30. With the company expected to witness strong volume
growth coupled with its strong order book & the robust demand likely to prevail over the
next three to five years, we recommend a BUY on the stock at the CMP with a price
target of Rs 360, an upside of 37% from the current levels for 9 to 12 months horizon.
Industry Pointer

Net Sales 5,739.5 7,400.0 8,500.0 Per Share Data (Rs)
% Chg 43.7 28.9 14.9 EPS 11.4 23.8 30.0
Total Expenditure 5,104.8 6,330.0 7,235.0 Cash EPS 19.1 32.1 39.4
% Chg 52.9 24.0 14.3 DPS 1.5 1.5 1.5
EBDITA 634.8 1,070.0 1,265.0 Book Value 83.9 105.9 134.2
PBDIT 653.5 1,088.0 1,289.0 Current Ratio (x) 1.2 1.1 1.1
Interest 176.6 250.0 265.0 ROCE (%) 11.4 20.2 22.5
Reported PAT 213.5 443.0 559.0 P/E 23.0 11.0 8.7
PAT Margin (%) 3.7 6.0 6.6 P/BV 3.1 2.5 2.0
EV/Sales 1.1 0.8 0.7

Share Capital (incl. warrants) 93.2 93.2 93.2 Profit After Tax 213.5 443.0 559.0
Reserves & Surplus 1,466.4 1,876.7 2,403.0 Depreciation & W/o 143.3 155.0 175.0
Total Loans 2,653.8 2,410.7 2,210.7 Working Capital Changes 814.9 508.5 427.0
Deferred Tax Liability 248.8 248.8 248.8 Others -113.1 0.0 -0.1
Operating Cash Flow 1,058.6 1,106.5 1,160.9
Total Liabilities 4,462.3 4,629.4 4,955.7 Capital Expenditure -1146.9 -131.8 -650.0
Change in Investment 211.0 -300.0 -100.0
Gross Block 3,484.4 3,750.0 4,500.0 Cash Flow from Investing -935.9 -431.8 -750.0
Net Block 3,099.6 3,210.3 3,785.3 Inc/(Dec) in Debt 586.1 -243.2 -200.0
Investments 114.0 414.0 514.0 Cash Flow from Financing 554.0 -275.9 -232.6
Net Current Assets 664.8 555.2 306.5
Misc. Expd not w/o 0.0 0.0 0.0 Net Change in Cash 676.7 398.9 178.3
Industry Pointer
Jindal Saw Ltd. CMP: Rs 765.0 P/E 9.3x FY11e &BUY ON DIPS
Jindal Saw Ltd (JSL), a part of $10 billion O.P. Jindal group is one of the
PRICE TARGET Rs 825/- (12 Months) largest pipe manufacturing companies in India with strong global
presence, offering total pipe solutions including high grade Submerged Arc
Index Details
Welded (SAW) pipes, Ductile Iron (DI) pipes and seamless pipes.
Sensex 17,135
Nifty 5,083 Key Investment Highlights
BSE MID CAP 6,302
Diversified business model: Balanced approach
PIPE
Industry INDUSTRY
JSL has a diversified product range having presence in value as well as
volume driven product lines. While SAW pipe is more of a volume driven
Scrip Details product having decent margins, DI pipes & Seamless pipes are high
Mkt Cap (Rs in crores) 3,987.4 profitable segments having better realization & margins.
Book Value (Rs) 542.7 Capacity expansion to fuel growth
Eq Shares O/s (Cr) 5.2 JSL is ramping up its seamless pipes capacity from 100,000 MTPA to
Avg Vol 190,100 250,000 MTPA which is expected to be completed by Sep’09. It is also
52 Week H/L 779 / 135 expanding its HSAW capacity at Bellary by 110,000 tons with a capex of
Dividend Yield (%) 0.7 Rs 50 crore. It also plans to double its ductile pipe capacity from 200,000
Face Value (Rs) 10.0
MTPA to 400,000 MTPA by Aug’11 at a capex of Rs 350 crore.
Strong Order Book provides earnings visibility
BSE Code 500378 Currently JSL has an order book worth close to Rs 4,000 crore, which is
NSE Code JINDALSAW executable over a period of 9 months. While Saw pipes contribute 68%,
Ductile pipes & Seamless pipes contribute 20% & 12% respectively.
Shareholding Pattern (30th June 09) Diversification into allied / unrelated activities
Shareholders % holding After having divested its US subsidiaries, JSL has created Jindal ITF, its
infrastructure arm which has initiated setting up businesses in activities viz
Promoters 43.8
water transportation infrastructure, inland & costal waterways
Indian Institutions 11.6
transportation and power generation from solid waste. Though these
FII’s 20.4 activities are in the nascent stage they could drive revenues going forward.
Non Promoter Corporate 16.4
Public 7.8
At the CMP of Rs 765, the stock is trading at 8.7x its FY11e earnings of Rs
Total 100.0
82.4. With the company consolidating its position through capacity
expansion across all the pipe products coupled with the fairly strong order
Jindal Saw Vs Sensex book & positive industry outlook, we recommend the investors to BUY the
stock on DIPS at around 650 levels with a price target of Rs 825 for 12 to
15 months horizon.
Key Financials:
Y/E March, (Rs in crore) CY08 *FY10e FY11e
Net Revenues 5,356.7 6,500.0 5,985
EBIDTA 706.6 1,028.0 950.0
PAT 326.3 497.8 485.0
EPS (Rs.) 60.9 90.8 82.4
EPS Growth (%) -62.7 22.0 17.4
ROCE 15.0 18.9 16.6
RONW 12.5 15.7 12.6
P/E (x) 12.6 8.4 9.3
EV/EBIDTA (x) 7.4 4.9 5.3
*FY10e – 15 months
Industry Pointer
Company Background
Jindal Saw Ltd (JSL), formerly known as Saw Pipes Ltd & a part of the $10 billion
Jindal Group, is one of the largest pipe manufacturing company in India, offering ‘Total
Pipes Solutions’ including Submerged Arc Welded (SAW) pipes both spiral as well as
JSL is one of the largest longitudinal pipes widely used in the energy sector for transportation of oil & gas, Ductile
manufacturers of pipes in the Iron Pipes (DI) for water & sewage transportation and Seamless tubes & pipes for
country both in terms of revenues & Exploration & Production (E&P) activities and industrial applications. JSL has effectively
capacity. established itself as a market leader and a global major in providing ‘Total Pipe
Solutions’ to the industry.
The company has its production facilities at Kosi Kalan in UP, two units at Mundra and
one unit at Nashik.
Facilities Pipe Products

Kosi-Kalan, UP LSAW
Mundra, Gujarat LSAW & HSAW
Bellary, Karnataka HSAW
Nashik, Maharashtra Seamless
The company which was having its US subsidiaries catering to production of LSAW
pipes & plates (used for manufacturing of LSAW pipes) have already been divested &
the proceeds of the same have been deployed for expansion of its core activities &
diversification into other business initiatives.
Business Model
The core business operations of JSL are structured into three Strategic Business Units
(SBUs) which include Saw pipes, Seamless Tubes & Pipes and Ductile Iron (DI) Pipes.
Thus the company has a diversified product range which mitigates the business risks in
the form of being diversified across various user segments (energy transportation sector,
JSL has a balanced approach with E&P activities & industrial applications and water & sewage transportation).
presence in value as well as volume
driven product lines JSL has presence in value as well as volume driven product lines. While SAW pipe is
more of a volume driven product having decent margins, DI pipes & Seamless pipes are
high profitable segments having better realization & margins.
Product Profile
Product Portfolio Outer Diameter Thickness Application
High Pressure as compared

LSAW 16” to 48” up to 38 mm
to HSAW – Critical Oil & Gas
High Pressure – Oil & Gas /
HSAW 20” to 84” up to 18 mm
Water
E&P activities & industrial
Seamless 6 mm to 177.7 mm 1 mm to 25 mm
applications
Water projects & sewage
DI 0.5” to 16” up to 13 mm
Transportation
Industry Pointer
Product Mix: To focus more on higher margin products
Although majority of the revenues would continue to generate from the SAW pipe
segment in the coming years, JSL’s focus on higher margin products viz. DI pipes &
Seamless pipes would result in expansion of margins & de-risking its business. While
JSL is close to commissioning its recently added Seamless Pipe capacity of 150,000
MTPA, it is also planning to double its in DI pipes capacity from 200,000 MTPA to
JSL’s greater emphasis on Seamless 400,000 MTPA in next couple of years.
& DI pipes would enable the
company to improve their margins Though we expect the majority of the revenues to continue to be contributed by SAW
going forward pipe segment in the near future, we expect the revenues from Seamless & DI pipes
(especially from FY12 where the DI Pipe facility is expected to double) to increase
gradually in the coming years. Further with the company making their presence felt in the
water infrastructure projects & other areas, the contributions from these diversified
businesses are also expected to increase going forward.
The following chart depicts the likely product mix in terms of revenues from the
period CY08 to FY11
CY08 LSAW Pig Iron FY10e

Others LSAW
Pig Iron Others DI
HSAW HSAW
DI
Seamless Seamless
LSAW
LSAW DI DI
Pig Iron Pig Iron

HSAW HSAW
Seamles Others Seamles Others
s s
Others FY11e
Pig Iron LSAW
HSAW
DI LSAW Seamless
DI
Seamles
s Pig Iron
HSAW Others
We expect the revenue share from seamless pipe segment to improve from 8% in CY08
to 15.7% in FY11. The increase in volumes in this segment would not only generate
more revenues but would also result in increasing JSL’s blended EBIDTA margin in the
next two years as the margins in the seamless pipes segments are much higher than in
the other pipe segments.
Industry Pointer
Capital Expenditure to fuel growth
JSL after having divested its US subsidiaries has been on an expansion drive to make up
for the volumes at its US facilities. Post divestment, the company has already expanded
its LSAW pipe capacity by 200,000 MTPA to current 1,000,000 MTPA & HSAW pipe
capacity by 240,000 MTPA to 390,000 MTPA. The total pipe capacity for JSL currently
stands at 1,690,000 MTPA.
Kosi
Facilities Mundra Bellary Nashik
Kalan
LSaw HSaw LSaw DI HSAW Seamless
Current
250,000 350,000 750,000 200,000 40,000 100,000
Capacity
Expansion - - - 200,000 110,000 150,000

JSL is currently expanding its DI
pipe & HSAW pipe capacity to take
advantage of the demand coming Completion
from increased investments in the - - - Aug’11 Dec’09 Sep’09
Pipeline as well as the Water time
projects
Capex (Rs) - - - 350 Cr 50 Cr
Proposed
250,000 350,000 750,000 400,000 150,000 250,000
Capacity
As slated in the table above, JSL is currently expanding under various segments viz
HSAW, DI & Seamless pipe segments.
¾ HSAW Pipes: Considering the huge demand potential for HSAW pipes, JSL after
having added 240,000 MTPA in the last year, is further adding 110,000 MTPA at its
Bellary facility in Karnataka. This incremental capacity which is expected to start
commercial operations by Dec’09 would take the HSAW capacity at its Bellary plant
to 150,000 MTPA & the total HSAW capacity to 500,000 MTPA.
¾ Seamless Pipes: With the crude reserves depleting & the prices expected to surge
in the long run, JSL has recently added 150,000 MTPA of capacity in seamless
pipes by installing a Precision Quality Finishing (PFQ) mill at its Nashik’s facility.
JSL has recently added 150,000 This will take its total capacity of seamless pipes to 250,000 MTPA. Currently the
MTPA capacity of seamless pipes by trail runs are on & the plant is expected to commence commercial operations soon.
installing a Precision Quality
Finishing (PFQ) mill at its Nashik’s
facility thereby increasing its yield & In addition to the volume growth, JSL is expected to improve on its margins
resultantly the margins significantly in the seamless pipe segment as the PFQ mill would generate higher
yield (85%) as compared to the present yield of 75%. This will result in higher
EBIDTA margin for the segment by 600 bps from the current 12% to 18%.
¾ DI Pipes: With the increasing water pipe demand, JSL is planning to set up an
additional DI pipe facility having a capacity of 200,000 MTPA at its existing facility in
Gujarat. Capex for the same is estimated at Rs 350 crore which is to be funded
through available cash funds & internal accruals. The plant is likely to get
operational by August 2011.
Industry Pointer
Order Book Provides Earnings Visibility
At present, JSL has an order book worth approx. $780 million (~Rs 39 billion), a YoY de-
growth of 28.4%. The decline in order book is attributed to lower order inflow on account
of lower crude prices. With the recovery in crude prices, order book position is expected
to improve. The current order book includes export orders of approx 40% totaling to
around $312 million. The major export destinations are Middle East, Gulf region & South
East Asia. The orders are expected to be executed within the next 9 months.
Break up of Order Book product-wise
Amount Amount
Order Book Tonnage Mix (%)
JSL’s order book of Rs 3,900 crore (In million $) (Rs in crore)
includes Rs 2,625 crore for line pipes LSAW Pipes 200,000 325 1,625 42.0
& balance for Seamless & DI pipes
HSAW Pipes 200,000 200 1,000 25.0
Seamless Pipes 40,000 160 800 21.0
DI Pipes 160,000 95 475 12.0
Total….. 600,000 780 3,900 100.0
Considering the robust demand for pipes in view of increasing pipeline projects across
the globe we expect the order book position to improve. Further the company has bid for
various projects for which the approvals are pending.
Diversification: Another Avenue for Growth

JSL is tapping opportunities in water as well as waste management as future areas of
growth. Thus JSL has created a 100% subsidiary Jindal ITF Ltd (JITF) with the main
object to carry out infrastructure-related businesses in India. It is presently engaged in
the business of water management, waste management and waterborne transportation.
These businesses are being carried out through various companies created below JITF.
Industry Pointer
Jindal Water Infrastructure Ltd (JWIL): Water is one of gravest resource challenge of
the humanity. Its better management would ensure sustainable growth of agriculture,
industry or any other economic and social activity. JWIL is one of the major participants
in India's nascent market for private and public-private water and waste-water
management systems. JWIL works in various verticals namely in industrial management
of water, water reuse markets, BOOT projects and desalination.
For the nine months ended

December 2008, JWIL posted
revenue of Rs 191.9 crore with an
EBIDTA of Rs 6.3 crore & PAT of Rs
3.4 crore
For the nine months ended December 2008, JWIL posted revenue of Rs 191.9 crore.
JWIL posted an EBIDTA of Rs 6.3 crore & a PAT of Rs 3.4 crore. It has an outstanding
order book to the tune of Rs 650 crore. It has also participated in various tenders related
to water projects and expects to get few more projects in the near future. The
management has given a guidance of having an order book of close to Rs 1,000 crore by
Dec’09.
Jindal Waterways Limited (JWL): Nearly 20% of all carbon footprints are generated by
automobiles. It provides a great challenge to a country like India which needs to have an
effective transportation infrastructure backbone but still be aware of environmental
concerns. India with its longest coast line has a tremendous potential to move cargo by
ships.
JWL with a fleet of six ships is the largest operator today on Indian coast as well as
JWL with a fleet of six ships has inland water. JSL is focused on developing this business in a profitable and sustainable
recorded a turnover of Rs 44.9 crore
with a net loss of Rs 15 crore
way. JWL has recorded a turnover of Rs 44.9 crore with a net loss of Rs 15 crore. The
business at this stage is not cash positive, primarily on account of economic slowdown &
also due to internal issues with regard to timing of shifts.
These issues are now well vested with & the company expects that this September
onwards, it should be EBIDTA positive & PAT should turn positive by this December.
With a run rate of Rs 19 – 20 crore per month, JWL revenues are expected to be at
around Rs 240 crore for this fiscal.
Industry Pointer
Jindal Urban Infrastructure Limited (JUIL): A substantial increase in waste generation
is expected due to rapid urbanization. JUIL is implementing a project with the theme of
waste to power. It is setting up a waste to energy conversion power plant at Okhla, Delhi
JUIL is setting up a waste to energy at an investment of Rs 150 crore. It will be processing 2,000 tonne of waste per day and
conversion power plant at Okhla,
generating 16-20 MW of power. The power generation is going to increase substantially
Delhi at an investment of Rs 150
crore in five years as quantity and calorific value of waste will rise. This project is slated to be
implemented by the third quarter of 2010. The company has also contracted for CERs at
€ 13.5 per tonne.
Jindal Shipyards Limited
The company has procured about 300 acres of land for setting up a shipyard in Gujarat.
A total amount of Rs 15.5 crore has been spent for land procurement. However, due to
disproportionate correction in the world economy, the project has been put on hold.
Jindal Rail Infrastructure Limited
The main object of this company is to set up a manufacturing facility for wagon/metro
coaches/ EMU and other rolling stocks. However due to the sudden economic slowdown,
the project is moving slowly. An area of 120 acres near Bharuch, Gujarat has been
acquired and regulatory permissions are being obtained. The expected outlay for the
project is estimated at Rs 150 crore.
Accreditations: One of the Key Entry Barriers in the Industry

The approval from Oil & Gas global majors is a key entry barrier in the industry in which
JSL operates. This prequalification process could take nearly 3 to 5 years to establish
itself as one of the approved vendors of pipelines.
JSL has an edge over its competitors
as the company already has been
approved by many Oil & Gas majors JSL has an edge over its competitors as the company already has been approved by
across the globe including Shell many Oil & Gas majors across the globe including Shell Global Solutions, Saudi Aramco,
Global Solutions, Saudi Aramco, to AGIP, Pemex & Bechtel to name a few. With the company being bestowed with various
name a few
accreditations & certifications (including American Petroleum Institute certifications), it is
technically qualified to handle majority of the projects which would come on stream over
the next five years.
Impressive Financial Performance

The company’s net sales for the first six months of the current fiscal jumped by 50.6% to
Rs 2,966.5 crore from Rs 1,969.7 crore in the corresponding period of the previous fiscal.
Its PAT for the same period went up by 48.8% to Rs 231.6 crore from Rs 155.6 crore.
The EPS jumped significantly, to Rs 44.4 from Rs 29.9.
Q2 Results (quarter ended Jun’09) were even more impressive with revenues growing
47.5% to Rs 1,501.1 crore while PAT grew by impressive 94% to Rs 136 crore. Blended
EBIDTA / MT grew by an impressive 44.5% from Rs 8,664 (US$ 178) to Rs 12,517 (US$
258). The spurt in EBIDTA/ton is attributable to better pricing of the orders executed in
the current quarter especially in the large diameter & seamless pipe segments.
Industry Pointer
Financial Outlook
We expect the company’s net revenues to touch Rs 6,500 crore in FY10 (15 months
period on account of proposed change in accounting period from December to March).
Further the revenues are expected to grow 12.1% (variance considering prorate period of
Going forward, we expect revenues 12 months in FY10) in FY11 to Rs 5,985 crore on the back of higher volume growth.
and profits to grow at a CAGR of
12% and 28%, respectively, from PAT on the other hand is expected to exhibit a CAGR of 28% from Rs 437.7 crore in
CY09 to FY11. CY08 to Rs 720 crore in FY11. We also expect the operating margins to improve by 270
bps from 13.2% in CY08 to 15.9% in FY11 on account of various cost efficiency
measures carried out by the company & greater emphasis on higher margin seamless &
DI pipes.
Equity Dilution
2,730,000 9.5% Unsecured Compulsory Convertible Debentures (CCDs) of Rs 819 each
would be converted into 2,730,000 equity shares of Rs 10 each upto 20th September,
2009.
During FY06, JSL had issued JPY 9,090 million FCCB’s with a conversion price of Rs
675/- convertible into equity shares of Rs 10 each with a tenure of 5 years. We expect
the same to be converted into equity by FY11.
With the aforesaid conversions, the equity capital would increase from Rs 52.1 crore in
CY08 to Rs 58.8 crore in FY11. It may be noted that the 2,600,000 warrants allotted @
Rs 819, which were due for conversion into equity shares in this fiscal have been
cancelled.
Key Concerns
• JSL’s foray into unrelated businesses of infrastructure, transportation & energy
to waste power projects may lack the required expertise & bandwidth. However
in case of water infrastructure projects, we believe it’s a forward integration for
the company which makes them move up the value chain & offer complete end
to end solutions to its customers (right from supplying pipes to building the
infrastructure and to operation & maintenance).
• Since sizeable proportion of the revenues (40-45%) comes from exports, wide
fluctuations in foreign exchange will impact the financials of the company.
However the company mitigates the risk by conservatively entering into forward
contracts in case of its import & export transactions.

The burgeoning oil and gas demand should benefit the pipe industry as more and more
new pipe lines projects are announced. JSL today is accredited by almost all oil and gas
majors and thus is automatically qualified to bid for most of the projects. These
approvals, along with its diversified business model, shall enable the Company to reap
the benefits of the robust demand prevalent over the next 5 years.
At the CMP of Rs 765, the stock is trading at 8.7x its FY11e earnings of Rs 82.4. With
the company consolidating its position through capacity expansion across all the pipe
products coupled with the fairly strong order book & positive industry outlook, we
recommend the investors to BUY the stock on DIPS at around 650 levels with a price
target of Rs 825 for 12 to 15 months horizon.
Industry Pointer
Note: After having divested its US Subsidiaries, JSL now intends to change its financial year from December ending to March
ending. Accordingly FY2010 has been extended till March, taking the total number of months at 15 months. Thus the
variances (% change) of FY10 over CY08 & FY11 over FY10 has been computed on pro rata basis (i.e. figures for FY10 are
considered for 12 months instead of 15 months for comparison with the figures of CY08 & FY11 respectively).

Y/E September, Fig in Rs. Cr CY2008 FY2010e FY2011e Y/E September, Fig in Rs. Cr CY2008 FY2010e FY2011e
Net Sales 5,356.7 6,500.0 5,985.0 Per Share Data (Rs)
% Chg -21.1 -2.9 12.1 EPS 60.9 90.8 82.4
Total Expenditure 4,650.1 5,472.0 5,035.0 Cash EPS 78.7 109.9 97.7
% Chg -22.2 -5.9 12.0 DPS 5.0 5.0 6.0
EBDITA 706.6 1,028.0 950.0 Book Value 542.7 641.7 713.9
PBDIT 719.6 1,038.0 960.0 Current Ratio (x) 2.6 2.5 2.3
Interest 197.9 190.0 150.0 ROCE (%) 15.0 18.9 16.6
Reported PAT 326.3 497.8 485.0 P/E 12.6 8.4 9.3
PAT Margin (%) 6.1 7.7 8.1 P/BV 1.4 1.2 1.1
EV/Sales 1.0 0.8 0.8

Y/E September, Fig in Rs. Cr CY2008 FY2010e FY2011e Y/E September, Fig in Rs. Cr CY2008 FY2010e FY2011e
Share Capital 52.1 54.8 58.8 Profit After Tax 326.3 497.8 485.0
Share warrants 21.3 0.0 0.0 Depreciation & W/o 84.0 105.0 90.0
Reserves & Surplus 2,655.4 3,363.4 4,071.2 Working Capital Changes -321.1 -372.2 -318.8
Total Loans 1,924.1 1,625.5 1,086.1 Others 0.0 1.5 5.0
Deferred Tax Liability & MI 93.6 94.6 99.6 Operating Cash Flow 89.2 232.1 261.3
Total Liabilities 4,746.6 5,138.3 5,315.7 Capital Expenditure -878.3 0.2 -114.7
Change in Investment 130.2 0.0 0.0
Gross Block 1,866.3 2,685.3 2,800.0 Cash Flow from Investing -748.1 0.2 -114.7
Net Block 1,454.1 2,168.1 2,192.9 Inc/(Dec) in Debt 578.5 -298.6 -539.4
Investments 79.1 79.1 79.1 Others 0.0 0.0 0.0
Net Current Assets 2,394.1 2,891.0 3,043.7 Cash Flow from Financing 566.7 -107.6 -312.6
Misc. Expd not w/o 0.0 0.0 0.0 Net Change in Cash -92.2 124.7 -166.1
Industry Pointer
GLOSSARY
Pipes: Types, applications, size, raw materials & key differentiators
Electric
Spiral / Ductile Iron /
Seamless Longitudinal Resistance
Helical SAW Cast Iron
Pipes SAW Pipes Welded
Pipes Pipes
(ERW)
Made by
Made from HR Coils
longitudinally
Raw Material Made by piercing Made by spirally
submerged arc
using Electrical Made from Iron Ore
used/Process steel billets welding HR Coils Resistance welding & Coking Coal
welding of steel
process
plates
• Oil and Gas

• Petroleum • Oil and Gas
Transportation
Exploration Transportation • Oil and Gas • Water
• Suited for
• General • Water distribution Transportation
Applications Engineering Transportation
Offshore
• Water • Sewage
pipeline due to
• Boilers and • Sewage distribution disposal
higher wall
Automotives disposal
thickness
Size 0.5" to 14" 18"to 120" 16" to 56" 0.5" to 22" 3" to 39"
• Jindal Saw
• Maharashtra • Welspun Gujarat
• Welspun Gujarat • Electrosteel
Seamless • Welspun Gujarat • Maharashtra
Indian • PSL Casting
• ISMT • Man Industries Seamless
Manufacturers • Jindal Saw • Tata Mettalics
• Jindal Saw • Jindal Saw • Ratnamani
• Man Industries • Electrotherm
Metals
India
Industry Pointer
Electric
Spiral / Ductile Iron /
Seamless Longitudinal Resistance
Helical SAW Cast Iron
Pipes SAW Pipes Welded
Pipes Pipes
(ERW)
• Uses lighter • Uses heavy

equipment which machinery and
can be re- hence not re-
located to locatable
project site
• Limited diameter
• Find application
• Can go upto due to plate • Ductile Iron
in trunk lines • Limitation on
120” in diameter width pipes are rapidly
Key size, thickness &
replacing cast
Differentiators grade
• Offshore use • Suited for iron pipes
limited due to offshore pipeline
limitation of wall due to higher
thickness wall thickness
beyond 25 mm
• Find application
• Find application in trunk lines
in trunk lines
Industry Pointer
Appendix
Appendix 1: World Gross Domestic Product (GDP) by Region, 1990-2030 (Billion Dollars)
History Projections CAGR

Region/Country
1990 2005 2006 2010 2015 2020 2025 2030 (%)
OECD
North America 9,338 14,403 14,825 15,523 18,124 20,544 23,338 26,693 2.5
United States 8,040 12,422 12,768 13,315 15,538 17,548 19,885 22,737 2.4
Canada 750 1,133 1,168 1,238 1,410 1,582 1,769 1,975 2.2
Mexico 548 847 889 969 1,176 1,415 1,684 1,981 3.5
Europe 10,349 14,560 15,031 15,762 17,555 19,480 21,495 23,628 2.0
Asia 4,644 6,170 6,342 6,738 7,518 8,079 8,592 9,139 1.6
Japan 3,791 4,558 4,668 4,831 5,223 5,415 5,517 5,617 0.8
South Korea 351 791 832 977 1,203 1,401 1,609 1,821 3.4
Australia/New
502 821 843 930 1,092 1,263 1,467 1,701 3.0
Zealand
Total OECD 24,332 35,133 36,198 38,023 43,197 48,103 53,425 59,460 2.1
Non-OECD
Europe and Eurasia 1,342 1,320 1,426 1,785 2,208 2,616 3,022 3,457 3.9
Russia 843 764 820 1,044 1,283 1,508 1,728 1,965 3.9
Others 498 556 606 741 925 1,109 1,294 1,492 4.0
Asia 1,704 4,738 5,177 6,929 9,518 12,738 16,305 20,245 6.0
China 525 2,236 2,496 3,604 5,106 7,118 9,324 11,675 6.8
India 340 812 891 1,166 1,626 2,157 2,722 3,378 5.9
Others 840 1,690 1,791 2,159 2,785 3,463 4,259 5,192 4.6
Middle East 581 1,071 1,150 1,400 1,701 2,035 2,422 2,876 4.0
Africa 615 965 1,021 1,244 1,576 1,962 2,416 2,908 4.5
Central and South
1,250 1,934 2,041 2,432 2,940 3,523 4,196 4,977 3.9
America
Brazil 601 882 915 1,089 1,320 1,583 1,892 2,255 3.8
Others 649 1,052 1,127 1,343 1,620 1,940 2,304 2,722 3.9
Total Non-OECD 5,492 10,028 10,816 13,789 17,943 22,874 28,362 34,461 5.1
Total World 29,823 45,161 47,014 51,812 61,140 70,977 81,787 93,922 3.0
Industry Pointer
Appendix 2: World Liquid/Oil Consumption by Region, 1990-2030 (Million Barrels Per Day)

Region/Country
1990 2005 2006 2010 2015 2020 2025 2030 (%)
OECD
North America 20.5 25.2 25.1 23.5 24.1 24.4 25.2 26.2 0.2
United States 17.0 20.8 20.7 19.6 20.2 20.2 20.8 21.7 0.2
Canada 1.7 2.3 2.3 2.3 2.3 2.3 2.4 2.5 0.3
Mexico 1.8 2.1 2.1 1.5 1.7 1.9 2.0 2.1 0.0
Europe 13.7 15.7 15.7 14.5 14.5 14.9 15.0 15.0 -0.2
Asia 7.2 8.6 8.5 8.4 8.6 8.8 8.8 8.7 0.1
Japan 5.3 5.3 5.2 4.6 4.8 5.0 4.8 4.7 -0.4
South Korea 1.0 2.2 2.2 2.8 2.7 2.6 2.7 2.8 1.0
Australia/New Zealand 0.8 1.1 1.1 1.0 1.1 1.2 1.2 1.3 0.6
41.4 49.5 49.2 46.3 47.2 48.1 48.9 50.0 0.1

Total OECD
Non-OECD
Europe & Eurasia 9.4 4.9 5.0 5.1 5.2 5.4 5.4 5.5 0.4
Russia 5.4 2.8 2.8 2.7 2.8 2.9 2.8 2.7 -0.1
Other 3.9 2.1 2.1 2.4 2.4 2.5 2.6 2.7 1.0
Asia 6.6 15.3 16.0 17.8 20.6 24.2 27.3 30.2 2.7
China 2.3 6.7 7.2 8.5 10.0 12.1 13.8 15.3 3.2
India 1.2 2.5 2.7 2.4 3.1 3.9 4.3 4.7 2.4
Others 3.1 6.1 6.1 6.9 7.5 8.2 9.1 10.2 2.1
Middle East 3.5 5.8 6.1 7.0 7.4 7.9 8.5 9.4 1.8
Africa 2.1 3.0 3.0 3.5 3.6 3.7 3.8 3.9 1.2
Central and South America 3.8 5.5 5.7 6.6 6.6 6.8 7.1 7.6 1.2
Brazil 1.5 2.2 2.3 2.5 2.8 3.0 3.4 3.7 2.1
Others 2.3 3.3 3.4 4.0 3.8 3.7 3.8 3.9 0.5
Total Non-OECD 25.3 34.5 35.8 40.0 43.4 47.8 52.2 56.6 1.9
Total World 66.7 84.0 85.0 86.3 90.6 95.9 101.1 106.6 0.9
Industry Pointer
Appendix 3: World Natural Gas Consumption by Region, 1990-2030 (Trillion Cubic Feet)
Region/Country
1990 2005 2006 2010 2015 2020 2025 2030 (%)
OECD
North America 22.5 27.1 27.2 28.4 29.4 30.8 32.8 33.3 0.8
United States 19.2 22.0 21.7 22.6 22.8 23.4 24.7 24.4 0.5
Canada 2.4 3.4 3.3 3.4 3.9 4.2 4.5 4.7 1.5
Mexico 0.9 1.8 2.2 2.4 2.8 3.2 3.7 4.2 2.7
Europe 11.6 19.3 19.2 20.4 21.5 22.6 23.5 24.1 1.0
Asia 2.9 5.2 5.5 5.9 6.5 6.8 6.9 7.0 1.0
Japan 2.0 3.1 3.2 3.3 3.6 3.7 3.7 3.7 0.5
South Korea 0.1 1.1 1.1 1.3 1.5 1.6 1.7 1.7 1.8
Australia/New Zealand 0.8 1.1 1.2 1.3 1.4 1.5 1.5 1.6 1.3
Total OECD 37.0 51.7 51.9 54.7 57.4 60.3 63.3 64.3 0.9
Non-OECD
Europe & Eurasia 26.7 25.3 25.4 27.5 29.9 31.3 32.1 32.8 1.1
Russia 17.3 16.2 16.6 18.0 19.1 19.9 20.3 20.8 0.9
Other 9.5 9.1 8.8 9.6 10.8 11.4 11.8 12.0 1.3
Asia 2.9 9.3 9.4 11.4 15.2 18.7 21.8 24.5 4.1
China 0.5 1.7 2.0 2.6 3.8 4.9 5.9 6.8 5.2
India 0.4 1.3 1.4 1.8 2.4 3.0 3.4 3.7 4.2
Others 2.0 6.4 6.0 7.0 9.0 10.9 12.5 14.1 3.6
Middle East 3.6 9.8 10.3 11.9 13.5 14.4 15.3 16.6 2.0
Africa 1.4 3.0 2.9 3.4 4.3 5.1 5.8 6.2 3.2
Central and South America 2.0 4.4 4.5 5.5 6.3 7.0 7.7 8.1 2.4
Brazil 0.1 0.7 0.7 1.0 1.2 1.4 1.7 1.8 4.1
Others 1.9 3.7 3.8 4.5 5.1 5.6 6.0 6.3 2.1
Total Non-OECD 36.5 51.8 52.5 59.8 69.1 76.5 82.7 88.2 2.2
Total World 73.5 103.4 104.4 114.4 126.5 136.8 146.0 152.5 1.6

Ventura Securities Limited
Corporate Office: C-112/116, Bldg No. 1, Kailash Industrial Complex, Park Site, Vikhroli (W), Mumbai – 400079
This report is neither an offer nor a solicitation to purchase or sell securities. The information and views expressed herein are believed to be reliable, but no
responsibility (or liability) is accepted for errors of fact or opinion. Writers and contributors may be trading in or have positions in the securities mentioned in their
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Industry Pointer

“Profits in the Pipeline”

PIPE INDUSTRY REPORT

-2- Monday, October 05, 2009

-3- Monday, October 05, 2009

Increasing GDP to drive energy demand

Source: International Outlook 2009, Release Date: May 2009

-4- Monday, October 05, 2009

E&P continues despite fall in crude prices

-5- Monday, October 05, 2009

 International Demand Outlook

Middle East Europe

-6- Monday, October 05, 2009

Despite US facing recessionary

Replacement market in US & Russia: Huge opportunity yet to be open up

1960s 1970s 1980s 1990s

Oil Pipeline 190,944 218,671 218,393 208,752

Gas Pipeline 630,900 913,300 1,051,800 1,189,200

-7- Monday, October 05, 2009

 International Supply Outlook

Global Pipe Capacities HSAW LSAW Total

North America 680,000 2,150,000 2,830,000

Western Europe 1,430,000 3,285,000 4,715,000

Eastern Europe 125,000 44,000 169,000

CIS 240,000 2,350,000 2,590,000

Asia 3,191,000 3,762,000 6,953,000

Africa 246,000 0 246,000

Other World 3,212,000 1,900,000 5,112,000

Total World 10,119,000 14,941,000 25,060,000

Incremental additions of capacities (announced)

-8- Monday, October 05, 2009

Total expected production of SAW Pipes (Supply) p.a. 19,461,000

Total Demand (excluding Replacement Demand) p.a. 19,558,440

Lower penetration of pipeline in oil & gas transportation

Pipe penetration levels

-9- Monday, October 05, 2009

Huge Plans of some major domestic players

Proposed Pipeline of GAIL

Kochi – Mangalore – Bangalore 840 3,500 16

Sub Total 4,010 14,100 64

Grand Total 6,215 22,600 196

- 10 - Monday, October 05, 2009

Water Infrastructure Projects: a key driver for HSAW & DI Pipes

In order to improve the sanitation

- 11 - Monday, October 05, 2009

 Product wise demand scenario: Seamless Pipes

Domestic Market Share of Seamless Pipes

Seamless Pipes: Players & Market Share

- 12 - Monday, October 05, 2009

 Product wise demand scenario: Ductile Iron (DI) Pipes

Demand drivers & Domestic Market Share of DI Pipes:

DI Pipes: Players & Market Share

- 13 - Monday, October 05, 2009

Region wise Global Capacities - LSAW

- 14 - Monday, October 05, 2009

Region wise Global Capacities - HSAW

The merits of HSAW over LSAW pipes include:

Pipes LSAW HSAW

Diameter (inches) 16” – 56” 18” – 120”

Thickness (mm) 4.8” – 38” 5” – 25”

Pressure High High

- 16 - Monday, October 05, 2009

International Demand Outlook

International Supply Outlook

Product wise demand scenario: Seamless Pipes

Product wise demand scenario: Ductile Iron (DI) Pipes

Accreditation Process: A Significant Entry Barrier

Competitive edge for Indian Players over other Exporters

Commands a healthy market share in India

Production ramp up at the US facility to drive growth

Order Book set to take off

Valuation & Recommendation

Capacity Additions to fuel growth

Strong Order Book Provides Earnings Visibility