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Published: Mar 31, 2023
Updated: Mar 31, 2023

Welspun Corp.

One-stop shop for pipe solutions

Last September, Welspun Corp (WCL), together with its wholly owned subsidiary Nauyaan Shipyard Pvt. Ltd (Nauyaan), won a bid of Rs 659 crore with respect to the purchase of specified assets of distressed borrower ABG Shipyard at Dahej in Gujarat.

Initially, the company faced a legal road block as the Enforcement Directorate had attached certain assets of ABG Shipyard. However, WCL succeeded in getting possession of these assets from the liquidator. Under the arrangement, WCL is vested with ownership of all movable properties which include partially built ships, equipment and metal scrap, whereas the immovable property; i.e., land, remains with Nauyaan.

The movable properties are estimated to be over 1,50,000 mt, which WCL plans to dispose of as they are not required for its business purpose. On the other hand, Nauyaan, its wholly owned subsidiary, plans to utilize the immovable property by evaluating new business opportunities like defence, green steel, offshore wind, and oil & gas structures, primarily with an aim to ensure optimal utilization of the asset of 165 acres of prime land with 1,000 metres of water frontage and a most lucrative strategic location of at Dahej port with multi-dimensional advantages.

Recently, the company entered into an agreement with a steel trader for liquidation of a part of the specified assets lying at Dahej Shipyard for over Rs 360 crore, which may be completed within a period of nine months. WCL has also received 10% consideration as an interest-free security deposit on this account.

BILLETS, REBARS

WCL is the flagship company of the Welspun group that is engaged in pipes, home textiles, infrastructure, warehousing, retail, advanced textiles and flooring solutions. The company is a one-stop service provider offering end-to-end pipe solutions. It has a global footprint across six continents and fifty countries via critical projects for both onshore and offshore applications. It manufactures the LSAW, HSAW, HFW and HFIW range of pipes. The company also manufactures steel billets and recently commissioned its TMT rebars facility with a total production capacity of 3,50,000 mtpa.

Located at Anjar, Gujarat, the company is implementing its prestigious ductile iron pipes (DI pipes) manufacturing project (including pig iron), which has cutting-edge technology and is fully integrated. With a capacity of 4,00,000 mt of DI pipes, to be ramped up gradually, it will cater to the growing water infrastructure requirements and provide clean drinking water to households in both urban and rural India.

WELSPUN SPECIALITY

WCL also manufactures stainless steel pipes, tubes and bars at a boutique facility at Jhagadia, Gujarat through its subsidiary Welspun Speciality Solutions (WSSL), which is a listed arm with a market capitalization of Rs 877.30 crore, a face value of Rs 6 and a current market price of Rs 16.55. WCL holds a 50.03% controlling equity stake in the company.

WSSL reported a turnaround performance with a positive cash PAT in the quarter ended December 2022. Going forward, the company expects its improved performance to sustain on the back of several new customers’ approvals, accreditations, new product developments and penetration of new markets. Pipes sale recorded 70% and 45% higher volumes for the nine months and Q3 respectively, compared to the corresponding period in the previous year.

SINTEX IN FOLD

Big Shot Infra Facilities (Big Shot), a newly formed subsidiary of WCL, acquired Sintex Prefab India (SPIL), which is into execution of infrastructure projects such as affordable housing with monolithic construction and pre-fabricated structures. It is also into various other Centre- and Statessponsored infra and power projects.

SPIL did not have any operational activities in FY22. WCL bought the company at Rs 50 crore wherein Rs 30 crore was paid upfront to creditors as settlement and Rs 20 crore towards deferred consideration. The acquisition was completed very recently. Now, WCL has effected a reverse merger of Big Shot into SPIL, whereby WCL has become a 100% shareholder of SPIL. It is not clear as yet whether WCL has any plan to list SPIL as a separate entity. Though SPIL has no business operations as on date, it has land parcels across various states in India which could enable WCL to enter the polymer business. Further, non-core land parcels of SPIL could be monetized later. The management has stated that this acquisition is in line with their strategic roadmap to transform and expand WCL’s polymer products business, in order to create a largescale B2C organization.

In another development, WCL has acquired Sintex BAPL’s non-convertible debentures with outstanding of Rs 1,231 crore at a purchase price of Rs 421 crore. This is being done in its wholly owned subsidiary Mahatva Plastic Products and Building Materials. The process is nearing completion and the company is hopeful of getting it over in or before Q1 FY24.

FINANCIAL DIP

During the first nine months ended December 2022, the company has not fared that well on a consolidated basis. Though it reported total revenues of Rs 5,946 crore, its profit before tax has gone down substantially to Rs 8.22 crore against Rs 660.56 crore in the full FY22. Likewise, it has reported a nominal net loss after tax of Rs 41 crore vis-à-vis Rs 444.17 crore PAT in the previous full financial year.

As of December 2022, WCL had a gross debt of Rs 3,178 crore and net debt of Rs 1,837 crore compared to Rs 1,609 crore at the end September 2022. The increase is being attributed to ongoing investments in the DI pipes and TMT projects, which are both nearing completion. The management expects net debt to reduce in the ensuing quarters, driven by cash collections, the approaching end of the project investment cycle and a positive business outlook. It’s worth mentioning that as of March 2022, the company had net cash surplus of Rs 173 crore.

Undisputedly, WCL is one of the leading players in the line pipes space and is also well-positioned because of its wide range of offerings with higher volumes. It has now widened its product basket with two greenfield projects — 4,00,000 mtpa DI pipes and 3,50,000 mtpa TMT rebars. Importantly, both these prestigious projects, of which one is already commissioned and another is nearing completion, have the potential to become a true game-changer for the company.

GLOBAL RANKING

WCL has been ranked recently in the top seven per cent in the global steel industry in S&P Global’s DJSI corporate sustainability assessment. The company received a total score of 57 out of 100, reflecting an improvement of 16 points over the last year.

WCL has been recently awarded an export contract for the supply of 83,000 mt SAW bare pipes and bends to the Middle East. Pipes to be supplied will be used for offshore production and transport of gas to accelerate and enhance LNG export infrastructure. In a statement, the company has said that the energy scenario across the globe is changing due to various geopolitical reasons and WCL is well-placed to secure further projects in the oil & gas sector in the international and domestic markets.

WCL 's line pipes division has a global order book of 928 kmt valued at around Rs 13,200 crore, translating into a comfortable revenue visibility of nearly two years. The two new manufacturing units will also start contributing to revenues and profits from Q2 FY24 onwards. Hence, the medium term prospects for the company are quite good. However, it is equally important for WCL to improve its overall capacity utilization and EBITDA margin, because otherwise it will take long to retire the debt and realize a sizeable improvement in profits. It is certain that the performance of the coming three quarters will be a trend-setter for its valuation.

At the current market price of Rs 200 (face value Rs 5), WCL is being valued at Rs 5,247 crore with a yearly high-low of Rs 298 and Rs 135. The future augurs well for the company as it has a resourceful and capable promoter group. The stock looks attractive for investment by way of accumulating in small lots at every decline with a 12-18 months horizon.