Hi-Tech Pipes Ltd Management Discussions.


The global economic environment is stabilizing, recovery is seen with a rebound in investment, trade and manufacturing activity. This is driven by accommodative policies and firming commodity prices. The tax rate cut by the United States will have an overall favorable impact, while in the short term, impact in the United States will be mostly driven by investment in response to the policy changes. Growth in advanced markets is driven by a recovery in capital spending and exports. The pickup in investment is reflected in increased capacity utilization, favorable financing conditions, rising profits and business sentiment.

As per IMF, World output grew at 3.8% in 2017 because of rebound in global investment, it is projected to increase at 3.9% in 2018 and 3.9% in 2019. Economic activity in advanced economies is forecasted to grow at 2.5% in 2018 and 2.2% in 2019 as compared to 2.3% registered in 2017.

Emerging market and developing economies are forecasted to grow at about 4.9% and 5.1% in 2018 and 2019 respectively. Growth in emerging markets reflects firming activity in commodity exporters and continued solid growth in commodity importers.

Table showing Output in Various economies:

(Source: IMF, World Economic Outlook Report dated April 2018)


As per IMF, Indian economic is projected to achieve a 6.7% growth rate in 2017, gradually recovering from the transitory adverse impact of GST rollout and demonetisation. The Indian GDP growth is expected at 7.4% and 7.8% in 2018 and 2019 respectively. This growth will be largely driven by the accelerated pace of structural reforms, focus towards a rule-based policy framework and improvement in ease of doing business. India’s recent reforms are expected to encourage formal sector activity, broaden the tax base and improve long-term growth prospects.

GST will create single market, increase productivity, boost corporate investment and help in reducing the cost of capital equipment. Investment will be further supported by the plan to re-capitalise public banks and by new road building ambitions. On the Direct tax front, the plans to reduce the corporate income tax rate and broaden the base will also promote growth.

As a reflection of the cumulative actions to improve the business environment, India’s rank jumped 30 spots/points on the World Bank’s Ease of Doing Business rankings. Although higher oil prices kept Fiscal deficit and inflation higher than expected, the Economic Survey suggests that if the pace of structural reform continues and fiscal stability is kept under control, growth in medium term has the potential to reach 8%.

WPI Inflation surged in early 2017 due to a sudden spurt in global crude oil prices. The WPI inflation stood at 2.9% in 2017-18 (Apr-Dec) as against 0.7% in 2016-17 (Apr-Dec). Till July 2017, the moderation in the global crude prices led to subdued inflation. But as the oil prices bounced back, along with rise in food prices, inflation rose and reached the level of 3.6% in December 2017.

(Source: OECD report dated Nov 2017 & Economic Survey dated Jan 2018)


In 2018, global steel industry growth is likely to moderate, mainly due to slower growth in China, although steel demand will continue its current momentum in the rest of the world. Global steel demand is expected to reach 1,648.1 MT in 2018, and excluding China, will reach 856.4 MT registering a growth of 3.0% in 2018. The cyclical upturn broadening and firming in the demand has been seen leading to better than expected performances all across. But some risk factors continue to exist like escalating geopolitical tension in the Korean peninsula, China’s debt problem and rising protectionism in many locations.

In India, there has been continuous growth in steel production in the period from April to July 2017. During this period, finished steel production grew by 6.9% on a yearly basis to reach 34.3 MT. On the back of various initiatives undertaken by the Centre, this trend in production is expected to continue in the near future as well. The National Steel Policy, Make-in-India and other policies of the Cabinet further signals the government’s support towards the industry. Also, production growth is expected to revive due to a pickup in domestic demand and favourable international steel prices, enabling an export push.

(Source: Care report Dated Sep 17, 2017)


The average domestic flat steel prices showed an upward trend and were higher by 5% to 20% during the period compared to the corresponding period of previous year. The similar trend was followed by prices of long steel products. This price increase was witnessed across all the markets and can be attributed to the growth in international steel prices.


Various initiatives have been taken by Centre for ease of doing business and to enhance the quality and availability of steel in the country, few of them are listed below:

Opening steel industry for the private sector by removing from the list of industries reserved for public sector.

Exempting the steel sector from compulsory licensing.

Government has permitted imports of foreign technology as well as foreign direct investment up to certain limits under an automatic route.

Allocation of iron ore to ‘specified end use’, it would enhance raw material availability, brings transparency in allocation of raw materials and allow transfer of captive mining leases during mergers and acquisitions. The Cabinet Secretariat constituted a Project Monitoring Group to fast track clearances of issues regarding investments of Rs 1,000 Cr.

To eliminate inferior quality of steel production, 33 items have been brought under quality control orders.

(Source: http://steel.gov.in/ease-doing-business)


For the last several years, global steel pipe production has witnessed an upward trend but this trend seems to have turned with marginal growth in 2015. Output dropped in 2016 by 3% to 164 MT. This was due to sustained reluctance of energy industry to invest across the world. Moderate growth was witnessed in North America, the CIS, and China, while European steel pipe producers outperformed, achieving a growth of 4%. However, the fact that China continues to hold as a dominant position in the steel pipe market is hard to overlook.

Raw material prices surprises positively, which finally stopped falling. With this, the outlook for the steel pipe industry has improved with investment in the energy sector, that had slowed down after the crude oil price collapse in 2015. The cyclical upswing in the raw material and steel prices should benefit the sector. Going forward, the Global steel and tube industry’s outlook remains positive and the industry will witness healthy growth in the medium term (Source: The Fabricator.com dtd December 2017, https://www.thefabricator.com/article/ shopmanagement/taking-a-bird-s-eye-view-of-the-global-steel-pipe-and-tube-market)


With enhanced government focus on rapid industrialization and infrastructure development, investment in the Indian economy is continuously ramping up. Various initiatives of the government have led to increased real estate development, construction and commercial activities. Due to these drivers, the demand of steel tubes market is expected to grow rapidly. In India, the process industries and the infrastructure and construction industries are primary consumers of steel tubes. The galvanized steel tubes market will grow in proportion of construction in India. The thrust to serve the demand will be on the back of organic and inorganic growth in the capacity, improved product quality and use of modern technology by industry players.

Apart from the traditional end use of the steel tubes in real estate segment, steel tubes are now widely used in various niche areas, some of them are listed below: V Industrial Sheds, Steel Furniture, Bridges, Low cost Steel Housing, Airports

Tripper/Trailer body, Bus Body Structures, Cranes : Towers, Material Storage Racks

Road Dividers, Railway Wagon, Railway Coaches, Hoardings, Machine Components

Pre-fabricated House, Automobile Chassis, Telecom Towers, Scafloldings

Mine roof support system, Bridge Railing, Poles / Post, Electrical Conduits

Cooling Towers, Electrical / Telecom, Cable Ducting Indian market is now the fastest growing global pipe manufacturing hub, due to rich raw material contents, lower costs, superior quality and geographical advantages. The Indian galvanized steel tubes market is forecasted to grow at a CAGR of 6.13% during 2017- 2021. The market is now among the fastest growing steel tubes and pipe manufacturers in the world. Along with market share gain, production is estimated at about 10 million MT. The Centre’s policy push with various initiatives like Make in India, Growth in Oil & Gas segment, Housing for all by 2020, upcoming airports and metro cities will drive growth of the sector.


• Emphasis on building infrastructure in every part of the country; sectors such as real estate, automobiles and telecommunications among others have potential to drive the pipe demand.

An investment of USD 110 billion is announced for improving ports and shipbuilding industry by 2020 Investment in railways in the next five years is estimated at 8,50,000 Cr

The Centre’s mission of Power for All, the robust transmission line additions in beating the set targets continuously for several months now is propelling the demand for steel tubes and pipes.

With the estimated rise in energy demand of 60.71% by 2025, the domestic market has huge potential to support the growth of the industry. Use of natural gas will hike the demand for pipes in harbors with huge prospects for the Indian pipe industry to penetrate into the international market as well.

Changing lifestyles are leading to a rapid growth in air passenger traffic. This in turn has exhausted airport capacity. It is imperative that government expands/adds to the existing airport infrastructure

The ‘Housing for All’ mission of Centre is a project which requires additional support of steel industry.

BUSINESS OVERVIEW: Company Background:

Hi-Tech Pipes Limited (hereafter to be referred as the Company) has a diversified product range that caters to various sectors and industries including all reputed public sector undertakings. The Company is involved in the manufacturing of steel products like steel tubes & pipes, Hollow sections, CR Sheets and strips, Galvanized Coils& Metal Crash Barriers. The Company is a market leader in Crash Barrier segment and is foraying into Solar Structures segment.

With a vision of marking itself in the list of global reputed companies, the Company uses advanced technology and has high quality specialized products. The Company is now foraying into new high quality products and high margin businesses like manufacturing of high quality Precision Tubes at Sanand and Hindupur facilities, Solar mounting structures segment at Bangalore and has started commercial production of Galvanized Steel Tubes at Hindupur facility.

Strong Project Execution:

With its rich green-field & brown-field project execution capabilities,theCompanyhassuccessfullysetup&commissioned its New Factory at Sanand and Hindupur in a record time of 10 months. Also, the capacity expansion at the existing facilities was done in a record time. With this expansion in place, the Company will be able to strengthen its base in the Western & Southern market and is set to tap opportunities for value added Galvanised Pipe in Southern market. Through continuous innovation, productivity optimisation, de-bottlenecking and yield improvement, the Company aims to achieve the leading position in the industry.

Strong Brand Image & PAN India Distribution Network:

The Company has more than 300 distributors on pan India basis and enjoys a healthy relationship with leading Architects, Builders & Contractors. The Company is now among preferred Brands and is registered with all leading industrial consumers and approved by leading Architects, Builders and Contractors. Reputed names like L&T, NHAI, EIL, BHEL, DMRC, PGCIL, AAI, MMRDA, PWD, MES, RIL etc. prefer the Company’s products due to its superior quality, competitive price, transparency and trust in mutual relationship.

Company’s Outlook

The Company aspires to reach one million mt installed capacity in near future, marking its presence pan India as well as in international markets. Further to keep up the pace of growth, the Company is focusing on value creation through addition of new value-added products, market expansion, creation of new product applications and setup of new manufacturing facilities at strategic locations.

Performance Overview:

The Company has achieved another year of growth. It has increased installed capacity by adding a facility for production of Steel Tube at Hindupur with annual capacity of 60,000 mt thereby increasing capacity from 3,00,000 mt to 3,60,000 mt in the year 2017-18. Capacity utilization was at 72% with 2,26,000 mt in the year under review as against 1,58,000 mt in the previous year.

The Company’s revenues for the year marked a growth of 59% and stood at 1,016.0 Cr as compared to 637.4 Cr in the previous year. Growth in sales was led by modernization of Cold Rolling facilities at Sikanderabad Plant and improved capacity utilization of Sanand facilities and new facilities at Hindupur . EBITDA stood at 60.1 Cr with margin of 5.9% during the year as compared to 39.9 Cr in the previous year. Net profit for the year was up by more than 100% at 21 Cr in the current year as compared to 10.4 Cr in the previous year. The Company is continuously focusing on introduction of high margin, customized & value added products to improve its bottom line.

The revenues from Tubular segment registered a growth of 75 % over the last year. Tubular segment contributed 73% of the total revenue as compared to 67% in the previous year. Revenue from Flat steel segment and engineering products grew at 37% and 21% over the previous year and contributed 21% and 6% respectively to total revenues.

The Company’s balance sheet position remained healthy and the Company closed the year with 48% increase in networth at 113 Cr. At the end of the FY18, the Company has a total debt of 243 Cr with debt/equity ratio of 2.14 times. Debtors cycle days has reduced 37 days as against 55 days in the previous year.

Strengths, Weakness, Opportunities and Threats (SWOT Analysis)


??With modernised manufacturing units and with ongoing expansion, the Company possesses a fully equipped research laboratory with the latest equipment. This helps in producing innovative products that will support market competitiveness.

??The Company has highly qualified and experienced professionals of the industry. It believes that manpower and technology are the key drivers of business. Technology continues to support business operations and drive competitive advantage for the Company.

??The Company endeavors to utilize the capacity of its plants optimally in order to keep the cost at minimal levels. In the year under review, the Company has increased its installed capacity from 3,00,000 mt to 3,60,000 mt. The Company has achieved capacity utilization of 72% with 2,26,000 mt in the year 2017-18 as against 1,58,000 mt in the previous year. In order to optimize inventory cost, the Company follows ‘Just in time’ policy for inventory, these focus and initiatives reduced the inventory days to 55 days in last year as against 71 days in previous year.

??The Company has Multi located production units and skilled manpower and investments in state of the art machineries and technologies. This gives it an edge over other steel players. This has also enabled the Company to produce superior quality products with cost efficiencies.

??The Company has well experienced and quality focused Management bandwidth. The Management is committed to deliver world class quality products to its customers in the shortest time, leading to improved customer relationship.


??The Company is dependent on few suppliers for majority of raw materials like HR Coils and Skelp. Any disruption in supply of raw materials from these suppliers or not favorable procurement terms, these issues could adversely affect the Company’s financial performance.

??The Company manages sales operations with its dealers and distributors network. The revenue growth has a linear correlation with the sales operations. The Company’s inability to maintain network may result in loss of market share.

??The industry in which we operate is a capital intensive. The financing requirement is met through banking facilities or fresh infusion of funds or internal accruals. The Company’s inability to manage the working capital can adversely impact the business operations and financial position.


Rural India: Rural India is expected to reach per capita consumption of 12.11 kg to 14 kg for finished steel by 2020. Policies like Food for Work Programme (FWP) & Indira Awaas Yojana, Pradhan Mantri Gram Sadak Yojana are driving demand for construction steel in rural India. In FY16, per capita consumption of steel in rural India is estimated at 60 kg, which is lower in comparison with the global average of 216 kg.

Government Polices: Various government schemes like Housing for all, Smart Cities projects, 24X7 Electricity, National Highway Development Program, Renewable Energy Target 100,000 MW, PM Krishi Sanchar Yojna, Swachh Bharat Abhiyan, Affordable Housing, E-Rickshaw Scheme by State Governments gives the Company immense opportunities to expand business.

Infrastructure: Investment in infrastructure by NITI Aayog is expected to be USD 650 billion in the next 20 years. This increase in infrastructure investment is set to raise steel demand by roughly 18.75 MTPA. Investments of USD33.06 billion would be made in the steel sector in the coming years -unleashing huge potential for the Company.

Oil and gas: There is lucrative opportunity in the Oil and gas segment for the steel industry as it is amongst major end-user segment accounting for ~34.4% of primary energy consumption.

Capital Goods: The capital goods sector accounts for 11% of steel consumption and expected to increase to ~14% by 2025-

26 and has the potential to increase in tonnage and market share. Corporate India’s capex is expected to grow and generate greater demand for steel.

Power: The government targets capacity addition of around 100 GW under the 13th Five-Year Plan (2017– 22). Both generation & transmission capacities would be enhanced, thereby raising steel demand from the sector.

Consumer Durable: The capital goods & consumer durables sectors are expected to grow at 7.5–8.8% over 2012–21 - led by the government’s push and higher spending by Low and Middle Income segment.

Automotive: The automotive industry is forecasted to grow in size by USD 74 billion in 2015 to USD 260-300 billion by 2026. With increasing capacity addition in the automotive industry, demand for steel from the sector is expected to be robust.

Airports: In FY17, the number of operational airports stood at 94 and more modern & private airports are expected to be set up which would sustain consumption growth for steel pipes in India. Estimated steel consumption in airport building is likely to grow more than 20% over next few years. Development of Tier-II city airports would sustain consumption growth.

Railways: The Dedicated Rail Freight Corridor (DRFC) network expansion would be enhanced in future. Gauge conversion, setting up of new lines & electrification would drive steel demand. The railways sector could create business opportunities worth USD 99.65 billion in the coming years for the steel industry.


The Company’s key raw material is steel which used in manufacturing of the product ranges. Steel prices are volatile and are affected by global factors and reflect the highly cyclical nature of the global steel industry. Steel prices fluctuate based on macroeconomic factors, including, amongst others, consumer confidence, employment rates, interest rates and inflation rates. The Company has put in place various measures to minimize the adverse effect of volatile prices of raw materials in the business.

Nowadays, industry has become highly competitive and the results of operations and financial condition are sensitive to, and may be materially adversely affected by, competitive pricing and other factors. Competition may result in pricing pressures, reduced profit margins or a failure to grow market share, any of which could substantially harm business and results of operations. The Company manages these threats with better products, informed customer relationships, focused demand generation efforts and a strong business outlook.

Risks and Mitigation Strategies

The Company has a well-documented risk management policy. This policy is reviewed by the Management periodically and is appropriately modified wherever necessary. The dynamic macro-economic environment and internal business drivers could adversely impact its ability to create value over the short, medium and long-term. The key risks and Company’s mitigation plans are given below:

1. Macroeconomic risks: Overcapacity and oversupply in the global steel industry and high levels of imports may negatively affect steel prices and demand - thereby reducing the Company’s profitability.

Mitigation Strategy: The macroeconomic and market related risks are addressed through diversification of the Company’s product portfolio and development of value added products.

2. Financial risks: Volatility in financial markets including fluctuation in foreign exchange rates impacts the Company’s debt financing programmes and creates uncertainties in

Mitigation Strategy: To counter exposure to foreign exchange volatility, the Company has formulated foreign exchange hedging policies to protect the trading and manufacturing margins. Liquidity management is integrated with business planning and cash flow projections. The Company opportunistically refinances its debt with favourable covenants and reduced interest rates to provide financial flexibility to its business.

3. Regulatory risks: The Company faces regulatory risk from predatory pricing and surge in steel imports. Non-compliance to regulatory and environmental norms may result in liabilities and damage the Company’s reputation.

Mitigation Strategy: The regulatory risks are managed through dialogue with regulatory authorities and proactive legal consultations to ensure timely sanctions, approvals, clearances, and renewal of mining leases for the Company’s operations.

4. Operational risks: The industry is highly cyclical and a decrease in steel prices may adversely impact its financial condition.TheCompany’soperationsandfinancialcondition could be adversely affected if it is unable to successfully implement its growth strategies. The Company’s industry is inherently hazardous. Unsafe conditions/ acts leading to loss of life, injury may result in capital, financial and reputational damage.

Mitigation Strategy: The operational risks are mitigated through development of well-structured processes for effective project planning & management. The Company enhances in-house capability and leverages past project management expertise.

5. Market related risks: Competition from other materials, changes in the products or manufacturing processes of the Company’s customers who use steel products, could reduce market prices and demand for the Company’s products, thereby reducing its cash flow and profitability. Product liability claims may adversely affect the Company’s operations and finance.

Mitigation Strategy: The Company does strict monitoring of prices and adopts appropriate strategies to tackle such volatility. The Company has price escalation clauses for large orders and price validity clause for smaller projects to mitigate the risk.

6. Climate Change Risks: In April 2016, 174 countries, including India signed the Paris agreement (COP21). The principle aim of the Agreement is to accelerate and intensify actions required for a sustainable low carbon future. India’s commitments in COP21 have come into force and mandatory emission reduction targets are expected by 2020. Going forward, the industry will be challenged by increase in international and domestic regulations relating to GHG emissions. As a consequence, the Company’s performance will depend upon the extent to which the Company will be able to recover the costs incurred through the pricing of its products in the competitive marketplace.

Mitigation Strategy: To mitigate the risk of climate change and to be sustainable, the Company is focusing on innovative technologies that can significantly lower emissions over the long-term. The GHG issues and the Company’s responses are integrated into the Company’s strategy and planning, capital investment reviews, and risk management tools and processes, where applicable. Further, the Company draws on the Tata Group’s initiatives and collaborations with academic & research institutions for projects on Climate Change issues.

7. People risk: The Company’s success depends on the continued services of its senior management team and business and prospects could suffer if it loses one or more key personnel or if it is unable to attract and retain its employees. Any labour unrest could adversely affect the Company’s operations and financial condition.

Mitigation Strategy: The Company periodically reviews the succession plan for its senior management team to ensure continuity in leadership. The Company’s people related policies are reviewed and monitored to attract and retain its employees.

8. Price Fluctuation Risk: The steel industry is highly cyclical and a decrease in steel prices may have an adverse effect on the Company’s results of operations and financial condition. Steel prices fluctuate based on macroeconomic factors, including, amongst others, consumer confidence, employment rates, interest rates and inflation rates.

Mitigation Strategy: The Company passes off such negative impacts to its clients partially or completely by adding price escalation clause in most of the contracts. In case of firm price contracts, Company tries to pass on back to back firm price contract to its vendor/contractor and/ or also hedge itself through price discovery, wherever possible.

9. Safety Risk: The Company is exposed to potential source of harm or adverse health effect on a person or persons by nature of its operations.

Mitigation Strategy: The Company is committed to conduct all its activities in such a manner so as to avoid harm to employees and the community.

10. Credit Risk: Credit risk happens when debtors are not able to pay their dues. The Company with a wide spectrum of customers is prone to bad debt risk.

Mitigation Strategy: The Company prefers clients with a good credit history that are supported by reputed financial institutions.

Internal Control Systems

The Company’s Board of Directors is responsible for establishing and maintaining internal financial controls, based on the internal control over financial reporting criteria established by the Company. The Company’s internal controls systems are commensurate with the nature, size and complexities of operations. The Company has well defined and adequately documented systems, policies, procedures & guidelines that have been reviewed by the Board. The Company strictly follows statutes, laws, rules and regulations of the land. It ensures stringent compliance at all levels and across all business units and departments for safeguarding its assets, prevention and detection of fraud and errors, completeness of accounting records and timely preparations of financial statements. These systems are regularly reviewed by the statutory and internal auditors. Significant audit observations and follow up actions thereon are reviewed by the Audit Committee.

Human Resources

The Company believes that its people are its most important asset and thus continuously strives to scale up its employee engagement, through well-structured systems and a visionary HR philosophy. The Company is committed to nurturing an open environment that allows for easy assimilation of ideas and enriches its collective knowledge pool. The Company aspires to evolve into a future-ready organization centred on promoting a collaborative and cohesive culture.

The Company continuously invests in role-based training and upskilling of its employees at all levels to ensure that they remain at the forefront of skill-set upgradation in the industry. The Company also continues to facilitate learning processes across all levels through a blended learning approach of in-house programs and external training encompassing behavioral & management areas. The Company fosters work-life balance and several health & wellness initiatives are offered on an ongoing basis. The Company maintains a cordial relationship with employees at all its manufacturing units.

Environment, Corporate Sustainability and Social Responsibility

Corporate Social Responsibility (CSR) has been a long-standing commitment at Hi tech Pipes Ltd. The Company has framed its CSR Policy on the basis of guidelines issued by Department of Public Enterprises and the provisions of Companies Act, 2013. The CSR Policy of the Company sets the framework guiding such activities. It outlines the governance structure, operating framework, monitoring mechanism, and CSR activities that would be undertaken. Our CSR Committee governs over and articulates the scope of CSR activities, thus ensuring compliance with CSR policy.

During the year, total expenditure on CSR in pursuance to Section 135 of the companies Act, 2013 was 5.40 Lakhs

Cautionary Statement

This Statement contains forward-looking statements about the business, financial performance, skills and prospects of the Company. Statements about the plans, intentions, expectations, beliefs, estimates, predictions or similar expressions for future are forward-looking statements. Forward-looking statements should be viewed in the context of many risk issues and events that could cause actual performance to be different from that contemplated in the Directors’ Report and Management Discussions and Analysis Report, including but not limited to, the impact of changes in oil, steel prices worldwide, technological obsolescence and domestic, economic and political conditions. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Company’s operations include economic conditions affecting demand/supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the Government regulations, tax laws and other statutes and incidental factors. The Company disclaims any duty to update the information given in the aforesaid reports.