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Welspun Gujarat: Analyst meet extracts - Views on News from Equitymaster
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Welspun Gujarat: Analyst meet extracts
Jun 2, 2009

Welspun Gujarat Stahl Rohren held an analyst meet last week to discuss the company’s performance during FY09. The management also discussed the future plans of the company. Here are the key takeaways from the same. What is the company’s business?
Welspun Gujarat Stahl Rohren Ltd (WGSRL) is the second largest (large diameter) pipe company in the world. It is a flagship company of the US$ 3 bn Welspun Group. It began its operations in 1995 and since then has supplied pipes for some of the most prestigious projects including the world’s deepest pipeline project in the Gulf of Mexico, USA. Its manufacturing facilities are located at Dahej and Anjar in Gujarat and incorporate the hybrid JCO technology from Mannesmann Demag of Germany (SMS Meer). It enjoys the distinction of supplying the highest recognized ‘X 80’ grade and 56” outer diameter line pipes in India. It has recently commissioned a world class spiral mill in Little Rocks, Arkansas USA. The company is well placed to meet the growing demand and the stringent requirements and standards of high-grade line pipes.

Key takeaways:

On FY09 performance: The topline of the company grew by 47% to Rs 58.8 bn in FY09 led by higher volumes and realizations from pipe segment. Pipes segment accounted for around 90% of the total revenues. The sales volumes of pipes grew by around 7% to 0.7 m tonnes while the realizations from the same grew by around 23% during the fiscal. It also sold around 42,073 tonnes of plates in FY09. The EBITDA margins (before exceptional item) stood at 13.9% YoY as against 16.3% YoY in FY08. Net profits declined by 33.5% YoY to 2.3 bn during the fiscal. This was mainly on account of higher interest and depreciation charges during the fiscal on account of commissioning of plate mill, power plant, US facility and spiral III of 150K in Anjar. Furthermore, the company also accounted for exceptional item of Rs 3.4 bn for the fiscal, out of which Rs 1.3 bn is on account of forex provision on asset liability mismatch.

On US mill: The company has recently commissioned a spiral plant having capacity of 350,000 tonnes at Little Rocks, Arkansas, USA. The plant has a state of art facility and employs around 300 Americans. It has obtained all API approvals. It applied for patents as lot of innovations has been made from this facility. The company rationale behind setting up a plant in US was to locate near customers and also reduce the transportation cost. It may be noted that US and Canada accounts for more than 60% of the total revenues for the company. Furthermore, capacity in the US was incapable of serving the requirement there as most of the capacities to manufacture high pressure pipes are obsolete. The demand is likely to remain robust as the old infrastructure needs to be replaced. This will set the stage for a long term demand of pipes.

On order book: The company had orders worth around US$ 2.6 bn during FY09, out of which it executed orders of around US$ 1.2 bn. Currently, the order book stands at around US$ 1.4 bn wherein North American markets accounts for 59% while domestic markets accounts for 21%. Middle East and South America comprises of 4% each and Africa forms around 12% of the total order book. It also has plate orders of around US$ 136 m. It may be noted that the company has tied up raw materials for all the current orders and shipping for majority of them has also been finalized. Thus, the company expects a greater revenue visibility in the current fiscal. On plate business: WGSRL has commissioned a plate cum coil mill of 1.5 m tonnes capacity in FY09. It plans to demerge the plate division into a 100% subsidiary in order to provide greater focus in business and attain fiscal benefits. The commercial demand for plate has slumped on account of economic slowdown, however majority of the production will be used for internal consumption. The company has set up 7 depots in major cities in order to increase the external sales of plates. It plans to add another 8 depots during the fiscal so as to avail opportunity of reaching OEMs and trade sales. It is also in the process of registering the plate products with various agencies like railways, defence etc.

Management’s guidance for FY10: The company targets a pipe production of around 850,000 tonnes wherein orders for 780,000 tonnes have been already booked. New orders of around 200,000 tonnes are under advance stage and are most likely to materialize. The company is targeting to bag around 800,000 tonnes of pipe order in FY10. On the plate business side, the company plans a production target of 400,000 tonnes for the fiscal, out of which API will be 300,000 tonnes and non API 100,000 tonnes. The orders for around 240,000 tonnes of API plates have already been booked.

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