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* Man Industries (India) Ltd. (MAN), was incorporated in 1988 and is the flagship company of the Man Group promoted by the Mansukhani family. Today, the company is one of the largest manufacturer and exporter of large diameter carbon steel line pipes (LSAW, HSAW and ERW), which are used for various high pressure transmission applications for oil & gas industry, petrochemicals, water, dredging & fertilizers, hydro-carbon and CGD Sector. The company has three state-ofthe-art manufacturing facilities with 2 facility located in Anjar, Gujarat having 2 LSAW line Pipe units & 2 HSAW Line Pipe units, 1 ERW unit and also for various types of Anti-Corrosion Coating Systems and 1 facility in Pithampur, Madhya Pradesh, having a total installed capacity of over 1.15 Mn + MTPA. The company has a strong global reach and has supplied to marquee domestic and international clients such as GAIL, IOCL, HPCL, BPCL, ONGC, Reliance, Adani, SHELL, Kinder Morgan, Kuwait Oil Company, Hyundai Engineering & Construction Ltd., and many more. MAN is also undertaking capex to further widen its product offerings by entering in to manufacturing of Steel pipes.

* Foraying in to ERW and SS steel segment: MAN is aggressively expanding its capacity in ERW segment which is high volume segment and preferred steel pipe for the sector like O&G and construction related projects. A/TO in ERW is 3-4 times better than HSAW and LSAW pipes which reduces the working capital cycle for the product. However, margin for the ERW pipes are lower than HSAW and LASW due to competitive scenario and low labor depended and most of the process is automated. ERW plant at Anjar is expected to start commercial production from Q3FY24. Currently company has order bid book of Rs 14000-15000cr. from the segment from global market like O&G and water transportation. Management expect post ERW commissioning top line on consolidated basis is expected improve in the range of 18- 20%. At peak capacity ERW expected to achieve a turnover of Rs.800-1000cr.

* J&K expansion is a strategic step: MAN industries is looking to expand its geographical presence and setting up a new plant in Jammu (Kathua) for the Seamless steel pipes (20000TPA) which is expected to start production from Q4FY25. Total Investment capex outlay is around Rs.550cr. Post abrogation of article 370 in J&K, government has plan to increase the economic activities in Kathua- (Kashmir). To setup the new units state government is providing various subsidy and incentive like incentive of 300% of total capex outlay on plant and machineries through SGST and CGST credit over 10 years and faster land allotment approval in Jammu industrial belt. J&K plant will help to improve the overall margin from current 8% to 9.3% in FY26.

* Growth in Seawater Desalination Market Driving LSAW and HSAW Pipes Industry: Water scarcity is now one of the biggest challenges facing the people, the economy and the future of the GCC region. According to the United Nations Children's Fund (UNICEF), 11 of the world's 17 water-scarce countries are in the Middle East and North Africa, namely Qatar, Israel, Lebanon, Iran, Jordan, Libya, Kuwait, Saudi Arabia, United Arab Emirates, Bahrain and Oman. Therefore, desalination technology is widely used in GCC countries to make up for the shortfall in freshwater supply. For example, the Saudi Arabian government launched a national water plan, Qatrah, in 2019. As part of the Qatrah plan, the country aims to invest USD80 billion in new desalination projects over the next decade to further boost water supplies amid growing demand. In the first half of 2022, Saudi Arabia announced 60 new water projects that will increase its desalination capacity from 2.54 million cubic meters per day in 2021 to 7.5 million cubic meters per day by 2027, thereby almost reducing the Production capacity doubled. LSAW and HSAW Pipes products can be used for water supply and transportation, therefore, the growth of the seawater desalination market in the GCC region will be one of the opportunities for the development of the industry.

View and valuation

* MAN industries is in the cusp of expanding the product portfolio to ERW & SS pipes along with HSAW/LSAW pipes. Further its upcoming new facility in Jammu, which is high RoCE plant is likely to improve the overall profitability of MAN industries (improvement in margin by 150bps over H1FY24 to FY26 and RoCE expansion from 8.5% in FY23 to 14.8% in FY26). We initiate coverage on the stock with OUTPERFORM rating led by 1) expanding in to ERW pipes and seamless steel pipes (high realization 3-4x of existing product), 2) expanding capacity for Steel Bends & Connectors and 3) healthy revenue/PAT growth at CAGR of 27/40% over FY23-26. We ascribe a rating of OUTPERFORM with a TP of Rs. 390 (13x of FY26 EPS).

Global pipes and tubes market size opportunity

* IEA in its latest World Energy Outlook 2023, estimated global Oil demand to see a steady growth reaching to 101.5 million barrel/day by 2030, OPEC has a very strong outlook and expects global Oil demand reaching 112 million barrel/day

* According to the IEA, starting from 2025, a huge surge in LNG project is set to start off with addition of 250 billion cubic meters per year liquefaction capacity by 2030, which is equal to almost half of today’s global LNG supply. Most of these capacities will come between 2025 and 2027. We can categories the global demand based on LSAW and HSAW and various other parameter like dimension etc.

* Global market-The global steel pipes & tubes market size was valued at USD 170.72 Bn in 2022 and is expected to grow at a CAGR of 6.3% from 2023 to 2030. Large Diameter Steel Pipes Market Size in 2023- $ 12.6 bn and is expected to reach $16.8 bn. (American Cast Iron Pipe Company, and American Piping Products)

* Oil & Gas market which is around USD 73.3 billion in 2023 is expected to dominates the market with a CAGR of 3.4% from 2023-2033. Global large diameter steel pipes market is expected to grow at a 2.9% CAGR from FY 2033- 20233, Market value (2033)- $ 6.8 Bn. LSAW and HSAW pipes are preferred transportation mode for O&G segment

* LSAW and HSAW Pipes products are widely used in petroleum field. Petroleum is a supporting industry in the GCC region. The GCC region accounts for a disproportionate share of global primary energy supply, the largest of which, Saudi Arabia, is the world's number one oil exporter (during the pandemic). LSAW and HSAW Pipes are widely used in oil transportation. Therefore, the demand of the oil market will greatly promote the development of the LSAW and HSAW Pipes industry. HSAW PIPES MARKET-

* The global market for Helical Submerged Arc Welded (HSAW) Pipes estimated at US$5.1 Billion in the year 2020, is projected to reach a revised size of US$6.3 Billion by 2026, growing at a CAGR of 3.4% over 2020-2026.

* 18-24 Inches segment is projected to grow at a 3.2% CAGR to reach US$1.6 Billion by 2026 and 24-48 Inches segment is expected to grow at 3.7% CAGR for the next 7-year period (FY 21-FY 28). This segment currently accounts for a 60.8% share of the global HSAW Pipes market. LSAW PIPES-

* LSAW pipes segment is expected to account for a CAGR of 3.2% from FY 2023- 2033.

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