Interpipe pipe sales volume rebounds 24% m/m in February

Pipe sales volume at Ukraine’s largest producer
Interpipe (INTHOL) was 36.9 kt in February, a 23.8% m/m rise, according to the
company’s February operational report released on Mar. 19. Railway product
sales dropped 14.7% m/m to 18.2 kt, while external billet sales plunged 78.3%
m/m to 0.8 kt. Total sales volume inched up 2.0% m/m to 55.9 kt.

 

The m/m jump in pipe sales volume in February was
driven by line pipes (+34% m/m to 20.8 kt) and OCTG pipes (+23% to 10.4 kt),
which more than offset decreases for mechanical pipes (-11% to 1.2 kt) and
welded pipes (-1% to 4.4 kt).

 

The m/m decrease in railway product sales was driven
mostly by sales of wheels, which dropped 11.3% m/m to 16.7 kt, and wheelsets (a
39.3% plunge to 1.2 kt).

 

During 2M20, Interpipe’s pipe sales plunged 31.3% yoy
to 66.8 kt, driven by a 22.6% drop for line pipes to 36.4 kt, a 52.5% plunge
for welded pipes to 8.9 kt, and a 28.0% slump for OCTG pipes to 18.9 kt.
Railway product sales in 2M20 jumped 43.2% yoy to 39.6 kt, driven mostly by a 41.1%
rise for wheels to 35.4 kt and a 89.7% jump for wheelsets to 3.3 kt.

 

Interpipe’s share of pipe sales in Ukraine in 2M20
dropped 7pp in comparison with 2019 to 18%, and the share of sales in the
Americas plunged 11pp to 13%. At the same time, Europe’s share in pipe sales
gained 11pp to 35%, and the share of MENA rose 7pp to 22%. The share of CIS
countries in 2M20 was the same as in 2019, or 10%.

 

The share of railway product sales in Ukraine in 2M20
plunged 8pp compared with 2019 to 14%, while the share of sales to Europe
gained 4pp to 30% and the share of sales to CIS countries inched up 2pp to 47%.

 

Regarding production volumes, which might be
indicative of sales volumes in future months, Interpipe’s production of pipes
gained 19.5% m/m to 38.4 kt in February, while railway product output inched up
3.3% m/m to 18.1 kt.

 

Dmytro Khoroshun: Interpipe’s
pipe sales rebounded m/m in February, but remained about 26% below the average
2019 monthly level of 50 kt. The further increase of pipe production volume in
February indicates a possible advance in pipe sales volume in March.

 

Its railway product segment, on the other hand, is
producing and selling close to Interpipe’s capacity.

 

The main questions now for the prospects of Interpipe
bonds involve the coronavirus situation. These are the general appetite for
risky assets, the demand for oil, and the plunge in oil prices, which has been
exacerbated by the battle on the market that has emerged. All these trends,
which are negative for Interpipe’s credit, seem to be far from bottoming out as
of now.

 

On the other hand, the coronavirus situation has, for
the time being, almost eliminated the risk of Interpipe refinancing its
Eurobond, which may be in preparation for, or in relation to, the sale of the
company by its beneficiary owners.

 

In particular, the possible intention of Victor
Pinchuk, the ultimate beneficiary owner of Interpipe, to sell his Ukrainian
assets has been discussed in the local media. Furthermore, there were reports
of actual deals, including the sale of Pinchuk’s captive bank, Credit Dnepr, in
January and the sale of his minority stake in Regal Petroleum
(RPT LN) in June 2019.

 

We continue to expect Interpipe will report by the end
of March net revenue of USD 1,112 mln
(a 4% yoy rise) and EBITDA of USD 277 mln (a 76% yoy jump) for 2019.