| They dont care whether in the long term, owners of the pipeline are making money or not. |
True - but like BHEL, even Punj Loyd (the second layer) will make money. Then why go to the third level (pipeline manufacturer) in the value chain? Let me give you another analogy -
If you are bullish on the retail sector, you should invest in Pantaloon. But if you feel Pantaloon has execution risk, then you could go for Blue Star (the second level) which rides piggyback on growth in retail sector. But it won't be very profitable to go further down and invest in CFC (fluorine gas) manufacturers like Navin Fluoride or Guj Fluoro.
Also, the markets will automatically assign a low P/E for pipeline stocks because there is limited visibility in earnings after 20,000 km of pipeline has been laid in the next 3 years. I would be surprised if any of the pipeline companies reach market cap of something like Rs. 40,000 crores - the opportunity of scale is not there.
Meanwhile, companies like Punj Loyd can not only lay the pipelines but also build LNG terminals, refineries and even ports for export. That's why I can quickly make a case for Punj Loyd reaching a market cap of Rs. 50,000 crores.
Investment in pipeline companies will give good returns over the next few years - but it is not for 'buy and hold forever' type of investors.
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