Hi-Tech Pipes Ltd. (“Hi-Tech” or the “Company”) is involved in manufacturing steel pipes, hollow sections, tubes, cold-rolled coils, road crash barriers, solar mounting structures, strips and a variety of other galvanized products. Hi-Tech serves various industries ranging from infrastructure (including telecom, defence, power distribution, railways, and airport), construction, agriculture and among others.

Date – 26th November 2019 | Price – Rs. 140

Recommendation – BUY

INVESTMENT RATIONALE

Diversified Products Catering to Wide Array of Sector

Hi-Tech Pipes manufacture range of products that includes Flat Steel (CR Sheets & Strips, Galvanized Coils, Cold Formed Sections)Tubular Steel Products (Steel Tubes & Pipes, Hollow Sections, Pre Galvanized Tubes, Hot Dipped GI Pipes), and Engineering Steel Products (Metal Crash Barriers, Solar Structures).

The Company derives its major revenues from Steel Pipes and Tubes (79% in FY19) and the rest from cold rolling (18% in FY19) and Engineering Structures (3% in FY19).

[1] Steel Tubes & Pipes – Used in Water, Gas & Air Pipeline, Automobiles, Power & Industrial Boilers, Transformers, Superheaters, Economisers, Heat Exchangers, Railway, Electrification and Furniture

[2] Hollow sections – Used in Casing, Columns & Fence, Handrails, Load Bearing Structure, Piling, Posts, Poles, Railings, Scaffolding, Skywalks, and Towers etc

[3] Pre-Galvanized Tubes – HVAC, Cladding, Roofing, Building Accessory, Partition, False Ceilings, Household Appliances (Washing Machine/ A.C etc.), Railway Carriages, Road Signs, Containers, Furniture etc

[4] Hot dipped GI pipes – Used in Agriculture, Plumbing, Green Houses, Irrigation, Hand Pumps, Bore, Tube wells

[5] CR Sheets & Strips – Used in Stampings, Auto & Auto Ancillaries, Transmission Chain, Bicycle Parts, Fine Blanking, Bearings

[6] Galvanized Coils – Used in Construction, Agriculture, Automobile, Domestic & Outdoor Electric Appliance, Furniture & Fixtures Industry

[7] Cold Formed Sections – Automobile Industry, Civil Construction, Solar Mounting Structures, Strut Support Systems, Storage Systems, Furniture & Office Equipment

The Company’s product has various applications ranging from high-rise buildings, metro stations, bridges, dams, refineries, telecom, airports, highways, power projects, Agriculture, Automobile etc. While pipes and tubes are primarily used in Construction, company’s presence in other allied products opens up opportunities in roadways and solar structures, which would continue to be focus of any government, opening up growth opportunities for Hi-Tech Pipes.

With Government initiatives underway ranging from Housing for all Scheme, National Highway development, Irrigation etc, there would an impetus for any government to focus on working on infrastructure activities.

Strong Financial Position

Expansion in capacities, widening of the distributor network (to 350 in FY2019 from 200 in FY2016), and healthy relationships with key customers have helped the Company to achieve 5 year CAGR of 31% in revenue, thus reflecting the Company’s established market presence. Revenue grew to Rs 1,360.42 Cr. in the FY 2019 from Rs. 458.43 Cr. in FY 2015.

Particulars Unit FY15 FY16 FY17 FY18 FY19 5 Yr CAGR
Net Sales Rs. Cr. 458 503 637 1016 1360.4 31%
EBITDA Rs. Cr. 25.2 31.9 39.9 60.1 74.80 31%
PAT Rs. Cr. 5.0 6.5 10.4 21.0 27.5 53%
EPS Rs. 6.6 8.3 10.1 20.4 25.80 41%
Sales Volume lacs M.T. 1.0 1.4 1.6 2.3 2.69 28%

Manufacturing Facilities

The Company operates with 3 manufacturing facilities, with total installed capacity of 5 lakh mtpa.

  1. Uttar Pradesh (Sikandrabad), Installed Capacity – 2,55,000 mtpa
  2. Gujarat (Sanand), Installed capacity of 1,25,000 mtpa
  3. Andhra Pradesh (Hindupur), Installed capacity of 1,20,000 mtpa

Hi-tech currently operates with 72% capacity utilization.

Distribution Network

The Company operated through strong and widespread distribution network of 300 loyal stockiest/distributors and 50 sub-dealers. In addition, the Company also has tie up with more than 100 OEM partners and more than 75 contractors spread across 17 states.

Strong Clientele

The Company supplies to leading Infrastructure companies such as LT, Adani Ports, NTPC, Power Grid, BHEL, Bharti Infratel, Ashok Leyland amongst others and is an approved vendor for major public sector undertakings like BHEL, Power Grid, AAI, DMRC & MMRDA.

Marquee Projects using Hi-tech Products

[1] Grandstand Roofing Structure- Buddh International Circuit

[2] Toll Plaza- Bandra-Worli Sea Link

[3] Tensile Membrane Structures- Mumbai Airport

[4] Main Supporting Structures- Common Wealth Stadium

[5] Station Structure & Railing- Delhi Metro

[6] Structural Support Members- Foot Over Bridges in Delhi

[7] Module Mounting Structures- Gujarat Solar Park

[8] Fire Fighting Pipes- Seven Hills Hospital Mumbai

[9] Crash Barriers- Yamuna Expressway

[10] Towers- Suzlon Wind Farms

[11] Curtain Walling Structure- Mumbai New Airport Terminal

[12] Structural Glazing Structure- Delhi T3 Terminal

[13] Walkways – Mumbai Skywalks

[14] Substation Tubular Structure- Powergrid Corporation Ltd.

INVESTMENT CONCERNS

Highly Competitive Industry

Hi-Tech Pipes operates in a highly competitive industry, which is undergoing significant market consolidation.

Capacity Utilization

The Company over the years have expanded its capacity aggressively in anticipation of increase in demand. While the Company’s capacity has gone up 2x since FY16, the Company’s overall utilization has been in the range 60 to 65%. With most the capacity expansion behind now improving utilization would be a key factor.