welspun gujarat-q3fy10 update

8/9/2019 Welspun Gujarat-Q3FY10 Update

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Welspun Gujarat Stahl Rohren Ltd has declared its Q3FY10 quarterly results and

the company has clocked a sales of Rs. 1639.5 crore on consolidated basis

compared to 1456.6 crore in the same quarter last year signifying a growth of 13%

on YoY basis. The numbers are not comparable with corresponding quarter last

year as the company added pipe capacity in USA during the year. However, on QoQ

basis the company's revenue has dropped by 16.28% on considering the

standalone figure. On a standalone basis, the company reported an EBITDA and

PAT of Rs.346.8 crore and Rs.166.8 crore respectively in the quarter under review

compared to Rs.142.9 crore and Rs.45.3 crore in the corresponding quarter lastyear. This signifies an increase of 144% on EBITDA level and 268% on PAT level on

YoY basis.

The company has been able to improve its EBITDA (21%), EBIT (18%), and PAT

(10%) margin significantly in the quarter under review. Excluding the forex

recovery included in other income of about Rs. 60 crore, the margins would be

18%, 14% and 7% respectively. This improvement in the profitability can be

attributed to factors like:

1. commissioning of the plate cum coil mill which is enabling the company to

enhance its external sales in both API and non API categories and hence

contributing to its bottomline

2. commissioning of double jointing and coating facilities in Arkansas USA, which

is doing the coating and jointing jobs of the bare pipes which were previously

done by other players previously

3. replacement of high cost debt with low cost debt and QIP money.

Result at a glance on Consolidated Basis as reported by the company.

RESEARCH

EUREKA RESEARCH www.eurekasecurities.com

27 JANUARY, 2010QUARTERLY UPDATE

Welspun Gujarat Stahl Rohren Ltd.

ANALYST

Kinshuk Acharya

[email protected]

91-33-3918 0386 - 87

COMPANY DETAILS

SHAREHOLDING PATTERN

BSE Code

NSE SYMBOL

Bloomberg code

Market cap(Rs crore)

Free Float(%)

52-wk H/L(Rs)

Dividend yield-%

Beta(Nifty)

Promoter

FII

Other Institutions

Others

532144

WELGUJ

WGS IN

5219

60%

296/48

2.01%

1.25

40.46%

19.07%

13.82%

26.65%

Accumulate on dips

CMP : Rs. 256.00

RECOMMENDATION

Particulars

Sales

EBITDA

EBITDA Margin

Depreciation

EBIT

EBIT Margin

Interest

EBT

EBT Margin

PAT

PAT Margin

Q3FY10

1639.5

348.6

21%

51.1

297.5

18%

42.8

254.7

16%

166.8

10%

Q3FY09

1456.6

142.9

10%

31.6

111.3

8%

48

63.3

4%

45.3

3%


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Operational Highlights

During the quarter under review, the company's sales and production is as follows

Out of total pipe sales of ~170216 tons, ~5000 tons is contributed by LSAW pipes, ~ 148000 tons of HSAW and ~17000 tons of ERW pipes.

The company, on the other hand, produced 26000 tons of LSAW, 112000 tons of HSAW and 19000 tons to ERW pipes. On quarterly basis

the company's capacity utilization has been around 30% for LSAW, 50% for HSAW and again 30% on ERW pipe segment respectively. Plate

division's utilization rate has been 24%, however, this division has newly been operational and we expect the utilization rate to go up

significantly in FY11.

The company's order book position stands at Rs. 6600 crores, the breakup of the same is presented in the following chart:

In terms of value, HSAW pipe order book stands at Rs. 5000 crore, LSAW at Rs. 900 crore, ERW at Rs. 160 crore, Rs. 100 crore in external

plate, Rs. 500 crore for coating.

In terms of volume, the current order book of Rs. 6600 crore constitutes of 7,60,000 tons of pipes and 1,00,000 tons of plates.

Sales Volume (in tons)

Total Pipe (Cons)

Plate External

Plate internal

Total plate

Production Volume (in tons)

Total Pipes Consolidated

Plates

Q3FY10

170216

103151

9178

112329

156679

93586

Q3FY09

155144

13110

31280

44390

179980

56796

YoY%

10%

687%

153%

65%

-71%

-13%

EUREKA RESEARCH 2


27 JANUARY, 2010

www.eurekasecurities.com

Source: Company

Source: Company

Source: Company

HSAW

75%

ERW

2%

External

Plates

1%

Coating

8% LSW14%

Order Book Composition

HSAW, 640000

ERW, 25000

External

Plates, 40000

Coating, 60000

LSW, 100000

Order Book Composition (in tons)


3/6

In terms of geographical distribution of the order book position, 78% of the order book is from North America, rest is from India, Middle

East, etc.

The breakup of the consolidated EBITDA is as follows

During the quarter under review the company's EBITDA per ton of pipes stood at Rs. 11500 and the same for the plates stood at Rs. 6,500

per ton.

As it has been depicted in the graph above the company has recorded a forex recovery of Rs. 60 crore, which has been included in the

'other income'.

For the quarter under review the production and sales volume of US operations stood at 33000 tons and 31000 tons respectively. For the

nine months under review the production and sales volume of US operations stood at 82000 tons and 83000 tons respectively.

Slab inventory has come down significantly from 80000 tons to 28000 tons in the quarter under review. There has been 62000 tones of

unsold finished goods inventory out of HSAW comprised of 45,000 tons could not be shipped in the quarter under review and as such it

will be sold in the current quarter.

The company has reported lower interest cost because it has prepaid approx. Rs 500 crore high cost debt during the quarter. Presently,

the cost of debt including the forex premium comes to 8.5% and excluding forex premium on weighted basis it is 5.16%. Its total debt at

the end of December 31st 2009 stood at Rs. 2300 crore out of which Rs. 1400 crore pertains to foreign loan (ECB and FCCB) and Rs. 900

crore of domestic loan

Higher depreciation with respect to Q3 FY10 due to commissioning of 150K MT Spiral III Plant in Anjar and 350K MT Spiral Plant in US

Cash balance on 31st December stood at Rs. 1300 crore, which also includes some part of the proceeds of QIP and FCCB

On YoY basis the sales volume have gone up, however on QoQ basis the sales volume has been considerably lower. This is attributable to

the fact that a significant amount of shipment that was supposed to be made during the last quarter could not be made, mainly because

of the holiday seasons where most of the liners do not operate. However, these consignments have already been shipped and the

revenue will be recognized in the 4th quarter. In addition to this the production volume has also been on the lower side on account of

LSAW mill was shut down for 2 weeks for planned maintenance.

The management has been optimistic about Q4FY10 and FY11 as a significant amount of order flows are expected to take place both from

the domestic and international front. It is expected that crude oil would continue to remain stable in $75-80 range and as such enhanced

activities in the oil and gas exploration front is becoming visible all over the world and especially in the US. This is evident from the

improving trend of rig counts all over the world and in the US. With the plant in US expected to be fully operational by the next fiscal, the

company is expecting good order in the US based plant from the region. The management has indicated that inquiries from Iran, Middle

Concall Highlight

EUREKA RESEARCH 3


27 JANUARY, 2010


Source: Company

Pipe

196

56%

Plate

73

21%

Coating

20

6%

Forex Recovery

60

17%

EBITDA Contribution (In Rs. Cr)


4/6

East and Australia has already started to come in and it is expected that those inquiries would translate into real demand by the end of the

1st quarter of FY11.

In the domestic front as well there is a possibility of tenders being floated by GAIL for its Dhabol Kochi Bangalore pipeline and Haldia

Jagdishpur pipeline. In addition to these there are certain tenders to be floated by private players. Overall there is going to be 4000 Km of

pipeline laying that is suppose to take place translating into 0.5 million tones of pipe requirement. In addition to this there is going to be

significant demand of pipes to come from city gas distribution side as feeder and spur lines.

Considering the favorable developments both in the domestic and international front the management has given optimistic volume

guidance for pipes and plates for FY11. The company targets to produce 1 million tones of pipes and 600000-650000 tons of plates, which

would also include 50000-75000 tons of coils.

Capex for the whole year FY10 would be in the vicinity of Rs. 300 crores and a similar figure of Rs. 300 crore is also earmarked for capex in

the FY11. The projects for which these capex has been earmarked for, has been given below:

! 100,000 MTPA (Including fabrication) Spiral Pipe mill project in Bangalore, India, to cater to pipe demand in water segment shall be

ready in the first half of FY 2011. Another 200,000 MTPA (Including fabrication) Spiral Pipe mill projects in other parts of India are

being planned to cater to pipe demand in Oil and water segments, which will be ready over next 15 months and shall entail an

investment of about Rs.150 crore.

! 300,000 MTPA LSAW Pipe mill project at Anjar, India is likely to be completed in second half of FY 2011.

! Coil mill in Anjar, India, likely to be commissioned in Q4 FY 2010.

By the end of FY11 the company will be able to commission its entire expansion project on the pipe side and the total capacity will

become 2.1 million tons per annum, hence there is going to be a significant amount of ramp up in revenue to take place by the end of

FY11.

The Company completed fund raising worth $250 million through Foreign Currency Convertible Bonds (FCCB) and Qualified Institutional

Placements (QIP) issues. The QIP issue has raised the share capital by Rs.8.34 crs implying a dilution of 1.67 crs (9%). QIP proceeds have

been primarily utilized for retiring high cost rupee loans, thereby de-leveraging the balance-sheet considerably. Balance funds out QIP

and proceeds out of FCCB issue shall be utilized for capital and other corporate expenditure.

Though the result for the 3rd quarter of FY10 has come a little lower compared to our expectations, improving industry outlook would

enhance utilization rate leading to improved margins and return ratios for the company. We continue to be positive about the order flow

for the company arising from pipeline addition by domestic players like GAIL, GSPL etc. At current price of Rs. 256, the stock is trading at

12.19x its FY10E and 7.75x its FY11E earnings. Based on market developments and management guidance, we increase our FY11 EPS

estimate from RS 31 to Rs. 33 per share. Hence we increase our target price to Rs. 344 (12x FY11E EPS) from Rs. 323 earlier suggested by

our initiating coverage report on the company released on 9th September, 2009. Therefore, we assign Accumulate on dips rating on the

stock, with a holding period of 12-18 months.

Fund raising and Utilisation:

Valuation & Recommendation

EUREKA RESEARCH 4


27 JANUARY, 2010



5/6

EUREKA RESEARCH 5


27 JANUARY, 2010


17.3%

2.1%

12.7%

8.4%

16.4%

2.6%

11.6%

7.7%

10.2%

3.3%

4.7%

3.1%

1520.38

1524.63

1262.35

262.28

229.94

192.5

127.71

-16%

-16%

-17%

-12%

-8%

-9%

-9%

1813.17

1816.34

1519.71

296.63

248.64

211.06

140.22

4%

4%

-4%

77%

130%

181%

182%

1456.63

1461.66

1313.75

147.91

99.95

68.39

45.31

ParticularGross Sales

Excise Duty

Net Sales

Other Income

Other Misc. Income

Total Income

Raw Material Consumed

Stock Adjustment

Purchase of Finished Goods

Employee Expenses

Loss on Forex Transaction

Other Expenses

Total Expenditure

EBITDA

EBITDA Margin

Interest

Interest to Sales

EBDT

EBIT Margin

Depreciation

EBTEBT Margin

Tax

Reported Profit After Tax

PAT Margin

4.25

841.86

53.46

132.82

34.78

0

199.43

1566.93

46.55

4.25

32.34

37.44

64.79

-16%

-20%

34%

-11%

-81%

238%

-3%

-9%

-33%

0%

-9%

1871.61

58.44

3.17

47.99

37.58

70.84

3.17

949.19

276.32

39.31

35.87

0

219.02

1%

-48%

-16%

-33%

-122%

165%

15%

15%

-33%

19%

181%

1545.73

89.1

5.03

47.96

31.56

23.08

5.03

1262.46

-244.65

50.16

30.16

41.95

173.67

3rd Qtr 200912 3rd Qtr 200812 2nd Qtr 200909YoY %

QoQ %

(in Rs. Crore)Reported Quarterly Result (Standalone)


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27 JANUARY, 2010

EUREKA RESEARCH 6 www.eurekasecurities.com

Registered Office :

Corporate Office :

Mumbai Office :

7 Lyons Range, 2nd Floor, Room No. 1, Kolkata - 700001

B3/4, Gillander House, 8 N S Road, 3rd Floor, Kolkata - 700001Phone : 91-33-2210 7500 / 01 / 02, Fax: 91-33-2210 5184

e: [email protected]

909 Raheja Chamber, 213 Nariman Point, Mumbai-400021Phone : 91-22-2202 5941 / 5942e: [email protected]

DISCLAIMER : The information in this report has been obtained from sources, which Eureka Research believes to be reliable, butwe do not hold ourselves responsible for its completeness in accuracy. All estimates and opinions in this report constitute ourjudgement as of this date and are subject to change without notice. Eureka Researchwill not be responsible for the consequenceof reliance upon our opinion or statement contained herein or for any omission. Any feedback can be mailed to the following ID.

Analyst : Kinshuk Acharya

Email : [email protected]

Phone : 91-33-3918 0386 - 87

AKP

-9830005273

INCOME :

Sales Turnover

Excise Duty

Net Sales

Other Income

Stock Adjustments

Total Income

EXPENDITURE :

Raw Materials

Power & Fuel Cost

Employee Cost

Other Manufacturing Expenses

Selling and Administration Expenses

Miscellaneous Expenses

Total Expenditure

Operating Profit

Interest

Gross Profit

Depreciation

Minority Interest (before tax)

Profit Before TaxTax

Net Profit

Share Outstanding

EPS

Forward P/E

FY07

2733.91

173.61

2560.3

139.63

-4.07

2695.86

2028.18

21.57

59.54

173.11

64.42

4.52

2351.34

344.52

77.94

266.58

47.55

0

219.03

76.52

142.51

FY08

4021.97

180.06

3841.91

195.13

137.89

4174.93

2749.36

35.01

77.34

463.55

98.66

43.37

3467.29

707.64

123.2

584.44

60.88

0

523.56

182.78

340.78

FY09

5840.08

263.72

5576.36

296.52

472.69

6345.57

4443

133.21

125.27

727.79

133.5

27.22

5589.99

755.58

278.74

476.84

143.27

0

334

120

214

19

11

FY10E

7500

339

7161

300

607

8068

5547

166

156

909

167

34

6979

1089

296.74

792

191

0

602

217

385

19

21

12.19

FY11E

8174

369

7805

300

662

8766

5708

171

161

935

171

35

7181

1585

311.74

1273

235

0

1038

374

665

20

33

7.75

(in Rs. Crore)Financial (Consolidated)

welspun gujarat-q3fy10 update

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