>WELSPUN GUJARAT STAHL ROHREN LIMITED (KR CHOKSEY)

Forex losses over shadows performance

Higher sales due to better realizations– Welspun Gujarat reported Q4FY09 consolidated revenue of Rs 1,831 crores, an upside of 50% y-o-y and 26% q-o-q on account of better realizations. However if we see the product wise performance, sales of LSAW pipes which command higher prices, has gone down by 67% over last year in volume terms.

Operating performance –For Q4 FY09 company has reported an EBITDA of Rs 161 crores, down 16% y-o-y mainly on account of foreign exchange provision of Rs 131.4 crores made during the quarter. As more than 90% of sales of the company is generated from export markets and also majority of raw material procured from foreign countries, higher volatility in forex rate could have serious implications on performance of the company.

For Q4 FY09 blended pre exceptional item EBITDA per tonne stood at Rs 10526 for pipes and Rs
6000 for plates compared with Rs 9969 for pipes in Q4 FY08.

Net profit for Q4 FY09 stood at Rs 51.8 cores, an upside of 15% q-o-q but a decline of 49% y-o-y due to higher depreciation and interest cost added to above mentioned reasons. Depreciation mainly increased on account of additional capacity of HSAW, Plate mill and US HSAW facility added this year.

Order book: Order book of the company stood at Rs 7740 crores, which includes orders worth Rs
640 crores of plates. In volume terms total pipe orders are 780,000 tonnes consisting of 240,000 of
LSAW, 505,000 of HSAW and 35,000 of ERW pipes. Share of domestic orders has gone up to 20%, which include GAIL order worth Rs 500 crores

Our View – With crude oil price rising to $ 67 levels, we expect that demand for SAW pipes will also see an upside as pipeline investments are highly correlated to crude oil prices. With the commissioning of Plate mill, the raw material cost of the company will go down. US mill will also
help company save cost on logistics front.

The order book of the company at Rs 7740 crores provides a good visibility for FY10 revenues. At
current CMP of Rs 180 stock is trading at forward FY10 P/E and FY11 P/E of 4.8 respectively. We value the company at FY10 EVEBITDA of 6 which gives us a valuation of Rs 239 per share. We
recommend a buy rating on the stock.

To see full report: WELSPUN GUJARAT