Interpipe EBITDA jumps 45% in 9M19

EBITDA at Ukraine’s largest pipe and railway wheel
producer Interpipe (INTHOL) jumped to USD 200 mln in 9M19, 45% more yoy,
according to a company presentation published on Dec. 19. EBITDA of its railway
product segment skyrocketed 4.4x yoy to USD 123 mln. EBITDA of its pipe segment
was flat yoy at USD 47 mln, while that of steel & other segments plunged
53% yoy to USD 30 mln.

 

Interpipe’s revenue inched up 5% yoy to USD 862 mln in
9M19, driven by a 36% yoy jump in its railway product segment revenue to USD
297 mln. Revenue of its pipe segment lost 7% yoy to USD 535 mln, while the
external revenue of steel and other segments rose 11% yoy to USD 30 mln.

 

In 9M19, Interpipe sold 473 kt of pipes (8% less yoy),
152 kt of railway products (3% more yoy) and 18 kt of steel billets to external
customers (29% more yoy).

 

The company’s CapEx increased 8% yoy to USD 42 mln in
9M19, driven by a 27% rise in railway product segment investments to USD 14
mln, while CapEx at its pipe segment (USD 21 mln) and steel & other
segments (USD 7 mln) was the same as a year ago.

 

Interpipe had USD 219 mln in cash at the end of
September, up 67% YTD.

 

The company’s representatives said during a Dec. 19
conference call with investors that they expect the strength of the railway
wheels market to last into early 2020, but there are already signs of a cooling
of the overheated CIS railway wheel market. Overall, the company does not rule
out that 2020 will be a less profitable year for the company as a whole than
2019.

 

Therefore, Interpipe might want to keep most of the
cash earned in 2019 as a cushion. However, it is also possible that the company
will use some of its cash to prepay its debt.

 

Interpipe plans to disclose its 2019 results around
the end of March.

 

Dmytro Khoroshun: Interpipe’s
railway product segment EBITDA for 3Q19, USD 63 mln, substantially exceeded our expectations of USD 38 mln.

 

Railway products sales volume grew 17% to 56 kt in
3Q19, compared with the average for the first two quarters (we expected a 13%
rise). The average price jumped 19% to USD 2,169/t, while we expected 12%
growth.

 

Pipe segment EBITDA plunged to USD 3 mln in 3Q19 (from
USD 45 mln in 1H19), close to our expectations (around zero). However, seamless
pipe sales volume, 121 kt, was much higher than we expected (100 kt), and the
average price inched up to USD 1,217/t, 2% higher than in 1H19, whereas we
expected a 7% drop. Nevertheless, we note that the steel grade, namely, pipes’
content of metals other iron (which are several times more expensive) might
impact heavily the average seamless pipe prices without impacting profitability
of their sales.

 

For welded pipes, the trends we expected were
confirmed: the 3Q19 sales volume jumped to 35 kt, 25% higher than the average
for the first two quarters, but the average price dropped 22% from 1H19 to USD
714/t.

 

Finally, the USD 13 mln EBITDA in its steel segment
that we expected turned a bit higher than the USD 9 mln that Interpipe disclosed
for its steel & other segments taken together.

 

Looking ahead, both the low profitability of
Interpipe’s pipe segment and the abnormally high profitability of its railway
product segment will likely persist in 4Q19.