Covid-19 delays Srikalahasthi Pipes’ expansion plans

M Ramesh Chennai | Updated on June 07, 2020

Srikalahasthi Pipes (NSE: SRIPIPES), which makes ductile iron pipes for water supply, was finding the going pretty good for most part of 2019-20.

Since water projects are generally funded by multilateral funding agencies, the business was almost recession-proof. And then the Covid-19 pandemic hit the world.

The immediate effect of the pandemic on Srikalahasthi Pipes (SPL) was that it missed its coveted target of volume sales of 300,000 tonnes by a whisker.

Due to the lost last month, it ended up selling 285,848 tonnes of pipes. It still managed to achieve a turnover of ₹172 crore, up 7.2 per cent, and a record net profit of ₹187 crore—helped by benign prices of raw materials (mainly Australian coking coal)--and paid a dividend of ₹7 a share (70 per cent), a rupee more than for the previous year to compensate the shareholders for dividends not being exempt from taxes now.

On the overall, SPL’s Whole-time Director, Gauri Shankar Rathi, looks back at the year with a grin of satisfaction, but the current year is different.

Current year forecast

The pandemic has impacted the company from two directions. First, though it has re-started operations at its plant in Kalahasthi, Andhra Pradesh, absenteeism is hurting. Second, the company had hoped to commission its expanded facilities, which would raise capacity by 500,000 tonnes a year from 300,000 tonnes now, is going to be delayed by at least six months because some critical equipment, sourced from China, cannot come in time.

By the looks of it, the new facility will be ready for next year—the current year will get no benefit from the enhanced capacity.

One sees the effect of the pandemic in SPL’s financial statements. Trade receivables have risen sharply to ₹541 crore from ₹305 crore earlier. Borrowings, under ‘current liabilities’ have gone up to ₹371 crore, from ₹187 crore.

In sum, SPL will have to grit its teeth and wait out the current year even if it has enough orders on hand to last the entire year. Rathi hopes that 2021-22 will be a better one, with new orders flowing.

Published on June 07, 2020

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