Steel pipes and tubes manufacturer Rama Steel Tubes Ltd plans to quadruple its production capacity in three years to spread its wings across the country and serve regional customers in a cost effective manner.
Operating currently from two locations, Rama Steel Tubes has a total production capacity of 99,000 tonnes which the company plans to increase to 340,000 tonnes by 2019-20 at an investment of Rs 50 crore (excluding land value).
“We have already bought land seven-eight years ago. So, land cost is not added to our proposed investment plan. However, investment would not be a constraint in case demand of steel pipes and tubes emerges,” said Richi Bansal, Chief Executive Officer, Rama Steel Tubes.
Started first phase of production in June 2015, the company is in the process to commence second phase of the production expansion from the existing 36,000 tonnes to 72,000 tonnes at its Khopoli, Maharashtra, plant by the end of June. In the third phase, Rama would be nearly doubling the capacity once again next year.
The expansion is targeted in the value-added segment, commanding higher margins. With commencement of production of an additional 72,000 MTPA (from two new plants) along with higher capacity utilisation rates, analysts believe that margin expansion will be seen from the first quarter of FY17. This will not only raise the revenue but will also improve the overall margin.
The Khopoli plant which is the company’s latest addition to its two existing plants at Sahibabad near Delhi enjoys the economic advantage of low transportation cost benefiting exports as well as distribution in the western and southern pipe markets in India.
“On stabilisation of the existing plants, we would soon move to south for which land has already been identified. The idea to expand in strategic location is to serve customers from nearby locations,” said Bansal.
The steel industry faces a problem of high logistics cost which the company is trying to fix by full-fledged production at its Khapoli (Maharashtra) plant. This strategically-located plant (near the port) will gradually cater to rising demand from the export market. It now caters to demand from Maharashtra and Gujarat. Assuming that it cuts transportation and logistics cost by being located closer to the port, the expense component could come down by nearly 20 per cent (of selling and distribution expenses), said a report Khambatta Securities Ltd.
At present, the Indian steel tube and pipe sector is highly fragmented, with more than 50 per cent held by the informal segment. The Indian steel tube industry is likely to go through a consolidation phase, helping regulated operators to take part of the pie from the informal segment.
The global export market of steel pipes is stated to be nearly $27 billion a year, with the United States, Western Europe, Australia and Japan being the largest importers. India is one of the major exporting nations besides Indonesia, Malaysia and Thailand.
The Indian steel-pipe sector consists of firms primarily manufacturing seamless or welded steel pipes or tubes or ferrous pipe or tube fittings. In the recent past, steel-pipe manufacturers have added significant capacities perceiving strong domestic and export demand. With the increase in demand, utilisation rates for ERW pipe-makers will improve. Further, growing oil and gas demand across the world and with new pipeline infrastructure in process, revenue of Indian steel pipe-makers should be on the higher side.
The rise in demand for housing and commercial spaces in urban regions has led to huge demand in the hollow section and ERW pipes. The rising number of malls and high-rises has led to increased demand for structural/hollow steel products as they are stronger and have a better aesthetic.
