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Welspun Gujarat: Driven by volumes - Views on News from Equitymaster

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Welspun Gujarat: Driven by volumes
Aug 7, 2009

Performance summary
  • The topline of the company grew by a robust 72.4% YoY led by higher sales volumes.
  • Operating profits grew by 74.2% YoY, slightly higher than the topline. EBITDA margins remained nearly stable at 16.1%.
  • Net profits grew by 94.3% YoY, higher than the operating profits mainly on account of lower interest costs and depreciation charges coupled with one time forex gains.


Finanical Snapshot
(Rs m) 1QFY09 1QFY10 Change
Net sales 10,904 18,798 72.4%
Expenditure 9,164 15,768 72.1%
Operating profit (EBDITA) 1,740 3,030 74.2%
EBDITA margin (%) 16.0% 16.1%  
Other income 64 40 -37.2%
Interest (net) 440 617 40.4%
Depreciation 294 362 23.1%
Profit before tax 1,070 2,091 95.4%
Extraordinary items      
Tax 358 708 97.7%
Profit after tax/(loss) 711 1,382 94.3%
Net profit margin (%) 6.5% 7.4%  
No. of shares (m) 70.5 70.5  
Diluted earnings per share (Rs)*   45.4  
Price to earnings ratio (x)**   4.8  
(* annualised, ** on trailing twelve months earnings)

What has driven performance in 1QFY10?
  • The topline of the company grew by a robust 72.4% YoY during the quarter. This was driven by higher volumes in the pipes segment that grew by around 50% YoY as well as a threefold jump in the plate volumes during the quarter. The demand for pipes was higher during the quarter as optimism over the likely economic turnaround probably incited the oil & gas transporters to push through their orders. The company added orders amounting to Rs 12 bn during the quarter. It executed orders worth around Rs 18.5 bn during the quarter. Currently, the order book position of the company stands at Rs 68.3 bn.

  • On operating front, the operating expenditure grew slightly lower than the topline, this enabled the operating profits to grow by 74.2% YoY during the quarter. Staff costs and other expenditure (as % sales) have declined during the quarter. However, raw material costs (as % sales) had grown during the quarter, partially offsetting the gain from the reduction in the staff and other expenditure. Thus, EBITDA margins nearly remained stable at 16.1%

    Cost break-up…
    (Rs m) 1QFY09 1QFY10 Change
    Raw materials 6,873 12,300 79.0%
    % sales 63.0% 65.4%  
    Staff cost 277 318 14.9%
    % sales 2.5% 1.7%  
    Other expenditure 2,014 3,150 56.4%
    % sales 18.5% 16.8%  

  • The net profits grew by 94.3% YoY mainly on account of subdued interest costs and depreciation charges. Further, the company also accounted for a onetime forex gain of Rs 250 m due to adoption of AS-11 standards during the quarter.

What to expect?
Welspun Gujarat Stahl Rohren plans to set up a spiral pipe mill of 300,000 tonnes capacity in south east India for critical oil & gas and water applications. It also plans to convert LSAW pipe mill of 300,000 tonnes capacity project in SEZ into a non-SEZ area at Anjar. These projects are likely to be completed in next 12 to 15 months with an estimated investment of Rs 5.5 bn. Also, the pipe mill in US is fully operational and the coil mill in Anjar (India) is under trail operations and will be commissioned by end of 2QFY10.

All this put together will enhance Welspun Gujarat’s pipe capacity to 2.1 m tones, making it the largest pipe manufacturer in the world.

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