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UBS Investment Research
Welspun Corp
Lower shipments; Q4FY11 to improve
Lower shipments in 3QFY11; expect robust sales volumes in 4QFY11
In 3QFY11, Welspun (WCL) reported consolidated EBITDA of Rs 3.1 bn, lower
on 10.2% Y-o-Y, on lower sales and shipments (down 4% to 163,611 MT) and Rs
590 mn gain in 3QFY11. Blended EBITDA margin was US$242/MT (benefitted
from coatings/others). Deprecation increased 27.7% yoy on new capitalisation,
infra business consolidation. PAT at Rs 1.47 bn was lower 12.2% y-o-y. Inventory
of 40-50kMT implies robust 4QFY11 sales to meet full year target of 950kMT.
Order book at Rs 50 bn; Saudi plant commissioned
WCL’s order book was Rs 50 bn or 776kMT of pipes and 40kMT of plates,
ensuring 8-9 months visibility. WCL commissioned Saudi plant in 4QFY11 and
LSAW at Anjar to start by 1QFY12 and Mandya plant is ramping up well.
Management indicates robust industry outlook – many developments
WCL indicated strong industry in next year on 1) US- replacement demand, shale
gas; 2) Latin America – Colombia, Peru, Venezuela projects, 3)Europe – niche,
quality conscious market an opportunity, WCL invited to bid; 4) Africa –
opportunities; 5)Asia – Transcountry/gas pipelines – WCL prequalified with EPC
contractors; 5) Middle East – water and O&G projects; local capacity strategic.
Valuation: Maintain Buy on fundamentals and PT of Rs 250/share
WCL continues to deliver favourable performance. We maintain Buy and UBSVCAM
based TP of Rs 250. Yet, medium term sentiment will be driven by SEBI
order developments. We await more clarity on same.
Other conference call takeaways
Overall management indicated robust industry outlook and many
developments likely, as the company is pre-qualified for most projects. Order
book break up of 776 KMT of pipes is 285 KMT, 458kMT and 35 KMT of
LSAW, HSAW, ERW, respectively. WCL expects to service all market
opportunities strategically through its mills in India, US and Middle East. It
is also opening local offices for focussed effort. Also, they may unlikely
require new capacities in other regions.
Expect fixed asset growth in Welspun Infra business at ~Rs 1.5 bn,
depending on future mix of contracting or privatisation related projects.
Management guidance for pipes in FY11 was 900-1000kMT, and plates was
500 kMT and 700 KMT in FY11 and FY12, respectively.
EBITDA margins have been maintained. We believe double jointing/coating
has also supported the same.
Reason for lower shipments was a combination of logistics and other internal
issues.
Gross and net debt was Rs 37.6 bn and Rs 11 bn, respectively
Welspun Corp
Welspun Corp is the flagship company of Welspun Group. It is one of the
largest pipe manufacturing companies in the world. Incorporated in 1995, the
company offers a complete range of high grade pipes, ranging from half an inch
to the 100 inches used to transport oil and gas. In addition to pipe manufacturing
it offers coating, bending and double jointing facilities to its customers. The
company's subsidiaries include Welspun Pipes, Welspun Natural Resources,
Welspun Pipes, Welspun Trading and Welspun Infratech.
Statement of Risk
FX fluctuations, sharp steel price volatility (70% of the cost of pipe
manufacturing), unrelated diversification, higher competition and a slowdown in
global pipeline capex are the main risks to pipe companies and our estimates.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Welspun Corp
Lower shipments; Q4FY11 to improve
Lower shipments in 3QFY11; expect robust sales volumes in 4QFY11
In 3QFY11, Welspun (WCL) reported consolidated EBITDA of Rs 3.1 bn, lower
on 10.2% Y-o-Y, on lower sales and shipments (down 4% to 163,611 MT) and Rs
590 mn gain in 3QFY11. Blended EBITDA margin was US$242/MT (benefitted
from coatings/others). Deprecation increased 27.7% yoy on new capitalisation,
infra business consolidation. PAT at Rs 1.47 bn was lower 12.2% y-o-y. Inventory
of 40-50kMT implies robust 4QFY11 sales to meet full year target of 950kMT.
Order book at Rs 50 bn; Saudi plant commissioned
WCL’s order book was Rs 50 bn or 776kMT of pipes and 40kMT of plates,
ensuring 8-9 months visibility. WCL commissioned Saudi plant in 4QFY11 and
LSAW at Anjar to start by 1QFY12 and Mandya plant is ramping up well.
Management indicates robust industry outlook – many developments
WCL indicated strong industry in next year on 1) US- replacement demand, shale
gas; 2) Latin America – Colombia, Peru, Venezuela projects, 3)Europe – niche,
quality conscious market an opportunity, WCL invited to bid; 4) Africa –
opportunities; 5)Asia – Transcountry/gas pipelines – WCL prequalified with EPC
contractors; 5) Middle East – water and O&G projects; local capacity strategic.
Valuation: Maintain Buy on fundamentals and PT of Rs 250/share
WCL continues to deliver favourable performance. We maintain Buy and UBSVCAM
based TP of Rs 250. Yet, medium term sentiment will be driven by SEBI
order developments. We await more clarity on same.
Other conference call takeaways
Overall management indicated robust industry outlook and many
developments likely, as the company is pre-qualified for most projects. Order
book break up of 776 KMT of pipes is 285 KMT, 458kMT and 35 KMT of
LSAW, HSAW, ERW, respectively. WCL expects to service all market
opportunities strategically through its mills in India, US and Middle East. It
is also opening local offices for focussed effort. Also, they may unlikely
require new capacities in other regions.
Expect fixed asset growth in Welspun Infra business at ~Rs 1.5 bn,
depending on future mix of contracting or privatisation related projects.
Management guidance for pipes in FY11 was 900-1000kMT, and plates was
500 kMT and 700 KMT in FY11 and FY12, respectively.
EBITDA margins have been maintained. We believe double jointing/coating
has also supported the same.
Reason for lower shipments was a combination of logistics and other internal
issues.
Gross and net debt was Rs 37.6 bn and Rs 11 bn, respectively
Welspun Corp
Welspun Corp is the flagship company of Welspun Group. It is one of the
largest pipe manufacturing companies in the world. Incorporated in 1995, the
company offers a complete range of high grade pipes, ranging from half an inch
to the 100 inches used to transport oil and gas. In addition to pipe manufacturing
it offers coating, bending and double jointing facilities to its customers. The
company's subsidiaries include Welspun Pipes, Welspun Natural Resources,
Welspun Pipes, Welspun Trading and Welspun Infratech.
Statement of Risk
FX fluctuations, sharp steel price volatility (70% of the cost of pipe
manufacturing), unrelated diversification, higher competition and a slowdown in
global pipeline capex are the main risks to pipe companies and our estimates.
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