3rd June, 2009

Result Update

STEEL – PIPES Welspun Gujarat Stahl Rohren Limited Hold

Welspun Gujarat Stahl Rohren Limited (WGSRL) incorporated in 1995 is the
CMP 199
flagship company of the USD 3bn Welspun group. It is the second largest
Target Price 216
(large diameter) pipe producer in world. WGSRL net sales for the FY09 was
up 46.6% to Rs 5878crs and adjusted net profit for the company was flat at Rs
Key Data 354crs. For the FY09 the company reported forex loss of Rs 343crs and plans
Face Value 5 to raise USD 200 million through equity to fund the organic or inorganic
Market Cap (Rs in crs) 3711
growth and to reduce the debt.
Total O/s Shares in (in crs) 18.649
Free Float 56%
52 Week High / Low 402 / 45 Q4FY09 Result update
Avg. Monthly Volume (BSE) 2460833
Avg. Monthly Volume (NSE) 5225541 ƒ WGSRL reported net sales of Rs 1831crs for Q4 FY09 growth of 49.7% y-
BSE Code 532144 o-y and for the full year FY09 net sales of Rs 5878 crs growth of 46.5%.
NSE Code WELGUJ The increase in revenue was attributed to 8% volume growth in FY09 and
Bloomberg Code WGS IN increase in realizations.
Beta 1.26
Date of Incorporation 1995 ƒ The EBIDTA of the company adjusted for extra-ordinary item stands at
Last Dividend Declared 30% Rs 231.8crs for Q4 FY09 growth of 18.1%. The company EBIDTA margin
Six month return 158% per tonne stood at Rs 10525 for pipe and for plate Rs 6000 per tonne. For
Indices BSE 100 FY10E we have assumed EBIDTA per tonne of Rs 10000 on pipes and on
FCCB’s outstanding N.A. the plate side EBIDTA per tonne of Rs 5000.
Warrants outstanding N.A.
ƒ The interest of the company has increased significantly for Q4 FY09 from
Rs 34.6crs to Rs 50.1crs a growth of 45% y-o-y on account of
One Year Price Chart commissioning of Plate mill, power plant, U.S. facility, spiral facility at
Anhar. The depreciation has also increased by 91.4% y-o-y to Rs 34.5crs.

ƒ The reported PAT of the company has declined by 49.2% to Rs 51.9crs in

Q4 FY09 and for the full year FT09 the PAT has declined significantly by
33.5% to 233.6crs. The PAT has declined significantly on account of forex
losses.

ƒ WGSRL has a robust order book of Rs 7740crs to be executed over 12-

Source: Capitaline 15months provide revenue visibility. During the last 3 months company
has added orders worth Rs 1500crs.
Share Holding Pattern
Public &
Others 22% Financial Snapshot Rs in crs

Particulars FY07 FY08 FY09E FY10E

Banks/MFs/ Promoters Net Sales 2683.4 3994.5 5878.3 6914.6

Institutions 45%
13% EBIDTA 328.3 647.7 816.5 979.8
FIIs 20% PAT 142.5 340.8 233.6 403.0

Source: Company, KJMC Research EPS 10.2 19.2 12.5 21.6

P/E (x) 19.5 10.4 10.5 9.2

P/BV (x) 4.3 2.3 2.1 1.7

EV/EBIDTA (x) 14.8 9.2 6.8 5.3

Hiral Kotak
Research Analyst ROE (%) 21.8 21.7 13.2 18.8
Phone-022 4094 5500 Ext. 205 ROACE (%) 16.1 18.7 16.1 17.0

Source: KJMC Research

Welspun Gujarat Stahl Rohren Limited 1

 ƒ For the FY09 the company reported forex loss of Rs 343crs, of which Rs
125.6crs on account of realignment of foreign currency monetary assets
and liabilities and it is recoverable based on future sales, Rs 97crs has
been adjusted through balance sheets of which Rs 62crs is adjusted
through capitalization of assets and for Rs 35.5crs has been transferred
to Foreign Currency Monetary Gain. The remaining is on account of Rs
17.7 provision on account of ECB loans and Rs 103 crs on account of
crystallized liability on hedge realization and cancellations.

ƒ The Company has de-merged the plate mill into a 100% subsidiary for
great focus in the business and attain fiscal benefits.

ƒ The company has passed a resolution to raise USD 200 million through
equity to fund the organic or inorganic growth and to reduce the debt

Project Status

ƒ The company has de-merged the plate cum coil mill into a 100%
subsidiary.

ƒ LSAW expansion of 0.3million mtpa capacity expansion plant has been

kept on hold due to current market conditions.

ƒ Pipe capacity increased to 1.5 million mtpa after commissioning of

HSAW – 0.15 million mtpa in India and 0.35 million mtpa in US.

Pipe & Plate Production Schedule Product wise (in tons)

Production Volume Q4 FY09 Q4 FY08 Change FY 2009 FY 2008 Change

LSAW* 43,957 74,361 -41% 185,328 259,347 -29%
HSAW 181,090 100,305 81% 493,934 364,538 35%
ERW 25,503 7,951 221% 80,480 46,240 74%
Total Pipes 250,550 182,617 37% 759,742 670,125 13%
Plates 45,454 192,569

* Order changed to HSAW by the customer

Sales Break –up Product wise (in tons)

Sales Volume* Q4 FY09 Q4 FY08 Change FY 2009 FY 2008 Change

LSAW 29,207 88,307 -67% 156,853 259,300 -40%
HSAW 127,711 93,977 36% 453,768 331,113 37%
ERW 28,572 10,338 176% 79,537 51,071 56%
Total Pipes 185,490 192,622 -4% 690,158 641,484 8%
Plates 8,138 42,073

* Almost 90,000 ton inventory of Pipes in finished / semi-finished stage.

Welspun Gujarat Stahl Rohren Limited 2

 Revised Estimates
We have revised downwards our FY10E earnings to reflect the decline in
EBIDTA margins from Rs 11000 per tonne to Rs 10000 per tonne on pipe side
and Rs 6000 per tonne to Rs 5000 per tonne on plate side.

Revised Earlier
Particulars
FY10E FY10E

Net Sales ( Rs in crs) 6915 6440.7

EPS ( in Rs) 21.6 25

Pipes Volume 850000 890000

Plates Volume 400000 700000

Order Book Break-up in tonnage

Order Book Break-up ( million mt)
0.04
0.24

0.51

HSAW LSAW ERW

Source : Company, KJMC Research

Sales - Geographical Distribution

FY08 FY09
12%
18% 45%
1% 10%

11%

7%

1% 57% 5%
5%
12% 16%
USA Canada South East Latin America
USA Canada South East Latin America Middle East Domestic Middle East Domestic North Africa

Source : Company, KJMC Research

Welspun Gujarat Stahl Rohren Limited 3

 Q4FY09 Result Rs. in crs

Particulars Q4 FY09 Q4 FY08 % y-o-y FY09 FY08 % y-o-y

Net Sales 1831.8 1227.5 49.2 5878.3 4010.5 46.6

Expenditure 1600.0 1031.2 55.2 5061.8 3349.7 51.1

Raw Materials Consumption 1565.1 775.3 101.9 4622.7 2764.4 67.2

(Increase) / Decrease in stock -82.4 37.0 -322.6 -411.3 -120.4 241.6

Staff Cost 27.7 20.0 38.7 115.3 83.0 39.0

Other Expenditure 89.5 198.9 -55.0 735.1 622.7 18.1

EBIDTA 231.8 196.3 18.1 816.5 660.8 23.6

EBIDTA Margins (%) 12.7 16.0 -3.3 13.9 16.5 -2.6

Depreciation 34.5 18.0 91.4 125.4 57.2 119.5

EBIT 197.4 178.3 10.7 691.1 603.6 14.5

Interest 50.1 34.6 44.9 173.5 80.2 116.4

Other Income 2.6 10.8 -76.2 17.9 10.7 66.6

Extra- Ordinary Item -70.9 0.0 0.0 -181.9 0.0

PBT 78.9 154.5 -48.9 353.6 534.2 -33.8

Tax 27.0 52.3 -48.3 120.0 182.8 -34.3

Reported PAT 51.9 102.2 -49.2 233.6 351.4 -33.5

Adj. PAT 98.7 102.2 -3.5 353.6 351.4 0.6

Equity Capital 93.3 88.9 93.3 88.9

Reported EPS 2.8 5.7 12.5 19.8

Adjusted EPS 5.3 5.7 19.0 19.8

Source : Company, KJMC Research

Valuations
With recent recovery in crude oil prices from low of USD 33 per barrel to
presently USD 65 per barrel will increase the demand for oil and gas capex
and will result in new order flows. The demand of pipes from domestic
alone from GAIL is expected to Rs 30000 crs in next few years and
international demand of pipe over next 5 years is expected to be USD 84 bn.
At CMP of Rs 199 the stock is trading at a P/E of 10.4, 10.5x and 9.2x of its
FY08, FY09 and FY10E earnings respectively. We continue maintain our
“Hold” recommendation on the stock with 12-15 months with a revised
price target of Rs 216 based on 10x P/E of FY10E earnings.

Welspun Gujarat Stahl Rohren Limited 4

 Financial Summary
Profit & Loss Statement Rs. in crs

Particulars FY07 FY08 FY09 FY10E

Net Sales 2683.4 3994.5 5878.3 6914.6
Growth % 46.7 48.9 47.2 17.6
Raw Material 2032.0 2628.9 4211.4 4800.8
Power & fuel and Water 21.6 35.0 0.0 34.6
Employee Exp 59.5 77.3 115.3 138.3
Other Exp 242.1 605.5 735.1 961.2
Total Expenditure 2355.2 3346.8 5061.8 5934.9
EBITDA 328.3 647.7 816.5 979.8
Depreciation 47.6 60.9 125.4 189.7
EBIT 280.7 586.8 691.1 790.0
Interest 73.8 81.8 173.5 189.4
Other Income 12.1 18.6 17.9 10.0
Extra - Ordinary Item 0.0 0.0 -181.9 0.0
PBT 219.0 523.6 353.6 610.6
Tax 76.5 182.8 120.0 207.6
PAT 142.5 340.8 233.6 403.0
Adjusted PAT 142.5 340.8 353.6 403.0
Source : Company, KJMC Research

Balance Sheet Rs. in crs

Particulars FY07 FY08 FY09E FY10E

Sources of Funds
Share Capital 69.9 88.9 93.2 93.2
Reserve & Surplus 576.7 1389.6 1675.6 2046.7
Share Application Money 6.8 88.7 0.0 0.0
Shareholders Funds 653.5 1567.2 1768.8 2139.9
Minority Interest 6.9 0.0 0.0 0.0
Secured Loans 1163.5 2516.8 2643.5 2543.5
Unsecured Loans 351.1 10.6 86.9 86.9
Total Loan Funds 1514.6 2527.4 2730.4 2630.4
Deferred Tax Liablities (net) 79.4 173.8 173.8 173.8
Total 2254.4 4268.4 4673.0 4944.1
Application of Funds
Gross Block 911.2 2249.9 3049.9 3449.9
Less : Accu. Dep. 187.7 240.6 384.7 574.4
Net Block 723.5 2009.4 2665.2 2875.5
Capital WIP 925.8 671.3 583.9 100.0
Investments 25.6 681.7 114.0 114.0
Inventories 513.5 1287.8 1288.4 1420.8
Sundry Debtors 584.9 725.9 885.8 1326.1
Cash & Bank Balances 357.3 270.3 863.8 1162.3
Loans & Adv. 179.7 319.3 319.3 319.3
Income Accrued on Investments 0.0 8.8 8.8 8.8
Total Current Assets, Loans & Adv 1635.4 2612.1 3366.0 4237.3
Current Liabilities 1009.0 1638.4 1987.7 2314.2
Provisions 46.9 67.7 68.5 68.5
Total Current Liabilities & Prov 1055.8 1706.1 2056.1 2382.6
Net Current Assets 579.6 906.0 1309.9 1854.6
Total 2254.4 4268.4 4673.0 4944.1
Source : Company, KJMC Research

Welspun Gujarat Stahl Rohren Limited 5

 Cash Flows Rs. in crs

Particulars 2007 2008 2009E 2010E

Net Income (Loss) 219.0 523.6 353.6 610.6
Net Cash Flow from Operating Activities -26.5 248.3 734.9 530.8
Net Cash Flow from Investing Activities -650.3 -1856.5 -139.8 89.0
Net Cash Flow from Financing Activities 727.4 1521.2 -1.7 -321.3
Total Cash Flow 50.7 -87.0 593.4 298.5
Beginning Cash Balance 306.7 357.3 270.3 863.8
Closing Cash Balance 357.3 270.3 863.8 1162.3
Source : Company, KJMC Research

Ratios
Particulars 2007 2008 2009E 2010E
Profitability and Return Ratios
EBIDTA Margin (%) 12.2 16.2 13.9 14.2
Net Profit Margin (%) 5.3 8.5 4.0 5.8
EPS basic 10.2 19.2 12.5 21.6
Adj. EPS 10.2 19.2 19.0 21.6
CEPS 13.6 22.6 19.3 31.8
BVPS 46.7 88.2 94.9 114.8
Dividend Yield (%) 0.5 0.8 0.8 0.8
ROE 21.8 21.7 13.2 18.8
ROACE 16.1 18.7 16.1 17.0
Operating Efficiency and Other Ratios
Debtors T/o 4.6 5.5 6.6 5.2
Interest Coverage (x) 3.8 7.2 4.0 4.2
Asset / Turnover (x) 1.2 0.9 1.3 1.4
D/E (x) 2.3 1.6 1.5 1.2
Valuation Ratios
P/E (x) 19.5 10.4 10.5 9.2
P/CEPS (x) 14.6 8.8 10.3 6.3
P/BV (x) 4.3 2.3 2.1 1.7
Mcap / Sales (x) 1.4 0.9 0.6 0.5
EV / Sales (x) 1.8 1.5 0.9 0.7
EV / EBIDTA (x) 14.8 9.2 6.8 5.3
Source : Company, KJMC Research

Welspun Gujarat Stahl Rohren Limited 6

 Mr. Vijay Dugad Senior V.P. & Head, Institutional Equities vijay.dugad@kjmc.com 2282 0388 (D)
4094 5550 (D)
Mr. Suresh Parmar A.V.P. Institutional Equities suresh.parmar@kjmc.com 4094 5556 (D)
4094 5551 (D)

Recommendation Parameters
Expected returns in absolute terms over a one-year period
Buy - appreciate more than 20% over a 12- month period
Hold / Neutral - appreciate up to 20% over a 12- month period
Reduce - depreciate up to 10% over a 12- month period
Sell - depreciate more than 10% over a 12- month period

Company Industry/Sector Reco

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Yes Bank Ltd. Banking & Financial Services Buy
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JK Lakshmi Cement Cement Buy
Prism Cement Cement Hold
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Services Ltd. , and/or individuals thereof may have positions in securities referred herein and may make purchases or sale
thereof while this report is in circulation.

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Welspun Gujarat Stahl Rohren Limited 7