Incorporated in 1995, Welspun Gujarat Stahl Rohren Limited (Welspun),flagship company of the Welspun Group, is one of the largest pipe manufacturing company and second largest ‘large diameter pipe’company in the world. The company manufactures high-grade submerged arc-welded pipes (SAW) and electric resistance welded (ERW) pipes.
Investment Highlights
Industry growth to drive revenues The INR 150bn steel pipes industry is set to grow 20-25% in the next 3-4 years following massive investments by oil and gas companies leading to a robust demand for steel pipes, especially saw pipes
Capacity expansion to capture growth opportunities elspun has a large capex plan to increase its capacity to 2.1 million MT by
end of fiscal FY11. This expansion makes Welspun well positioned to take advantage of rising demand when most global pipe manufacturers are running at full capacity and facing supply constraints in meeting demand
end of fiscal FY11. This expansion makes Welspun well positioned to take advantage of rising demand when most global pipe manufacturers are running at full capacity and facing supply constraints in meeting demandLargest order book compared to peers
Welspun’s current order book position stands at INR 78bn which is highest among its peers. The company has bid for further projects worth INR 50bn Well integrated business model
Welspun has started a plate and coil mill at Anjar with a capacity of 1.5 million MTPA and has a coating capacity of 20.5 mn per sq.mt. The company provides customers with value added services such as coating and bending of pipes
Acquisitions to drive inorganic growth
Welspun currently has a strong balance sheet withINR 13 bn of cash on its books. The company is scouting for opportunities to acquire companies which fit its strategic initiatives to drive inorganic growth Valuation and Outlook
At a CMP of 273, the stock is trading at FY12E EV/EBITDA multiple of 5.4x This implies a 35% discount to the global peer average. The stock is also trading in line with the domestic valuations. We believe Welspun deserves a premium to domestic peers considering its strong order book and well integrated business model. Based on SOTP method, we arrive at our target price of INR 365 which implies a 34% upside from current levels. We recommend investors to buy the stock with a one year horizon
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