Trading strong products in a favourable market
Inerco trades in ERW pipes and seamless pipes, which are necessities for every oil and gas upstream business. Oil and gas are the main energy sources in Indonesia. The country spent USD 20 billion in 2014 to exploit these sources of energy. They expected to remain the main sources in future.
Indonesia is also the largest economy in South East Asia, with real GDP of USD 867 in 2015. The country therefore has a lucrative market for the business.
The government has encouraged the upstream oil business to maximise the use of domestic products by setting up a policy of using a certain composition of domestic products in the business. Both ERW pipes and seamless pipes are included in this.
Strong and entrenched relationships with suppliers
Inerco has secured an exclusivity agreement with one of the major ERW pipe makers in Indonesia, PT Bakrie Pipe Industries ("BPI"). BPI is the only pipe manufacturer in Indonesia that has American Petroleum Institute ("API") certification to produce ERW casing for upstream oil and gas.
Being produced in Indonesia, the products from BPI satisfy the requirement to be Barang Wajib/mandatory items. Aside from the exclusivity agreement with BPI, Inerco has also signed a · supply agreement with PT KHI Pipe Industries.
The Company also enjoys an entrenched and trusted relationship with pipe threading vendors. There are five main vendors located in Batam for their ERW and seamless casing and tube products finishing.
Business model with no obsolescence risk and efficient working capital management
Inerco functions as a trader and its business model is to hold no physical inventory on hand. All products are made available on an order-by-order basis.
The products are processed from raw materials to finished goods straight from vendors to customers. If there is an urgent order to be delivered, the Company can obtain the stock from stockists.
This business model would benefit from having an efficient working capital. All working capital has an underlying binding sales agreement. Additionally, the customers are Indonesian top oil and gas companies that have their budgets monitored and approved by the Special Task Force for Upstream Oil and Gas ("SKK Migas") in Indonesia. The risk of customers defaulting or of payments becoming overdue is therefore minimised.
Experienced management team
Inerco has a highly-experienced management team with knowledge of the ERW pipe and seamless pipe supply chain, in-depth industry knowledge and a track record of success in the industry.
members of Management have aii average of more than ten years' experience in their role and most of them have worked together since the Company was incorporated. Under such Management, the Company has demonstrated strong execution capabilities over the years.
Minimal exposure to foreign exchange risk
Based on Bank Indonesia Regulation No. 17/3/PBI/2015, all invoices in Indonesia have to be made in IDR. Most of the Company's products are obtained from local suppliers, so all trades will use IDR. For products that need to be imported (i.e. seamless green pipes), the foreign exchange costs can be passed through to the buyers.
Non-reliance on technology
The Company requires minimal technology in its operations. When the products become outdated, the Company can switch to more modern products.