Man Industries (India) Ltd Management Discussions

Man Industries (India) Limited

GLOBAL OIL AND GAS INDUSTRY OVERVIEW

The oil and gas pipelines industry can be segmented into crude oil, petroleum products, natural gas, and NGL in terms of a commodity. In December 2021, natural gas had the longest transmission pipeline length followed by crude oil, petroleum products, and NGL. All active, suspended, planned, and announced pipelines length with start years up to 2025 were considered for this analysis.

The total length of the top 10 planned and announced trunk/transmission pipelines in the world is over 20,000 km. Kandla-Gorakhpur is the longest upcoming product pipeline in the world. In 2021, China had the highest planned new-build capital expenditure, while the US had the highest announced new-build capital expenditure.

114,403 miles of pipelines either planned or under construction worldwide at the start of 2023. Of those, 86% are natural gas projects and 14% are liquids pipelines. Projects still in the planning, engineering and design phases represent 75,332 miles of the total, while 39,071 miles are in various stages of construction. The combined figures reveal a 10.7% increase in total mileage compared with the 113,305 miles of pipelines that were planned or under construction in our 2022 survey.

Total mileage increased in four of seven regions, including gains of more than 50% in both Europe and Asia-Pacific, while North America, Africa and South and Central America posted declines.

Total mileage of pipelines planned and under construction across all regions at the start of 2023 includes Africa, 15,026 (-9.9%); Asia-Pacific, 31,521 (+50.6%); Western Europe, 12,082 (+57.5%); Russia/CIS, 16,684 (+11.6%); South/Central America and Caribbean, 13,281 (-18.2%); North America, 18,869 (-13.8%); and Middle East, 6,940 (+39.2%).

The Cumulative Impact of COVID-19, the Russia-Ukraine Conflict, and High Inflation is expected to have significant long-term effects on the Global Oil & Gas Pipeline Market. The ongoing research considers the changes in consumer behavior, supply chain disruptions, and government interventions caused by the pandemic. Similarly, the report considers the ongoing political and economic uncertainty in Eastern Europe caused by the Russia-Ukraine Conflict and its potential implications for demand-supply balances, pressure on pricing variants, and import/export and trading. Additionally, the report addresses the impact of High Inflation on the global economy and details fiscal policies measuring and reducing its effects on demand, supply, cash flow, and currency exchange.

North America and Asia are set to drive the global oil and gas new-build pipeline length additions, contributing around 55% of the global planned and announced pipeline length additions between 2019 and 2023. North America and Asia are expected to witness operations of 259 new-build pipelines by 2023, of which 148 are planned and announced pipelines in North America. Keystone XL Project is the longest upcoming pipeline in the region with a length of 1,897.0 km. North America and Asia are likely to have new-build pipeline lengths of 42,580.4 km and 42,579.2 km, respectively by 2023.

Asia will have 111 new-build pipelines by 2023, of which 76 are planned and the rest are early-stage announced pipelines. Power of Siberia 1 (China Section) is the longest upcoming gas pipeline in the region with a length of 3,371.0 km. Africa is the third-highest contributor to the global new-build planned and announced pipeline length additions by 2023 with a length of 16,912.2 km. Trans Saharan Gas is the longest upcoming pipeline in the region with a length of 4,400.0 km.

The Global Oil & Gas Pipeline Market is forecasted to grow significantly, with a projected USD 77.42 billion in 2023 at a CAGR of 6.52% and expected to reach a staggering USD 121.03 billion by 2030.

Drivers:

Increase gas pipeline

In 2021, natural gas consumption reached 4037.5 billion cubic meters (bcm), mostly as a result of rising demand for fuel across a variety of sectors, including transportation and power generation. The infrastructure for gas pipelines is set to grow greatly as a result of this trend, which is predicted to last for the foreseeable future.

The demand for natural gas is anticipated to experience the largest increase of all fuel types by 2030 as a result of the advantages to the environment and the need for energy security in places like the Middle East, Africa, and Asia-Pacific. Russian shipments of LNG remained the greatest in the world in 2021, totaling 201.7 billion cubic meters. The demand for the natural gas pipeline network is anticipated to rise as a result of the expected large growth in the worldwide LNG trade.

Worldwide, 408 new gas pipelines totaling 193,400 km are being built now or in the planning stages as of 2021, while 510 renovations and capacity additions to existing infrastructure are also under way. According to the Global Energy Monitor, 16 gas pipelines totaling 3,200 kilometres (km) and EUR 6.5 billion are being built in Europe. The Baltic Pipe Project, which is anticipated to improve EU gas import capacity by 10 billion cubic meters annually, is allocated EUR 2.1 billion of this total. The discovery of new natural gas sources, including shale gas reserves, and the pressure on prices that follows are expanding the global market for natural gas. Thus, it is anticipated that during the projected period, these changes will increase demand for pipeline network growth.

Restrain:

High cost of oil and gas pipeline is also restraining the market

Since major declines and increases in oil prices have a negative effect on government and consumer spending, market volatility is likely to be detrimental. In contrast, a significant increase in oil prices had led to rising inflation, a current account deficit, and a fiscal deficit in nations like India and China, which primarily import oil.

The decline in oil prices is having a negative impact on government spending in nations like Saudi Arabia, Nigeria, and the UAE (United Arab Emirates), which are heavily dependent on revenues from crude oil exports. For instance, due to a significant decline in the revenues from oil exports, which has an impact on the market, the Saudi government is expected to reduce its spending from 1.05 trillion riyals ($280 billion) in 2019 to 1.02 trillion riyals ($270 billion) in 2020 and to 955 billion riyals ($255 billion) by 2022. It is anticipated that the market will suffer as a result of the current high level of oil price volatility.

Opportunity:

High demand for natural gas and crude oil across the electricity sector

Through 2030, the market for oil, gas, and NGL pipelines is expected to grow rapidly. The paradigm shift towards gas-based power plants and the rising demand for propylene, ethylene, and other natural gas liquids will be what motivates investment in infrastructure development. The prevention of oil and gas pipeline disruption along with the incorporation of cutting-edge security technologies would enhance the oil and gas infrastructure market industry statistics and make operations secure, cost-effective, and productive.

Increased market share will result from accelerating spending on the construction of LNG terminals and changing trends in natural gas pipeline networks. Also, the demand for natural gas in tandem with the quick growth of the infrastructure for gas transportation throughout growing economies will lead to the need for infrastructure. The usage of CNG and LNG as substitute fuels for petrol and diesel has been encouraged by government initiatives to minimise carbon footprints and greenhouse gas emissions, which will support the natural gas infrastructure industry. Furthermore, the United States has seen a boost in the use of LNG cryogenic applications in the industrial sector, which will foster corporate growth.

Impact of Covid 19:

The demand for oil and gas infrastructure is being hampered by the Covid-19 outbreak in numerous applications. Companies financial positions have suffered as a result of the pandemic. Deals on gas and oil pipelines were postponed in the majority of the countries as a result of the government-imposed shutdown. The two most impacted nations were the United States and India. The usage of electricity fell in these nations. Lockdowns had an impact on these nations petrol usage as well. The global oil & gas infrastructure market has suffered as a result of the Covid-19 epidemic.

The oil and gas industrys major players are battling oil price wars, declining demand, and assuring employee safety and company strength. As the world emerges from the COVID-19 crisis, they need to concentrate on developing a flexible business that can result in long-term pliability. The supply chain has been hampered by the industrial slowdown brought on by the COVID-19 epidemic. The full-scale activities of market players are expected to be hampered by a disruption in the supply of raw materials.

Segments Insight:

Operation Insights:

The segments distribution pipeline represented the highest revenue share. The segment expansion is anticipated to be driven by increasing consumption in end-use categories such the expanding number of gas-fired power plants, the chemical industry, the manufacturing industry, and the residential and commercial sectors. With extensive inter-regional trade in the form of imports and exports, the segment is anticipated to have rapid expansion in nations like the United States, Russia, China, and other European countries. The category expansion, however, may be hampered by the market liberalizations sluggish progress. For example, National Oil Companies (NOCs) have access to transmission pipelines in China without having any rights to third-party lines.

Category Insights:

The need for crude oil and natural gas is expected to increase exploration and production operations, which would likely propel the oilfield equipment over the forecast period. However, the erratic price of oil and gas is making oil and gas operators hesitant, which is probably going to limit the growth of oilfield equipment in the next years. Due to rising exploration and production activities, the drilling rigs segment is predicted to dominate the market throughout the forecast period. In the upcoming years, market players should benefit from advancements in deepwater and ultra-deepwater drilling activities in the area, including Brazil, Norway, and the United Kingdom.

Regional Insights:

The International Energy Agency (IEA) projects that China will boost global energy consumption by 30% by 2025. Moreover, Chinas imports of natural gas have been rising steadily, reaching 162.7 bcm in 2021, in order to fulfil the rising demand. State-owned businesses in China, such as CNPC and China National Offshore Oil Company, have plans to increase output at nearby gas fields, which will increase the demand for pipelines in the area. A contract for the seventh development phase of ONGCs pipeline replacement projects was also given to L&T Hydrocarbon Engineering Limited in January 2022. Engineering, procurement, construction, installation, and commissioning of about 350 km of subsea pipes and offshore activities are included in EPCICs contract.

Indian oil and gas industry

Advantage India

GROWING DEMAND

Oil demand in India is projected to register a 2x growth to reach 11 million barrels per day by 2045.

Diesel demand in India is expected to double to 163 MT by 2029-30, with diesel and gasoline covering 58% of Indias oil demand by 2045.

Consumption of natural gas in India is expected to grow by 25 billion cubic metres (BCM), registering an average annual growth of 9% until 2024.

RAPID EXPANSION

India aims to commercialise 50% of its SPR (strategic petroleum reserves) to raise funds and build additional storage tanks to offset high oil prices.

In May 2022, ONGC announced plans to invest US$ 4 billion from FY22-25 to increase its exploration efforts in India.

SUPPORTIVE GUIDELINES

In July 2021, the Department for Promotion of Industry and Internal Trade (DPIIT) approved an order allowing 100% foreign direct investments (FDIs) under automatic route for oil and gas PSUs.

The Government has allowed 100% Foreign Direct Investment (FDI) in upstream and private sector refining projects.

POLICY SUPPORT

In Union Budget 2022-23, the customs duty on certain critical chemicals such as methanol, acetic acid and heavy feed stocks for petroleum refining were reduced.

In September 2021, India and the US agreed to expand their energy collaboration by focusing on emerging fuels.

One of Indias eight core businesses is the oil and gas industry, which has a significant impact on all other major economic sectors. Rapid economic growth is leading to greater outputs, which in turn is increasing the demand of oil for production and transportation. According to the IEA (India Energy Outlook 2021), primary energy demand is expected to nearly double to 1,123 million tonnes of oil equivalent, as the countrys gross domestic product (GDP) is expected to increase to US$ 8.6 trillion by 2040.

India retained its spot as the third-largest consumer of oil in the world, as of 2021. Indias consumption of petrol products stood at 204.23 MMT in FY22, while crude oil production stood at 29.7 MMT. Assam, Gujarat and Rajasthan account for more than 96% of oil production in India. India has about 10,420 kms of crude pipeline network, with a capacity of 147.9 MMTPA.

India has 23 refineries - 18 are in the public sector, two in the joint sector and three in the private sector. Indias state refineries have upgraded their facilities to comply with a new government requirement to produce oil products with the equivalent of Euro VI emission standards. Indias total installed provisional refinery capacity stands at 249.21 MMT, making it the second-largest refiner in Asia. Private companies own about 35% of the total refining capacity.

India is one of the largest exporters of refinery products due to the presence of various refineries. In terms of trade, exports of petroleum products from India reached 62.7 MMT in FY22. The value of these exported crude oil and petroleum products stood at US$ 44.41 billion. In FY22, crude oil imports stood at 4.24 MBPD, which was worth US$ 120.4 billion.

According to the International Energy Agency (IEA), Indias medium-term outlook for natural gas consumption remains solid due to rising infrastructure and supportive environment policies. Industrial consumers are expected to account for 40% of Indias net demand growth. The demand is also expected to be driven by sectors such as residential, transport and energy.

As per data released by Department for Promotion of Industry and Internal Trade (DPIIT), FDI inflows in Indias petroleum and natural gas sector stood at US$ 7.99 billion between April 2000 and June 2022.

There have been multiple partnerships in the sector. Bharat Petroleum Corporation Ltd. (BPCL) and Microsoft have established a strategic cloud partnership targeted at speeding up the companys digital transformation and influencing the oil and gas industrys future innovation. India and the US have also agreed to expand their energy collaboration by focusing on emerging fuels, which was followed by a ministerial conference of the US-India Strategic Clean Energy Partnership (SCEP).

India aims to commercialise 50% of its SPR (strategic petroleum reserves) to raise funds and build additional storage tanks to offset high oil prices. Prime Minister Mr. Narendra Modi has announced that the Government of India plans to invest Rs. 7.5 trillion (US$ 102.49 billion) on oil and gas infrastructure in the next five years. There are 84,895 OMC retail outlets in India.

In May 2022, the Government announced a reduction in excise duty of Rs. 8 (US$ 0.10) per litre on petrol and Rs. 6 (US$ 0.077) per litre on diesel, to combat the high fuel prices. In the same month, the government approved changes in the Biofuel Policy to bring forward the target for 20% ethanol blending with petroleum to 2025-26 from 2030.

In the Union Budget 2022-23, the customs duty on certain critical chemicals such as methanol, acetic acid and heavy feed stocks for petroleum refining were reduced. The Government is also planning to set up around 5,000 compressed biogas (CBG) plants by 2023.

By 2030, India wants to increase its refining capacity by double, to 450–500 million tonnes. On the back of ongoing strong economic expansion, it is predicted that Indias energy demand will increase more quickly than that of any other major global economy. Consequently, Indias energy demand as a percentage of global energy demand is expected to rise to 11% in 2040 from 6% in 2017.

References: Media Reports, Press Releases, Press Information Bureau, Ministry of Petroleum and Natural Gas, Petroleum Planning and Analysis Cell, News Articles, International Energy Agency, BP Statistical Review 2020

The water and wastewater management domestic market

Water, a magical living force, holds within it the very essence of life. However, safe and sustainable access to this resource has become a central tenet in the global sustainability discussion given the undisputable linkages between water, climate, human society, and the natural environment. The United Nations World Water Development Report 2023 states that water scarcity will affect nearly half the global urban population by 2050 , highlighting the urgency of the crisis at hand.

India, one of the most water-stressed countries in the world, is home to 18 per cent of the worlds population but holds only around 4 per cent of the worlds water resources2. The twin processes of rapid urbanisation and industrialisation are leading to a higher demand for water in the agricultural, energy and industrial sectors, posing a grave challenge for adequate supply of safe drinking water. This has far-reaching consequences; including, but not limited to health-related, environmental, and economic concerns.

The need of the hour is to plan for a water-secure future for India, building upon the work being undertaken by the Government today. Two flagship schemes – ‘the Jal Jeevan Mission and the ‘Atal Mission for Rejuvenation and Urban Transformation (AMRUT 2.0) – have been launched for improved water security outcomes in rural and urban India, respectively. Both schemes are focused on universalising tap water coverage, ushering in water and wastewater reforms, facilitating private sector participation and innovation in the sector, and improving social, and behaviour change outcomes. The increase in budgetary allocation for these flagship schemes is a testament to the progress being made under them, and the plethora of opportunities envisaged for investors and beneficiaries alike.

The Ministry of Jal Shakti has been allocated Rs.97,278 Crores in 2023-24. The Department of Water Resources has been allocated Rs.20,055 Crores, 43% higher than the revised estimates of the previous year.

Market size in India

The water and wastewater management market size in India stood at INR 216.03 Bn in 2022. It is expected to reach INR 518.15 Bn in 2027, expanding at a compound annual growth rate (CAGR) of 15.95% during the 2023 - 2027 period.

The Indian market for water and wastewater treatment is anticipated to expand as the nation sees an increase in private investments and the governments implementation of new business models to draw in remote market participants and hasten the industrys expansion.

Wastewater is any water contaminated by human activity or has had its quality negatively impacted. The techniques used to transform wastewater into an effluent that may either be recycled or returned to the water cycle with minor environmental damage are referred to as wastewater treatment or management. With 600 million Indians facing an extreme water crisis, India is one of the worlds most water-stressed regions.

Market drivers:

The growing regulations by the regional government to prevent pollution of naturally occurring water bodies and illegal wastewater discharge have boosted the market growth. To maintain a balance between the population and freshwater supply, wastewater treatment facilities are needed in large Indian cities where the urban population is constantly growing.

Market challenges:

The high cost of water treatment plants hinders the growth of the market. The cost of wastewater treatment facility is affected by effluent flow rates, water quality, purity, and construction materials. The demand and supply of chemicals and equipment have been negatively impacted by the increasing number of limitations imposed due to the epidemic around the world.

Impact of COVID-19:

The Central Pollution Control Board (CPCB) directed sewage water treatment plants to ensure that all Covid-19 precautions are taken for their employees to protect them from the SARS-CoV2 infection, as viruses found in sewage water may be a source of disease transmission.

Domestic water use increased due to the COVID-19 epidemic, although non-domestic (industrial, institutional, and commercial) water use declined.

Company overview

Man Industries (India) Limited is one of the largest Manufacturers and Exporters of LSAW and HSAW pipes in India with a total installed capacity of 1.15 million tonnes. MIL has three plants: two plant in Anjar, Kutch District of Gujarat and other in Pithampur, Madhya Pradesh. Anjar plant facilitates easy transportation to two major ports Kandla and Mundra as well as provides good connectivity to the road network. Both facilities put together spread across ~180 acres of land. The Companys facilities hold internationally accepted quality standards laid down by the American Petroleum Institute (API) which is a mandatory requirement to produce high pressure line pipes for hydrocarbon applications.

During the financial year, we witnessed the cost of key materials rising which had a slight impact on our margins. The cost increase was on account of rising crude & commodities prices, geopolitical tension, etc. but off late we see prices softening on account of government measures and policies changes.

During the year with crude oil reaching new highs, we are witnessing a lot of traction in the sector both in the domestic as well as international market. Many Oil & Gas companies are undertaking capex to increase the line pipe network which is beneficial for players like us. We are witnessing multiple triggers and good enquiry for our products and are actively participating in the tendering process.

Products

Longitudinal Submerged Arc Welded Pipes (LSAW): Diameters ranging from 16" to 56"; maximum Pipe Length12.20 meters, and a total capacity of 500,000 tonnes p.a.

Helically Submerged Arc Welded Pipes (HSAW): Diameter ranging from 18" to 130", maximum Pipe Length-18 meters, and a total capacity of 500,000 tonnes p.a.

New product offerings include ERW Pipes, Steel bends & Stainless Steel

Coating: Single layer FBE, Internal blasting & painting, Coal tar Enamel

Clients

Domestic Clients: GAIL, IOCL, HPCL, BPCL, ONGC, Reliance, Adani, EIL, BHEL, L&T, Petronet India Ltd. and many more.

International Clients: SHELL, Kinder Morgan, Energy Transfer USA, Kuwait Oil Company, Hyundai Engineering & Construction Ltd., Petro Bangla - Bangladesh, NPCC-Abu Dhabi, PETROBRAS-Brazil and many more.

Consolidated Financial Review

SALES ACHIEVEMENTS

The total income of your Company increased to Rs. 2,270.90 Crores from Rs. 2,175.72 Crores in the previous year achieving a growth of over 4.37 % on year to year basis.

PROFITABILITY

The Company has registered operational growth as evidenced by the fact that it has achieved EBIDTA of Rs. 137.20 Crore this year. At the same time Profit before taxation stood at Rs. 90.38 crore and the Profit after taxation stood at Rs. 68 Crores.

KEY FINANCIAL RATIOS (Standalone)

Particulars	FY 2022-23	FY 2021-22
Debtor Turnover Ratio	3.53	3.29
Interest Coverage Ratio	3.19	4.61
Inventory Turnover	10.03	6.35
Current Ratio	1.66	1.42
Debt Equity Ratio	0.30	0.06
Operational Profit Margin %	6.24%	8.21%
Net Profit Margin %	3.21%	4.83%
Return on Net Worth	6.71%	10.77%

RISKS and CONCERNS

Your Company is having a comprehensive risk management policy which comprises the identification of risk, nature of risk internal or external, assessment of risk and ways to mitigate the risk . The Company keeps watch on internal as well as external risk Although internal risks are always controllable but external risk are not within the control of the company. The Company makes an analysis of all kinds of risks and puts stress on external risks in particular .

Business Risk

The business risk mainly relates to facing competition from other players in the market. The company strategies are framed in such a way that the effect of competition does not pose any major negative impact on the companys business. To enhance the level of domination over the market every effort is made to provide the quality products at right prices. Capacity expansion of products is the step taken by the Company to dominate the market in competition with others.

Financial Risk

Increase in Cost of raw materials and other allied costs including forex losses the financial risk is always there with the Company. Bulk procurement and import of raw materials is done to combat the financial risk due to increase of cost of raw materials. However, right action at the right time helps in controlling the cost factor and the financial risk. Suitable measures like forward cover etc are taken to mitigate the forex losses.

Interest rate risk

The Company has taken finance from various bankers and increase in rate of interest is one of the major factors posing risk to the Company. The continuous effort is made in obtaining finance at the cheapest rate as well as tactful utilisation of finance is done to negate the impact of this risk.

Liquidity risk

The liquidity risk is faced by the Company at times when the inflow of funds is slowed down due to overall slowing down of the market. Bankers of the Company are very co-operative and better relation with them is to a great extent reducing the implication of liquidity risks.

Market risk

The Company is supplier in potential and existing markets. Although there is market risk due to cut throat competition in the market. However better quality at competitive price mitigates the market risk to a great extent. Also the continuous efforts to expand the market for the products are being done and proper strategies are applied to combat market risk.

Internal control systems and their adequacy

The internal control framework is designed to ensure proper safeguarding of assets, maintaining proper accounting records and providing reliable financial information and other data. This system is supplemented by internal audit, reviews by the management and documented policies, guidelines and procedures. The Company has a well-defined organizational structure, authority levels, internal rules and guidelines for conducting the business transactions. The Company intends to undertake further measures as necessary in line with its intent to adhere to procedures, guidelines and regulations as applicable in a transparent manner. Internal audit department of the Company carries out the internal audit of the Company operations and reports its finding to the audit committee. In this process the internal audit also evaluates the functioning and quality of internal controls and provides assurance of its adequacy and effectiveness through periodic reporting. Internal audit is carried out as per risk based internal audit plan which is reviewed by the audit committee of the Company. The committee periodically reviews the findings and suggestions for the improvement and is apprised on the implementation status in respect of the actionable items.

Human resource

The Company believes in people being the most crucial asset in running a successful business. The Company focuses on treating the employees with utmost fairness and are on a constant endeavour to align their personal goals with that of the organisation. In doing so, the Company has focused on providing adequate opportunities for professional and personal growth of its employees, in addition to training and enhancing the skills and capabilities of the employees. The Company strives to create and maintain a safe, conducive, and engaging work environment to enhance employee morale and boost their productivity.

Disclaimer

Statements in management discussion and analysis describing the Companys objectives, projections, estimates, expectations or predictions may be forward looking statements within the meaning of applicable securities laws and regulations. Actual results could differ materially from those either expressed or implied. Important factors that could make a difference to the Companys operation include among others, economic conditions affecting demand/supply and price conditions, variation in prices of raw materials, changes in governmental regulations, tax regimes, economic developments and other incidental factors