Welspun Corp Ltd Surging success – Pipeline to Prosperity

About Welspun Corp Ltd

Welspun Corp Ltd. is a leading global manufacturer of large-diameter pipes, offering a comprehensive solution for all line pipe requirements with its wide range of high-grade line pipes. These pipes are used for the offshore and onshore transmission of oil, gas, and water. It is one of the largest welded-line pipe manufacturing companies in the world.

Welspun Corp Ltd. has a global presence with operations in India, the United States, and Saudi Arabia. Its Indian operations can produce a total of 1,650 KMTPA (Kilo Metric Tonnes Per Annum), followed by its US operations with a capacity of 525 KTPA and its Saudi operations with a capacity of 375 KTPA.

WCL currently trading near its 52-week high of 443.25 on October 13, 2023. The stock has seen a significant increase in volume in the past week, with volumes more than quadrupling.

Following are stock returns over 1-year, 2-year, 3-year and 10-years

What is causing such traction?

Financial performance

• The company’s consolidated revenue from operations for Q1 FY2024 rose 3X on a YoY basis to Rs.4069 crore in comparison to Rs.1322 crore.
• Our EBITDA for the quarter jumped 4 times YoY to Rs. 418 crore from Rs. 102 crore.
• PAT surged by 40x YoY to Rs.165 crore from Rs. 4 crore.
• Net debt was reduced by Rs.303 crore and currently stands at Rs.835 crore at the end of this coming quarter.
• Line pipe sales volume for India and USA operations was at 185,000 tonnes against 99,000 metric tonnes in the corresponding quarter of the previous year, registering a growth of 89%.

Growth drivers

• WCL’s line pipe segment is expected to see improved business prospects due to increasing demand for SAW pipes from oil & gas and water transmission projects.
• The company’s diversification into SS pipes and DI pipes has broadened its pipe product portfolio and opened up new avenues for profitable growth.
• The acquisition of Sintex and entry into the TMT bars business is expected to boost the company’s B2C presence.
• The turnaround of Sintex is also expected to add significant value to the company.

Management Commentary

• The global pipeline industry is poised for significant growth in the next 5 years, driven by rising demand for energy and ambitious government infrastructure plans.
• India, in particular, is making a major push to expand its pipeline network. The government aims to increase natural gas pipeline coverage by more than 54% by 2024-2025 and to connect all states with the transnational gas pipeline by 2027. This will support the country’s growing energy needs and its transition to a cleaner energy mix.
• In addition to India, other countries with strong pipeline growth prospects include Saudi Arabia, the United States, and Europe. Saudi Arabia is investing heavily in its oil and gas sector and plans to increase its crude oil capacity to 13 million barrels per day by 2027. This will require significant investment in new pipelines.
• The United States is also a major player in the global pipeline market. The country is expected to become one of the largest LNG exporters in the world, and this will drive demand for pipelines to transport gas to export terminals.
• Europe is also facing a growing need for pipelines. The region is seeking to reduce its reliance on Russian gas, and this is leading to increased investment in LNG import terminals and pipelines to connect them to the wider gas grid.
• The company’s robust order backlog guarantees full plant utilization for the next three quarters.
• The newly commissioned plant for TMT bars is steadily ramping up production, indicating a positive outlook.

Challenges

Along with the positive outlook company also faces some challenges such as:

• Competition from other well-established players (both domestic & global).
• Volatile key raw material prices (HR sheets and sinters) and other input costs along with supply chain disruptions.
• Metal industries are required to maintain environmental regulations due to their usage of coal in blast furnace.

Summary

Welspun Corp Ltd robust financial performance, strategic diversification, and alignment with a growing global demand for large-diameter pipes create a positive outlook for Welspun Corp stock. With impressive Q1 FY2024 results, expansion into diverse markets, and proactive involvement in India’s pipeline network growth, the company is well-positioned for future success. Challenges, including competition and fluctuating raw material costs, exist but are outweighed by the compelling factors contributing to stock price potential.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.