Manufacturer of submerged arc welded (SAW) pipes, Man Industries (India) Ltd, has recently commissioned new capacity of 200,000 tonnes and will be adding another 200,000 tonnes in December, taking its total capacity to a million tonnes. The expansion comes at a time when SAW pipe manufacturers are riding the crest of a wave of spending on pipelines by oil and gas manufacturers. The expanded capacity will see its turnover rise to Rs1,800 crore from Rs1,200 crore last fiscal. Man Industries senior vice-president for corporate affairs K.G. Mantri also points out that it has expanded helical SAW capacity, which, in addition to its already available longitudinal SAW pipes, offers greater choice to its customers.

High oil prices have led to a rise in exploration activity and new pipelines are being laid. The switch to gas, too, has led to more demand for pipelines. And finally, says Mantri, pipelines in the US are more than 30 years old and need to be replaced. Indian pipe manufacturers have been quick to spot the opportunity and have been setting up bases in the US. Man Industries will also set up a 300,000 tonne plant in the US, which should be commissioned around December next year, according to the management. The company also plans to start a plant in China, and relocation of the company’s Pithampur plant is one of the options being considered.

Manufacturing SAW pipes is a labour-intensive activity and Indian companies are poised to capitalize on the opportunity.

The management also points out that they are, in any case, exporting to the US and freight costs are very high, accounting for around 8-10% of the price, so it makes sense to have a manufacturing base in the US. Around 80% of Man Industries’ production is being exported at present, although, if large orders from GAIL are received, that proportion will change. The management, however, claims that the rupee’s appreciation hasn’t really hurt them, because three-fourths of the materials used in the exports are imported, which gives them a natural hedge. Further, freight costs, too, are built into the long-term contracts they have with their customers. The order book currently stands at Rs2,200 crore.

Man Industries had raised FCCBs worth $50 million last May—$20 million for the expansion programme and $30 million for their overseas plans. On conversion, the FCCBs will result in a 20% dilution. The management estimates that, post-dilution, earnings per share will be around Rs23 for FY08. The stock trades at a bit more than 11 times that number.

Won’t the rich pickings in the sector lead to overcapacity and, perhaps, to lower prices a couple of years down the line? That is very likely, but Man Industries hopes to make up in volume what it may lose then in margins.

Drowning in dollars

The latest Reserve Bank of India (RBI) data shows that the central bank mopped up as much as $11.428 billion (Rs4.62 trillion) in July, the largest amount in a single month after February’s purchases of $11.862 billion. Any pretensions RBI had about letting the rupee float now seem to have been well and truly buried.

RBI did try to stay out of the market after February for some time—that’s reflected in the relatively small amount of dollars mopped up in March: $1.3 billion; April: $2 billion; May: $4.4 billion and June: $3.1 billion. But, with foreign funds pouring into the country and with the hardening rupee wreaking havoc on exporters, RBI has been forced to go back to its original policy. The other reason could be that since the inflation rate, or at least the WPI rate, is no longer so high, RBI doesn’t feel compelled to use the exchange rate as an inflation-buster.

There was good reason for RBI intervention in July, what with FIIs pouring in a net $5.8 billion in that month, out of a net $10.2 billion during January-July this year. But there would have been little need for buying dollars in August, with the sell-off by FIIs sending the rupee plummeting. And while inflows have resumed, it’s unlikely that risk appetite will increase to a level seen in July very soon. That should be very comforting for RBI.

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