Welspun Corp - SEBI order; event update; Edelweiss

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Welspun Corp (WLCO IN, INR 160, Under Review)

n  SEBI bars Welspun Group companies from trading on the bourses

The Securities and Exchange Board of India (SEBI) has prima facie observed that the Welspun group promoters, while trading in Welspun Corporation’s (WLCO) stock, had violated various norms and regulations. In its recent order, SEBI has, therefore, directed that:

·         Promoters of Welspun Group not deal/sell/buy in securities of their own companies and their listed group entities until it gives further directions

·         The stock exchanges square off the positions in the futures and options segment at the earliest

·         WLCO’s promoters ensure that the shareholding of promoter group companies are not altered in any manner until further directions

WLCO can raise objections to this order within 21 days from the date of the order (December 02, 2010).

n  We remain positive on the pipes industry

We, however, remain positive on the pipes industry owing to: (a) higher crude prices, leading to higher industry capex; (b) attractive natural gas price, resulting in increased attractiveness of pipeline transportation, (c) increased inquiries on pipelines, as indicated by management of various companies, Simdex and PGJ data; and (d) higher pick-up in business for the jack-up rig segment (a leading indicator for the pipeline capex). We also believe that order books of pipe companies have bottomed and should see increased order intake Q4FY11 onwards.

n  SEBI order impacts perception;  stock ‘UNDER REVIEW’

We remain positive on the industry fundamentals and believe that SEBI’s recent order will not materially impact WLCO’s business fundamentals. Hence, we continue to maintain our earnings estimates for the company. The SEBI order will, however, have implications on the perception of WLCO. The company has 21 days to file objections to the order, which the management has confirmed it will. We will wait for the outcome of the objection raised by the company to SEBI’s order before reviewing our recommendation. For now, we place the stock ‘UNDER REVIEW’.