>Welspun Gujarat (INDIA INFOLINE)

WELSPUN GUJARAT STAHL ROHREN Ltd - MP
CMP Rs 65 Target 69

Order flows have dried; undermining visibility beyond FY10E
The sharp global slow down led by the exacerbation of financial crisis has caused sharp correction in commodity prices over the last six months. Global crude oil market which experts feared was on the verge of supply deficit some time back is in a state of huge surplus now. Waning cash flows has led to deferment in capital expenditure of crude oil producing companies. We do not expect fresh order inflows before the end of FY10, when crude prices are expected to bounce back. Surplus crude oil capacity will lead to lower E&P and transportation spending in the near term. Export orders form a majority of Welspun Gujarat Stahl Rohren (WGL) order book. We expect situation with respect to slowdown in fresh export orders witnessed during Q3 FY09 to worsen further for the company.

Surplus capacity to further depress EBITDA per ton
The five leading domestic pipe manufacturers have increased their capacity by 34.8% yoy in FY08 and are expected to add further 8.7% in FY09. The reduction in export orders would lead to a surplus capacity for domestic manufacturers. As a result, these companies would try to outbid each other in the domestic tenders to be opened by GAIL> We expect EBITDA per ton for the sector to shrink 40-50% in FY10. WGL's EBITDA per ton is expected to fall from Rs 11000 in Q3 FY09 to Rs 5,500 per ton in FY10E.

To see full report: WELSPUN