Structural steel tubes and steel pipes
India is now the 2nd largest steel producer of the world with ambitious target to reach 300 Mn tons by 2030.( Source). We have come a long way from 1992, wherein the steel production was a meagre 22 Mn tons.
Steel find its end use in a lot of sectors like automobiles, appliances, infrastructure, housing etc. For the record, the share of building and infrastructure construction in overall steel consumption is 60–65% today.
There are newer use cases within the infra segment like: crash barriers on newly built national highways, adoption of pre-engineered buildings, Larger buildings with big underground parking and bigger span
Market Size:
The global structural steel market is expected to reach ~USD227b by CY30 from ~USD130b in CY21 (~6.3% CAGR) (Precedence Research). Indian steel pipes and tubes is currently ~50,000 crs.The below table shows the size of the industry will almost double in the next 7 years. The growth of structural steel will outpace the growth of steel
However, structural steel tube penetration in India is quite low at 4% compared to the developed economies
The low penetration along with the govt infra push will help grow the industry. Below are few of the key triggers:
- Airport infrastructure:100 additional airports by 2024, 19000 crs in airport upgradation
- Urban real estate: Upward revision of FSI, more number of G+20 floors
- Affordable housing: Low cost and faster completion
- Warehousing: More than 344Mn sqft of warehousing. Annual transactions to grow to 7.08 sqm from 2.95sqm
- Water: replacement of ageing pipes, Nal se Jal scheme with an outlay of 3.5 lac crore.
What are steel tubes?
The above diagram shows various types of steel tubes. They each have a different usecase ranging from transportation of water, construction of building, highway crash barriers and so on.
Below table shows the profitability of each product line and the availability with different players:
In terms of players, APL apollo tubes, Hitech pipes, Rama steel tubes, Surya Roshi and JTL infra are the biggest manufactures of steel tubes.
APL Apollo is the market leader offering more than 1500+ SKU’s and covering a wide range of products and also the only player to have all high value SKU’s except spiral pipes. All the players are moving to more value added SKU’s like high diameter pipes(used for construction), Colored pipes( used in home furniture) and using technologies like DFT ( currently APL has it and Hitech, Surya are in the process to implement it). DFT enables more custom SKU’s and a faster delivery time to market
Competition and Financial comparison:
APL trades at a premium compared to the competitors and is also 5–10X bigger than its competitors with a market share of ~55% of the organized market. Surya Roshini * is not the right competition given its exposure to the lighting business but its the second biggest player having market share of ~12%.
Breaking down the ROE for all the competition, we see that APL and JTL have a far superior ROE, however Hitech and Rama are increasing their capacity utilization and wouldn’t be surprised to see they achieving higher double digit ROE by FY23
Looking at the above table, we can see why APL Apollo is valued the way it is. APL trades at almost 2x of competition. APL is able to sweat its assets better along with JTL and also has a better profit margin. Mainly because of the product mix and the conscious decision to give up on low margin products. . They dont report the numbers separately.
Below diagram shows how the EBITDA/ton has grown for all the players till H1’23. As we can see H1’23 has so far been a bumper year with channel restocking happening and fall in steel prices.
We can see how aggressively players are adding capacity to serve the demand. Hitech and Rama are going to double the capacity while APL will add the combined new capacity of all the players
Also, all the players are moving up the value chain, by increasing the share of value-add products and moving away from impact of steel prices.
The below table summarizes the YoY volume growth and EBITDA/ton of all the players in a single table:
All the players have adopted the strategy to be present in all the 5 parts of India, with only APL having a significance presence in south also due to its partnership with Shankara.
One of the interesting use case shown in the pictures below is use of steel tubes in construction. The benefit is it increases carpet area by 2–3%, Saves interest cost as the product gets constructed faster thereby faster cash flows to the developer.
construction using steel tubes
The smaller players Rama, hitech have adopted APL’s strategy to scale:
- Being closer to customer — open plants in North, west, south and central India
- Offer more SKU’s to distributors — Surya and Hitech installing DFT in their plants
- Launching value added products to insulate them from volatile steel prices
- Forward integration — APL invested in Shankara, similarly Rama also insvested in Building material co and went a step further to also invest in sanitaryware(diworsification??)
It will be interesting to see whether this will be a multiple player market or a single player having a near monopoly share( as it is currently with APL apollo)