Welspun Gujarat Stahl Rohren: Pipeline to Profits

Welspun Gujarat Stahl Rohren Ltd is the 2nd Largest (Large Diameter) Pipe Producer in the World. Welspun Gujarat will become the World’s Largest Pipe Company after its increase in capacity from 1.5 million ton per annum to 1.8 million ton by March 2010.

Welspun Gujarat has a subsidiary in the North America called Welspun Tubular LLC which has a spiral pipe making facility in Little Rock, Arkansas, USA.

Welspun Gujarat Stahl Rohren Limited has an integrated set-up for manufacturing welded pipes. Welspun Gujarat has three divisions:

– The Longitudinal Pipes division has a capacity of over 350,000 metric ton per annum.

– The Spiral Pipes division has a capacity of 900,000 metric ton per annum.

– The ERW Pipes division has a capacity of over 250,000 metric ton per annum.

In FY 10 Q3 FY10 Welspun Gujarat reported a rise in standalone net profit for the quarter ended September 2009 from Rs 45.31 crores in the same quarter last year to Rs 127.71 crores, an increase of 181.9%. The net sales for the quarter rose 4.4% to Rs 1520.38 crores, while total income for the quarter rose 4.3% to Rs 15,24.63 crores as compared with the prior year period. Welspun Gujarat posted earnings of Rs 6.26 per share during the quarter, registering 4.3 % growth over previous year period.

Welspun Gujarat‘s sales of external plate rose to 1,03,151 tonne during the quarter though the Plate external sales volumes are expected to dip in the future as most of the plate orders have been executed. On the pipes segment, sales were lower QoQ at 1,70,216 tonne but are expected to be compensated in Q4FY10E with the resumption of deferred shipments.

Welspun Gujarat raised US$250 million through FCCB and QIP issue during Q3FY10 and completed its fund raising exercise.

Welspun Gujarat’s US plant has continued its stable performance and achieved sales volume of about 31,000 tonne of pipes in Q3FY10. Welspun Gujarat is also making good progress with its expansion projects. The coil mill in Anjar is under trial production and is likely to be commissioned by FY10 end. The 3 lakh TPA Longitudinal Pipes division mill is targeted to be complete by FY11. Spiral pipe mill expansion of 1 lakh TPA in Bangalore is being implemented according to schedule while another 2 lakh TPA is in the planning phase.

At CMP of Rs.266.00, Welspun Gujarat is trading at 9.87 times and 8.80 times earnings of FY10E and FY11E respectively. Welspun Gujarat‘s Price to Book Value is expected to be at 2.54x and 1.97x respectively for FY10E and FY11E. The Earning per share (EPS) of Welspun Gujarat for FY10E and FY11E is seen at Rs.26.94 and Rs.30.21 respectively for equity share of Rs.10.00 each. The Net Sales and Operating Profit of the Company are expected to grow at a CAGR of 24% & 21% over FY08 to FY11E.

Welspun Gujarat Stahl Rohren Ltd recently won orders worth Rs. 600 Crores for Pipes and plates from its prestigious global clients. Its order book stands at Rs. Of the Rs 6bn in orders about Rs 4.8bn are for pipes, Rs0.6bn for plates and about Rs0.6bn for coatings. The addition to Welspun’s order book comes mainly from the high-margin North American market, with some orders coming from the domestic market.

Welspun Gujarat can be expected to outperform given the rising worldwide demand for pipes, its enviable accreditation, capacity ramp-up and margin-enhancing backward integration. Welspun Gujarat is also increasing pipe capacity from 1.5m tons now to 2.1m by FY12. In addition, its backward-integration strategy (plate-cumcoil mill) could lead to a rise in margins. Welspun Gujarat is estimated to report earnings CAGR of 33% over FY09-12.