Welspun Gujarat

09 SEPTEMBER, 2009

INITIATING COVERAGE

Welspun Gujarat Stahl Rohren Ltd. CMP

RESEARCH

: Rs. 249

BUY

TARGET : Rs. 323

COMPANY DETAILS

Company Overview Welspun Gujarat Stahl Rohren Ltd. (WGSRL), the flagship company of Welspun Group is the 2nd Largest (Large Diameter) Pipe Producer in the

BSE Code

532144

NSE Code

WELGUJ

Bloomberg

WGS IN

Market Cap (Rs. Crs)

4363.87

Free Float (%)

World and is all set to be the World's Largest Pipe Company with an

52-wk H/L (Rs.)

increase in capacity from 1.5 million ton per annum to 1.8 million ton by

Dividend Yield %

March 2010. The company has API certification, with accreditation

P/E Ratio

conferred to it as preferred supplier by 50 major oil and gas companies across the world. The major customer of the company consists of Reliance

55.97 329.7 / 48.5 0.60 15.42

P/BV

2.93

Beta

1.33

Industries Limited, Gas Authority of India Limited (GAIL), Oil and Natural

SHARE HOLDING PATTERN (%)

Gas Company Limited (ONGC) and Indian Oil Corporation in the domestic

Promoter Group

44.03

market, while its international clients consists of global behemoths like

FII

15.11

Other Institutions

10.93

Other

29.93

Total

100 %

British petroleum, Golden Pass Pipeline LP (Exxon-Mobil), Enterprise, Kinder Morgan, Peru LNG S.R.L. (Hunt Oil), Saudi Arabian Oil Company (Saudi Aramco), Ruby (Elpaso), Qatar Petro, DOW and Gazprom (Stroytransgaz).

FINANCIAL DETAILS (Rs. Crs.) Share Capital

INVESTMENT RATIONALE

. Welspun Gujarat is one of the largest manufacturers of steel pipes in India, and has proven its capability in terms of quality and proficiency in order execution. The company has affiliation to more than 50 world

93.25

Net Sales (Cons)

5576.36

Net Sales (Standalone)

5715.15

PAT (Cons)

209.43

PAT (Standalone)

229.36

EPS (Cons) (Rs.)

11.18

EPS (Standalone) (Rs.)

12.26

renowned oil and gas companies. With the API certifications, and association with such a large energy companies, Welspun Gujarat is very

RATIOS

favorably positioned to take benefit of increasing E&P activities

PBIDTM (%)

12.22

worldwide.

APATM (%)

3.91

ROCE (%)

17.21

RONW (%)

14.79

. By the virtue of its backward integration into plate manufacturing, the company would be in a better position to ensure steady supply of raw

Price Chart

material for manufacturing pipes and would also enable the company to stabilize if not enhance its operating margin in days ahead.

. The company has a capex plan of Rs. 550 crs to add 300,000 MTPA LSAW capacity at Anjar, 300,000 MTPA HSAW capacity at Vishakhapatnam and Bangalore. These expansions are likely to be completed by September 2010, the contribution of which is likely to get reflected in FY 12

ANALYST

numbers.

Kinshuk Acharya [email protected] 092315 49900 / 91-33-3918 0387

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WELSPUN GUJARAT STAHL ROHREN LTD. INITIATING COVERAGE 09, SEPTEMBER, 2009

. The company has recently commissioned a plant costing $150 million with 1.5 MTPA pipe manufacturing capacity with coating and double jointing facilities at Little Rock, Arkansas, US to cater to the replacement demand that is likely to come up for more than 1 million miles of gas pipeline in the US which were laid prior to 1975.

. Welspun has a strong order book position of Rs. 6833.6 crore, executable within 12-15 months, of which 80% are export orders and rest are domestic. 59% orders are from premium markets such as USA and Canada.

. The company's decision to venture into manufacturing pipeline for water transportation augurs well for the company as there is huge requirement of pipeline for the replacement of sewage pipeline and installing new sewages etc. The requirement of desalination projects in the coastal areas to mitigate water shortages would also translate into huge requirement of pipeline installations. VALUATION & RECOMMENDATION The company is trading at a forward P/E of 12.26x and 8.22x based on the FY10E EPS of Rs.21 and FY11E EPS of Rs.31 respectively. Considering the growth the company is likely to witness going ahead as oil and gas exploration throughout the world picks up, we expect that the company would be able to maintain a CAGR of at least 30% in its topline over a period of FY09 to FY11. Based on a P/E multiple of 12 over it's FY11E EPS and 15% required return, we recommend “BUY” on the stock with a March 2010 target price of Rs. 323. BUSINESS PROFILE Diverse product profile… Welspun is one of the very few companies which have the proven capabilities of manufacturing wide range of welded pipes, its product specification includes the following: Product Range

Diameter

Longitudinal Submerged Arc Welded Pipes (LSAW)

16" - 60"

Spiral Welded Pipes (SPIRAL)

18" -100"

High Frequency ERW

1.5"- 16"

Wall thickness: 6 mm-65 mm

The company has been very focused on technological up gradation which enables the company to bid for mission critical pipeline projects which requires high degree durability and precision. The company has manufacturing plant in Anjar and Dahej in Gujarat and has decided to set up a plant in South East India with a manufacturing capacity of 300,000 tpa. The company has cutting age technologies like hybrid JCO press, developed by Mannesmann, which, unlike conventional JCO presses, is very versatile in terms of pipe size range (16-60 inch outer diameter with maximum possible wall thickness of 65 mm). Hybrid JCO press performs at high speed, making it an ideal choice for large cross-country pipeline projects. Welspun which was the only manufacturer who supplied pipes to be laid below 8000 ft of water, in the Gulf of Mexico, USA, forming the world's deepest pipeline “The Independence Trail Project”, where pipes used the JCO methodology. The project required pipeline which would have an ability to withstand a maximum external pressure of 3516 psi and Maximum Allowable

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Operating Pressure (MAOP) of 3640 psi to transport 1.0 Billion Cubic Feet (BCF) per day gas throughput. The technical specification included an outside pipeline diameter of 24 inches Double Submerged Arc Welded (DSAW) with wall thickness ranging from 0.95-inch to 1.35-inch and a minimum grade of API-5L X-65 material. The pipeline was constructed from lowcarbon, low- sulfur, micro-alloyed steel plate manufactured by Azovstal and Voest Alpine with thermo-mechanical process control (TMCP) including accelerated cooling. Recently, Welspun has also commissioned its new LSAW pipe manufacturing facility at Arkansas, USA. The company has emerged as one of the largest exporter of line pipes in USA. Pipes contribute around 90% revenues to the company. Moreover, with the China's recent cancellation of export rebates on welded pipes and North America continuing to be key demand source for Indian companies, this plant will help the company to service the North American demand better. Plate Mill to improve business prospects… Additionally, Welspun has set up a state-of the-art plates cum coil manufacturing facility with a capacity of 1.5 MTPA of steel plates and coils from steel slab of API grade at Anjar, Gujarat. The move will translate in multiple advantages to the company. First of all it would ensure steady supply of raw material for its pipe manufacturing and enable the company to execute orders well within time. It would also put the company in better position to procure and execute short gestation orders. It would put the company in better position to ward off the material cost volatility as prices of steel slabs are less volatile than the prices of steel plates and coils and hence maintain stability in it operating profit margin. Moreover, these plates can also be used for varied high end applications such as constructions, bridges, ship building, boiler plates, wind blades, etc. Recently, Welspun has announced to demerge its plate cum coil mill in to 100% subsidiary. As per the management this move would enable it to exercise better financial control and fiscal efficiency by rationalization of various applicable taxes and duties and create independent identity of high end steel business. This, would also enable the company to unlock value through listing this division as a separate company in the future, however, as per the management such possibilities are not very imminent in the near future. JVs.. In the year 2001, Welspun entered in to joint venture with the world's largest pipe coating company Eupec Pipe Coatings GmBh, Germany, to provide pipe coating solutions at Dahej, Gujarat. This joint Venture got merged with the company to provide the complete pipe solutions under one roof, in the year 2004. Today, Welspun has an installed capacity 14.5MT of pipe coating. Power and fuel Power and fuel is one of the important components of operating expenditure of Welspun. The energy requirement of the company has increased with the commissioning of MS plates cum coil facility at Anjar. Welspun has built (and commissioned in 2008) 45 MW lignite based captive power plant to meet its complete energy requirement (as a part of plate cum coil mill project). This should help economise power cost of the company with the stable power supply.

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WELSPUN GUJARAT STAHL ROHREN LTD. INITIATING COVERAGE 09, SEPTEMBER, 2009

EXPANSION PLAN Welspun is setting up additional capacities of 600,000 TPA of pipe manufacturing which include 300,000 TPA LSAW pipe mill at Anjar, Gujarat and another 300,000 PTA spiral pipe mill project South East India. Both the mills are expected to be completed by September 2010. The total estimated cost of the project would be in the vicinity of Rs. 550 crs. With these expansions on track, the company's pipe manufacturing capacity will increase to 2.1 MTPA, from current 1.5 MTPA. Capacity in MT

FY09

FY10E

FY11E

LSAW

350000

350000

650000

HSAW

400000

900000

1200000

ERW

250000

250000

250000

1000000

1500000

2100000

TOTAL Source : Company

ORDER BOOK POSITION-LOOKS STRONG Welspun has the strong order book position of Rs 6833.6 crore, which would be executed within 12-15 months period, of which 80% are export orders and rest are domestic. Out of the total export orders, 59% orders are attributed to markets such as USA and Canada. Rest of the orders is from South America, Africa and Middle East. Volume wise Welspun have the orders of 7,20,000 MT of pipes of which LSAW, HSAW and ERW consist of 200,000 MT, 400,000 MT and 120,000 MT respectively. High Entry Barrier Would prevent New Entries The company has affiliation of over 50 major oil and gas companies across the world. These includes not only Indian oil & gas companies such as RIL, GAIL, ONGC and IOC but also international oil and gas companies such as British Petroleum, Golden Pass Pipeline (LP), Kinder Morgan, Peru LNG S.R.L. (Hunt Oil), Saudi Arabia Oil Company etc. Obtaining approval from API, etc. requires at least 3-4 years time and in some cases past execution capabilities is a must. This acts as a major deterrent for new entry into this business and moreover, this gives Welspun an edge over its peers as well, as accreditations are the prerequisite to getting short-listed for more orders from customers. Welspun is among the very few companies who are qualified for all significant pipe contracts across the globe. INDUSTRY SCENARIO The demand for line pipes is directly related to the exploration activities, which in turn is dependent on the energy demand. As per the EIA projections made in international Energy Outlook 2009 world market energy consumption is projected to grow by 44 percent over the 2006 to 2030 period. Total world energy use which was at 472 quadrillion British thermal units (Btu) in 2006 is expected to rise to 552 quadrillion Btu in 2015 and then to 678 quadrillion Btu in 2030. Source: EIA 2009 World Energy Outlook

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WELSPUN GUJARAT STAHL ROHREN LTD. INITIATING COVERAGE 09, SEPTEMBER, 2009

The current worldwide economic downturn, as indicated in the report, has dampened world demand for energy in the near term, as manufacturing and consumer demand for goods and services have slowed down considerably. In the longer term, however, with economic recovery anticipated after 2010, most nations return to trend growth in income and energy demand. The most rapid growth in energy demand from 2006 to 2030 is projected for nations outside the Organization for Economic Cooperation and Development (non-OECD nations). Total non-OECD energy consumption increases by 73 percent in the IEO2009 reference case projection, as compared with a 15-percent increase in energy use among the OECD countries. Strong long-term GDP growth in the emerging economies of the non-OECD countries drives the fast-paced growth in energy demand. After the crash in the crude oil prices in 2008 when it touched $33 from $147, it severely impacted the oil and gas exploration activities. However, in the recent time the exploration activities are once again picking up pace, as crude oil prices climb higher. Looking at the data as released by Rigzone, in terms of utilization rates of rigs by managers (as presented below) and region wise rig utilization, we see that utilization rates have stabilized and in some cases it has started to go up. This data when read in conjunction with the rig rates, which, incidentally has started to increase over the last couple of months, suggests that oil and gas exploration activities have started regaining their lost momentum. Conventionally it has been seen that there is a lag effect of 2 to 2.5 years when the pipelines are laid to transport the produce. Thus new E&P activities would ensure demand for pipeline in the next 2-3 RIG MANAGER Aban Offshore

Rigs Contracted

Rig Fleet

% Utilization

14 rigs

18 rigs

77.8%

Arborec Desarrollos

0 rigs

10 rigs

0.0%

Atwood Oceanics

6 rigs

11 rigs

54.5%

Basic Marine Services

3 rigs

5 rigs

60.0%

Blake International

4 rigs

10 rigs

40.0%

Chernomorneftegaz

9 rigs

10 rigs

90.0%

22 rigs

33 rigs

66.7%

ConocoPhillips

7 rigs

7 rigs

100.0%

Delba Perforadora Internacional S.A.

0 rigs

6 rigs

0.0%

China Oilfield Services Ltd.

Diamond Offshore

37 rigs

46 rigs

80.4%

Dolphin A/S

7 rigs

8 rigs

87.5%

Egyptian Drilling

1 rigs

7 rigs

14.3%

28 rigs

51 rigs

54.9%

Frontier Drilling AS

4 rigs

7 rigs

57.1%

GSP

5 rigs

5 rigs

100.0%

Gulf Drilling International

5 rigs

5 rigs

100.0%

Helmerich & Payne

8 rigs

13 rigs

61.5%

Hercules Offshore

14 rigs

53 rigs

26.4%

ENSCO

Japan Drilling

5 rigs

5 rigs

100.0%

KCA Deutag

53 rigs

55 rigs

96.4%

Larsen O&G

2 rigs

6 rigs

33.3%

22 rigs

28 rigs

78.6%

Maersk Drilling

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WELSPUN GUJARAT STAHL ROHREN LTD. INITIATING COVERAGE 09, SEPTEMBER, 2009

RIG MANAGER Moncla

Rigs Contracted

Rig Fleet

% Utilization

5 rigs

8 rigs

62.5%

Nabors Offshore

25 rigs

74 rigs

33.8%

National Drilling

10 rigs

11 rigs

90.9%

4 rigs

5 rigs

80.0%

NIDC

51 rigs

64 rigs

79.7%

Northern Offshore Ltd

4 rigs

5 rigs

80.0%

Nuevo Energy

0 rigs

7 rigs

0.0%

Oando

3 rigs

5 rigs

60.0%

Ocean Rig Asa

2 rigs

6 rigs

33.3%

Odfjell

11 rigs

14 rigs

78.6%

ONGC (NOC)

10 rigs

10 rigs

100.0%

Parker Drilling

7 rigs

17 rigs

41.2%

PDVSA (NOC)

9 rigs

26 rigs

34.6%

Noble Drilling

1 rigs

17 rigs

5.9%

Petrobras (NOC)

14 rigs

16 rigs

87.5%

Pride International

Pemex (NOC)

18 rigs

26 rigs

69.2%

PT Apexindo

6 rigs

6 rigs

100.0%

Queiroz Galvao Perfuracioes

3 rigs

6 rigs

50.0%

Rowan

13 rigs

28 rigs

46.4%

Saipem

10 rigs

17 rigs

58.8%

Schahin

2 rigs

7 rigs

28.6%

Scorpion Offshore

6 rigs

7 rigs

85.7%

29 rigs

42 rigs

69.0%

7 rigs

20 rigs

35.0%

Seawell

28 rigs

28 rigs

100.0%

Socar (NOC)

10 rigs

17 rigs

58.8%

Songa Offshore AS

5 rigs

5 rigs

100.0%

Stena Drilling

6 rigs

8 rigs

75.0%

Tetra Applied Tech

3 rigs

8 rigs

37.5%

Seadrill Ltd Seahawk Drilling

105 rigs

143 rigs

73.4%

Unocal

0 rigs

10 rigs

0.0%

Vantage Energy Services

2 rigs

9 rigs

22.2%

Transocean Inc.

Source: Rigzone

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WELSPUN GUJARAT STAHL ROHREN LTD. INITIATING COVERAGE 09, SEPTEMBER, 2009

HISTORICAL COMPETITIVE OFFSHORE RIG UTILIZATION BY REGION Region Africa - Other

Current

Month Ago

6 Months Ago

1 Year Ago

0.0%

(0/2)

50.0%

(1/2)

33.3%

(1/3)

50.0%

(1/2)

Africa - West

67.2%

(43/64)

60.9%

(39/64)

82.3%

(51/62)

88.5%

(54/61)

Asia - Far East

95.7%

(22/23)

95.7%

(22/23)

94.7%

(18/19)

77.8%

(14/18)

Asia - South

91.9%

(34/37)

94.6%

(35/37)

94.4%

(34/36)

100.0%

(31/31)

Asia - SouthEast

74.7%

(59/79)

72.2%

(57/79)

73.8%

(62/84)

76.6%

(59/77)

Australia

88.2%

(15/17)

87.5%

(14/16)

93.3%

(14/15)

88.2%

(15/17)

Black Sea

100.0%

(3/3)

100.0%

(3/3)

66.7%

(2/3)

100.0%

(3/3)

Europe - East

66.7%

(2/3)

66.7%

(2/3)

100.0%

(2/2)

100.0%

(2/2)

Europe - North Sea

85.3%

(64/75)

85.3%

(64/75)

91.8%

(67/73)

91.4%

(64/70)

Mediterranean

73.7%

(14/19)

83.3%

(15/18)

89.5%

(17/19)

88.2%

(15/17)

MidEast - Persian Gulf

73.3%

(66/90)

68.9%

(62/90)

82.6%

(71/86)

85.9%

(73/85)

MidEast - Red Sea

66.7%

(10/15)

73.3%

(11/15)

71.4%

(10/14)

100.0%

(15/15)

N. America - Canadian Atlantic

66.7%

(2/3)

66.7%

(2/3)

100.0%

(2/2)

100.0%

(2/2)

0.0%

(0/1)

0.0%

(0/1)

0.0%

(0/1)

0.0%

(0/1)

94.9%

(37/39)

95.0%

(38/40)

94.1%

(32/34)

100.0%

(32/32)

0.0%

(0/1)

0.0%

(0/1)

100.0%

(1/1)

100.0%

(1/1)

N. America - US GOM

55.8%

(43/77)

60.5%

(46/76)

70.4%

(57/81)

84.9%

(73/86)

S. America - Brazil

83.7%

(41/49)

85.1%

(40/47)

79.5%

(35/44)

86.8%

(33/38)

S. America - Other & Carib.

66.7%

(2/3)

66.7%

(2/3)

100.0%

(4/4)

50.0%

(2/4)

100.0%

(13/13)

92.3%

(12/13)

91.7%

(11/12)

100.0%

(10/10)

N. America - Canadian Pacific N. America - Mexico N. America - US Alaska

S. America - Venezuela MoM Decrease in Utilisation MoM Unchanged Utilisation MoM Increase in Utilisation Source: Rigzone

Presented below is the data by Simdex, which shows future pipeline project worldwide guiding the demand and supply position of line pipes globally: International Demand (Future projects to be completed by 2014) Region North America Latin America

No. of Projects

Total Length (km)

Quantity (MMT)

Business Potential (US$ Bn)

192

73,736

15

18

56

35,035

7

8

Europe

101

44,784

9

11

Africa

49

17,452

3

4

Middle East

111

43,626

9

11

Asia

142

95,003

19

22

Australasia Total

59

16,339

3

4

710

325,975

65

78

No. of Projects

Total Length (km)

Quantity (MMT)

Business Potential (US$ Bn)

Additional Projects announced in July 2009 Region North America

15

3,078

0.62

0.74

Latin America

4

1,091

0.22

0.26

Europe

6

1,270

0.25

0.30

Africa

2

250

0.05

0.06

Middle East

6

1,825

0.37

0.44

17

9,965

1.99

2.39

1

300

0.06

0.07

51

17,779

3.56

4.27

Asia Australasia Total

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WELSPUN GUJARAT STAHL ROHREN LTD. INITIATING COVERAGE 09, SEPTEMBER, 2009

Total Length (km)

Domestic

Quantity (MMT)

Business Potential (US$ Bn)

GAIL

6,215

1.24

1.5

Reliance

3,630

0.726

0.9

GSPL

2,711

0.542

0.7

Total

12,556

Total Demand

2.51

3

71.26

84.96

Source: Simdex, Future Pipeline Projects Worldwide Guide

Total Annual Capacity World Wide Capacity in MMT Region

HSAW

North America

0.68

2.15

7.34

10.17

Western Europe

1.43

3.29

3.05

7.77

Eastern Europe

0.13

0.04

0.03

0.20

CIS

0.24

2.35

5.85

8.44

Middle east

0.85

0.98

1.12

2.95

South Africa

0.15

0.47

1.97

2.59

Africa

0.25

0.10

0.35

OtherWorld

3.21

2.12

7.23

East India Total World

LSAW

1.90

ERW

Total Region

3.19

3.76

10.39

17.34

10.12

14.94

31.97

57.03

Source: Company Annual Report

The demand for line pipes in the US is going to remain strong at least till 2011 as the demand arising from the replacement of old pipelines of more than one mn miles out of 1.5 mn miles for gas transportation which were laid prior to 1975 have outlived their economic life. The following table gives a glimpse of the age profile of the gas pipeline existing today in the US. Pipeline (miles)

1960s

1970s

1980s

1990s

Oil Pipeline

190944

218671

218393

208752

Gas pipeline

630900

913300

1051800

1189200

Source: Company Annual Report

Recently the construction of a national gas grid of 7000 Km with an estimated project cost of Rs. 22,000 crs has been announced by the petroleum ministry. The bidding process for pipe procurement would begin shortly, which would translate into significant business opportunities in India. As mentioned earlier the oil & gas transportation through pipe is as low as 3032% in India vis-à-vis average 60% all over the world. The pipeline network in India is approximately 12,200 km, which is much below global standards and is on a rapid growth stage. Market surveys shows that transportation through pipelines is significantly cheaper at Rs 1.30 per km as compared to roadways and railways which are at Rs 3.02 per km and Rs 2.20 per km respectively. Thus, transportation of oil & gas through pipeline is also being encouraged globally. This enhanced capacity will help Welspun to cater the increasing demand since it is the accredited supplier of SAW pipes to over 50 oil & gas majors across the world.

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WELSPUN GUJARAT STAHL ROHREN LTD. INITIATING COVERAGE 09, SEPTEMBER, 2009

FINANCIALS Rs. Crs.

FY07

FY08

FY09

FY10E

FY11E

2733.91

4021.97

5840.08

7500

9750

INCOME : Sales Turnover Excise Duty

173.61

180.06

263.72

339

440

Net Sales

2560.3

3841.91

5576.36

7161

9310

Other Income

139.63

195.13

296.52

300

300

-4.07

137.89

472.69

607

789

2695.86

4174.93

6345.57

8068

10399

2028.18

2749.36

4443

5547

7149

Power & Fuel Cost

21.57

35.01

133.21

166

214

Employee Cost

59.54

77.34

125.27

156

202

173.11

463.55

727.79

909

1171

64.42

98.66

133.5

167

215

Stock Adjustments Total Income EXPENDITURE : Raw Materials

Other Manufacturing Expenses Selling and Administration Expenses Miscellaneous Expenses Total Expenditure Operating Profit Interest Gross Profit

4.52

43.37

27.22

34

44

2351.34

3467.29

5589.99

6979

8995

344.52

707.64

755.58

1089

1404

77.94

123.2

278.74

296.74

311.74

266.58

584.44

476.84

792

1092

47.55

60.88

143.27

191

194

219.03

523.56

334

602

898

76.52

182.78

120

217

323

142.51

340.78

214

385

575

Share Outstanding (Crs. Nos)

19

19

19

EPS (Rs.)

11

21

31

12.26

8.22

Depreciation Profit Before Tax Tax Net Profit

P/E

FINANCIAL RATIOS 200903

200803

200703

200603

200503

Debt-Equity Ratio

1.23

1.49

2.02

1.51

1.08

Long Term Debt-Equity Ratio

1.19

1.35

1.81

1.3

0.85

Current Ratio

1.21

1.23

1.23

1.13

1.1

Fixed Assets

2.45

2.57

3.22

2.89

2.5

Inventory

3.31

4.48

5.18

4.07

4.48

Debtors

9.13

6.16

6.13

6.57

5.59

2.41

5.59

3.81

2.7

2.59

PBIDTM (%)

12.22

17.53

12.61

9.55

10.12

PBITM (%)

10.12

16.11

10.87

7.67

7.81

PBDTM (%)

8.01

14.64

9.75

6.71

7.1

6

10.12

6.96

5.16

5.54

Key Ratios

Turnover Ratios

Interest Cover Ratio

CPM (%) APATM (%)

3.91

8.7

5.22

3.28

3.23

ROCE (%)

17.21

23.45

17.14

14.52

15.47

RONW (%)

14.79

31.49

25.3

15.96

13.67

EUREKA RESEARCH

9

www.eurekasecurities.com

WELSPUN GUJARAT STAHL ROHREN LTD. INITIATING COVERAGE 09, SEPTEMBER, 2009

VALUATION & RECOMMENDATION The company is trading at a forward P/Ex of 12.26 and 8.22 based on the FY10E EPS of 21 and FY11E EPS of 31 respectively. Considering the growth prospect company is likely to witness going ahead as oil and gas exploration throughout the world picks up we expect that the company would be able to maintain a CAGR of at least 30% in its top line over a period of FY09 to FY11 and 60% in its bottom line over the same period. We expect the bottom line to grow significantly over the aforementioned period as we expect significant amount of cost savings that the company would be able to achieve on account of its backward integration. As a near term trigger, the company is going to be most benefitted from the antidumping duty imposed by the US on Chinese steel pipe makers, with its huge exposure in the US market and by the virtue of the fact that the company has recently set up a plant in Arkansas, US. Based on a P/E multiple of 12 over it's FY11E EPS and 15% required return, we recommend “BUY” on the stock with a March 2010 target price of Rs. 323.

DISCLAIMER : The information in this report has been obtained from sources, which Eureka Research believes to be reliable, but we do not hold ourselves responsible for its completeness in accuracy. All estimates and opinions in this report constitute our judgement as of this date and are subject to change without notice. Eureka Research will not be responsible for the consequence of 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

:

092315 49900 / 91-33-3918 0387

Corporate Office : B3/4, Gillander House, 8 N S Road, 3rd Floor, Kolkata - 700001 Phone : 91-33-2210 7500 / 01 / 02, Fax: 91-33-2210 5184 e: [email protected] Mumbai Office

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

EUREKA RESEARCH

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