52-WEEK FLOP: PSL TUBES

Share prices of steel pipe maker PSL have plunged over the last one year due to slipping profitability in an environment characterised by weak order inflows and rising raw material costs coupled with stiff competition.

PSL, during the most recent quarter ended March 2011, saw revenues dip by 21 per cent while net profits were flat as a weak order book and intense competition eroded the company’s top-line. The welded-pipe space is a rather crowded one with several industry participants operating at utilisation levels below the 55 per cent mark. Consumer segments for these pipes include oil and gas producers and water and sewage transport. Demand from these segments has also grown at a snail’s pace, leaving pipe-producers with idle capacity competing for a rather slow-growing pie.

Consequently, PSL’s annual results for the year ended March 2011 saw consolidated net sales and profits post a 21 per cent and 55 per cent decline to Rs.3,100 and Rs.55 crore respectively. Here again, despite higher realisations owing to higher steel prices through the period, most companies in the welded pipe space have struggled to up their utilisation rates which have remained stagnant over the last two years. The inability to fully pass on raw material price hikes has resulted in little scope for boosting operating margins over the same period.





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