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Welspun Corp- Expecting to make inroads ahead…
Welspun Gujarat’s numbers for Q3FY11 came below our estimates.
Q3FY11 revenues came at | 1586 crore compared to our expectation of |
1861 crore. The topline fell ~3.3% YoY and ~14% QoQ primarily led by
a dip in pipe sales volumes due to inventory build-up due to a delay in
shipment of certain export orders. EBITDA margins declined ~160 bps
YoY led by an increase in raw material cost leading to cost push based
margin pressures. PAT declined ~12.2% YoY and ~16.7% QoQ due to
higher depreciation based on higher capitalisation during the year. The
company during the quarter has repaid debt of ~| 400 crore that would
ease off margin pressures to some extent. We maintain our neutral to
positive outlook on the company due to a foray into infrastructure
projects, multiple country strategy and increased capacities taking care
of robust demand from the oil & gas sector. We have revised our target
price to | 175 and assigned an ADD rating to the stock.
ƒ Strong order book
The total outstanding order book (pipe and plate) at the end of
Q3FY11 stood at | 5000 crore. Further, during Q3FY11, the company
added orders worth | 1670 crore from international oil & gas majors.
The current order book for pipes is ~| 4859 crore and plate is ~|
141 crore (7,76,000 tonnes of pipes and 40,000 tonnes of plates).
ƒ Various new projects to come on stream
The company has commissioned its Saudi plant in Q4FY11.
Implementation of the LSAW plant at Anjar is on schedule. The
Mandya plant in Karnataka has started production. Going forward,
the company expect to ramp up its capacity here. The total capacity
addition lined up is ~6,50,000 tonnes in line pipes by FY12.
Valuation
At the CMP of | 161, the stock is trading at FY12E PE of 7.6x and FY12E
EV/EBITDA of 4.4x. Going forward, we expect an increase in contribution
from infrastructure projects coupled with focus on multiple country
strategy to add sheen. We still remain cautious given the concerns on the
global demand outlook. We value the stock at 4x FY12E EV/EBITDA and
have revised our target price to | 175. We assign ADD rating to the stock.
Result Analysis
The company reported a soft set of numbers for Q3FY11 due to a decline
in consolidated sales volumes despite better realisations. Topline growth
was aided by higher volume growth in plates and coils, which was higher
by ~11% YoY. EBITDA margins QoQ have improved by ~110 bps aided
by operational efficiencies and easing cost pressures. PAT declined
~12.2% YoY and 16.7% QoQ due to higher depreciation on the back of
higher capitalisation.
Conference call highlights
• The total outstanding order book (pipe and plate) at the beginning
of the quarter was | 4500 crore. Further, in Q3FY11, the company
added orders worth | 1670 crore from international oil & gas
majors. After executing orders in Q3FY11, as on December 31,
2010, the outstanding order book (pipe and plate) stands at | 5000
crore, comprising 7,76,000 tonnes of pipes and 40,000 tonnes of
plates
• During the quarter, the 270 ktpa spiral pipe and coating facility in
Saudi Arabia was commissioned and is expected to start
commercial production in Q4FY11
• The implementation of the LSAW plant at Anjar is on schedule
and is likely to be commissioned by Q1FY12
• The company’s Mandya plant in Karnataka has produced ~10,000
tonnes and is getting ramped up to achieve the desired level of
production
• Welspun Middle East is establishing its presence in Dubai to cater
to the buoyant markets of Middle East and Africa
• The consolidated net debt of the company stood at ~| 1112 crore
• The company has guided for a capex of | 250 crore for FY12 and
post that a maintenance capex of | 100 crore each year
• The management has guided for a sustainable EBITDA/tonne of |
10,500-11,000/tonne for pipes and | 4500-5000/tonne for plates,
going forward
• The outlook for the pipes industry has started to improve with
recovery having started in the global markets and crude oil prices
hovering around US$90-100 per barrel leading to a revival of
several shelved projects in the oil & gas space. The management
expects strong order inflows from countries like the US (in the
form of a) replacement demand and b) pipes for transportation of
shale gas). In Latin America, the company expects orders from
regions like Columbia, Peru and Venezuela
Outlook & earnings revision
The global economy has shown good recovery. Oil prices have increased
to $90-100/barrel. Hence, this has given impetus to new projects based on
increasing cash flows. Going forward, more order inflows can be
expected from gas-based pipeline projects and the water segment.
Commencement of operations in Saudi Arabia will take care of order
accretion from the Gulf from the oil & gas pipeline projects. Also, shale
gas activity from Latin American markets and replacement demand from
the North American markets, along with increased rig count will lead to
increased demand for line pipes, going ahead. We have revised our EPS
estimates upwards to | 32 and | 36.8 for FY11E and FY12E numbers,
respectively.
Valuations
At the CMP of | 161, the stock is trading at FY12E P/E of 7.6x and FY12E
EV/EBITDA of 4.4x. Going forward, we expect an increase in contribution
from infrastructure projects coupled with a focus on multiple country
strategy to add sheen. We still remain cautious given the concerns on the
global demand outlook. We have valued the stock at 4x FY12E EV/EBITDA
and revised our target price to | 175. We have assigned an ADD rating to
the stock.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Welspun Corp- Expecting to make inroads ahead…
Welspun Gujarat’s numbers for Q3FY11 came below our estimates.
Q3FY11 revenues came at | 1586 crore compared to our expectation of |
1861 crore. The topline fell ~3.3% YoY and ~14% QoQ primarily led by
a dip in pipe sales volumes due to inventory build-up due to a delay in
shipment of certain export orders. EBITDA margins declined ~160 bps
YoY led by an increase in raw material cost leading to cost push based
margin pressures. PAT declined ~12.2% YoY and ~16.7% QoQ due to
higher depreciation based on higher capitalisation during the year. The
company during the quarter has repaid debt of ~| 400 crore that would
ease off margin pressures to some extent. We maintain our neutral to
positive outlook on the company due to a foray into infrastructure
projects, multiple country strategy and increased capacities taking care
of robust demand from the oil & gas sector. We have revised our target
price to | 175 and assigned an ADD rating to the stock.
ƒ Strong order book
The total outstanding order book (pipe and plate) at the end of
Q3FY11 stood at | 5000 crore. Further, during Q3FY11, the company
added orders worth | 1670 crore from international oil & gas majors.
The current order book for pipes is ~| 4859 crore and plate is ~|
141 crore (7,76,000 tonnes of pipes and 40,000 tonnes of plates).
ƒ Various new projects to come on stream
The company has commissioned its Saudi plant in Q4FY11.
Implementation of the LSAW plant at Anjar is on schedule. The
Mandya plant in Karnataka has started production. Going forward,
the company expect to ramp up its capacity here. The total capacity
addition lined up is ~6,50,000 tonnes in line pipes by FY12.
Valuation
At the CMP of | 161, the stock is trading at FY12E PE of 7.6x and FY12E
EV/EBITDA of 4.4x. Going forward, we expect an increase in contribution
from infrastructure projects coupled with focus on multiple country
strategy to add sheen. We still remain cautious given the concerns on the
global demand outlook. We value the stock at 4x FY12E EV/EBITDA and
have revised our target price to | 175. We assign ADD rating to the stock.
Result Analysis
The company reported a soft set of numbers for Q3FY11 due to a decline
in consolidated sales volumes despite better realisations. Topline growth
was aided by higher volume growth in plates and coils, which was higher
by ~11% YoY. EBITDA margins QoQ have improved by ~110 bps aided
by operational efficiencies and easing cost pressures. PAT declined
~12.2% YoY and 16.7% QoQ due to higher depreciation on the back of
higher capitalisation.
Conference call highlights
• The total outstanding order book (pipe and plate) at the beginning
of the quarter was | 4500 crore. Further, in Q3FY11, the company
added orders worth | 1670 crore from international oil & gas
majors. After executing orders in Q3FY11, as on December 31,
2010, the outstanding order book (pipe and plate) stands at | 5000
crore, comprising 7,76,000 tonnes of pipes and 40,000 tonnes of
plates
• During the quarter, the 270 ktpa spiral pipe and coating facility in
Saudi Arabia was commissioned and is expected to start
commercial production in Q4FY11
• The implementation of the LSAW plant at Anjar is on schedule
and is likely to be commissioned by Q1FY12
• The company’s Mandya plant in Karnataka has produced ~10,000
tonnes and is getting ramped up to achieve the desired level of
production
• Welspun Middle East is establishing its presence in Dubai to cater
to the buoyant markets of Middle East and Africa
• The consolidated net debt of the company stood at ~| 1112 crore
• The company has guided for a capex of | 250 crore for FY12 and
post that a maintenance capex of | 100 crore each year
• The management has guided for a sustainable EBITDA/tonne of |
10,500-11,000/tonne for pipes and | 4500-5000/tonne for plates,
going forward
• The outlook for the pipes industry has started to improve with
recovery having started in the global markets and crude oil prices
hovering around US$90-100 per barrel leading to a revival of
several shelved projects in the oil & gas space. The management
expects strong order inflows from countries like the US (in the
form of a) replacement demand and b) pipes for transportation of
shale gas). In Latin America, the company expects orders from
regions like Columbia, Peru and Venezuela
Outlook & earnings revision
The global economy has shown good recovery. Oil prices have increased
to $90-100/barrel. Hence, this has given impetus to new projects based on
increasing cash flows. Going forward, more order inflows can be
expected from gas-based pipeline projects and the water segment.
Commencement of operations in Saudi Arabia will take care of order
accretion from the Gulf from the oil & gas pipeline projects. Also, shale
gas activity from Latin American markets and replacement demand from
the North American markets, along with increased rig count will lead to
increased demand for line pipes, going ahead. We have revised our EPS
estimates upwards to | 32 and | 36.8 for FY11E and FY12E numbers,
respectively.
Valuations
At the CMP of | 161, the stock is trading at FY12E P/E of 7.6x and FY12E
EV/EBITDA of 4.4x. Going forward, we expect an increase in contribution
from infrastructure projects coupled with a focus on multiple country
strategy to add sheen. We still remain cautious given the concerns on the
global demand outlook. We have valued the stock at 4x FY12E EV/EBITDA
and revised our target price to | 175. We have assigned an ADD rating to
the stock.
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