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Pipes business under pressure: The current order book stands at 550kt and Welspun
expects volume of ~1MT in FY12 (avg EBITDA/MT $200-225/MT). Management
highlighted that the order cycle has slowed and the visibility on long term orders
remains low. Customers are delaying orders in expectation of lower prices particularly
expecting steel price correction. The Plate business (operating at 50% util.) is adversely
impacted due to sharp correction in pricing (with Korea becoming a net exporter) and
higher slab prices. Plate margins which were ~$100/MT have declined to $30-40/MT
levels.
Seeking to grow infrastructure business: Welspun has a presence in the segment
through MSK Project (62% stake) and the Leighton JV (35% stake). The JV has
allowed Welspun to lock the entire value chain. For orders won by Welspun, high-end
work is executed by Leighton while the low end jobs are executed by MSK Projects.
The current order book stands at Rs40B at Leighton and Rs6B at MSK. Management
expects Rs2B EBITDA for Leighton and ~Rs0.6-1bn EBITDA for MSK in FY12.
ROCE from this business is ~15-16% as per management. Welspun has bid for a green
field port project and expect the outcome in the next couple of months and are also
evaluating mega road projects.
Margins for DRI business under pressure: Welspun currently has 1MT of capacity,
but according to management, over the last few months the profitability of the business
has been affected by the gas availability issues. The company is using higher-cost
alternate sources such as LNG. As per management, the cost of gas has increased from
$6.5 to ~$10.5 currently.
Balance sheet position and FX: The current gearing is ~0.5x with net debt of Rs20B.
Welspun has outstanding FCCB and ECB of US$150MM each. As per management,
~70% of revenues have a natural hedge as both imported raw material and exports are
US$-denominated. For the unhedged portion the company takes forward cover
irrespective of the currency. The company’s working capital requirements are expected
to be stable.
Consensus valuation: Welspun Corp currently trades at 4.5x FY12E and 4.0x FY13E
EV/EBITDA based on Bloomberg consensus estimates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Pipes business under pressure: The current order book stands at 550kt and Welspun
expects volume of ~1MT in FY12 (avg EBITDA/MT $200-225/MT). Management
highlighted that the order cycle has slowed and the visibility on long term orders
remains low. Customers are delaying orders in expectation of lower prices particularly
expecting steel price correction. The Plate business (operating at 50% util.) is adversely
impacted due to sharp correction in pricing (with Korea becoming a net exporter) and
higher slab prices. Plate margins which were ~$100/MT have declined to $30-40/MT
levels.
Seeking to grow infrastructure business: Welspun has a presence in the segment
through MSK Project (62% stake) and the Leighton JV (35% stake). The JV has
allowed Welspun to lock the entire value chain. For orders won by Welspun, high-end
work is executed by Leighton while the low end jobs are executed by MSK Projects.
The current order book stands at Rs40B at Leighton and Rs6B at MSK. Management
expects Rs2B EBITDA for Leighton and ~Rs0.6-1bn EBITDA for MSK in FY12.
ROCE from this business is ~15-16% as per management. Welspun has bid for a green
field port project and expect the outcome in the next couple of months and are also
evaluating mega road projects.
Margins for DRI business under pressure: Welspun currently has 1MT of capacity,
but according to management, over the last few months the profitability of the business
has been affected by the gas availability issues. The company is using higher-cost
alternate sources such as LNG. As per management, the cost of gas has increased from
$6.5 to ~$10.5 currently.
Balance sheet position and FX: The current gearing is ~0.5x with net debt of Rs20B.
Welspun has outstanding FCCB and ECB of US$150MM each. As per management,
~70% of revenues have a natural hedge as both imported raw material and exports are
US$-denominated. For the unhedged portion the company takes forward cover
irrespective of the currency. The company’s working capital requirements are expected
to be stable.
Consensus valuation: Welspun Corp currently trades at 4.5x FY12E and 4.0x FY13E
EV/EBITDA based on Bloomberg consensus estimates.
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