Firstcall recommend Welspun Corp on healthy order book worth around INR58b #BrokerAdvice http://goo.gl/4C9cJn

1. CMP 133.00
Target Price 155.00
ISIN: INE191B01025
JULY 21st
2015
WELSPUN CORP LTD
Result Update (CONSOLIDATED BASIS): Q1 FY16
BUYBUYBUYBUY
Index Details
Stock Data
Sector Construction & Engineering
BSE Code 532144
Face Value 5.00
52wk. High / Low (Rs.) 146.75/51.90
Volume (2wk. Avg.) 707000
Market Cap (Rs. in mn.) 35002.94
Annual Estimated Results (A*: Actual / E*: Estimated)
YEARS FY15A FY16E FY17E
Net Sales 84504.90 92110.34 101321.38
EBITDA 9508.00 10882.17 11813.15
Net Profit 690.40 1840.17 2124.27
EPS 2.62 6.99 8.07
P/E 50.70 19.02 16.48
Shareholding Pattern (%)
1 Year Comparative Graph
WELSPUN CORP LTD S&P BSE SENSEX
SYNOPSIS
Welspun Corp Ltd (WCL) is the flagship Company of
the US$ 3 billion Welspun Group and is a global
giant in the Large Diameter Line Pipe segment.
During Q1 FY16, consolidated net profit jumps to
Rs. 163.80 mn as against net loss of Rs. 974.80 mn
in Q1 FY15.
Consolidated revenue for the quarter rose by
36.33% to Rs. 19441.20 mn from Rs. 14260.60 mn,
when compared with the prior year period.
During the quarter, consolidated EBITDA is Rs.
2214.50 mn as against Rs. 822.80 mn in the
corresponding period of the previous year, grew by
169.14%.
During Q1 FY16, consolidated Profit Before Tax
stood at Rs. 424.30 mn.
EPS of the company stood at Rs. 0.62 a share during
the quarter.
The Company reported production and sales of
pipes for Q1 at 274 KMT and 253 KMT;
representing 29% and 17% growth respectively
over last year (Q1 FY15).
The total order book as on date stands at a healthy
828 K MT, valued at approximately Rs.58 bn.
Gross debt as at 30th June 2015 stands at Rs.30,725
mn vs. Rs.30,205 mn at the end of FY15. Net debt at
the end of the quarter was at Rs.18,043 mn, lower
compared to Rs.19,095 mn at the end of FY15.
At the end of the quarter, net worth stood at Rs.
28,537 mn implying a net debt/equity of 0.63x as
compared to 0.68x at FY15 end.
Net Sales and PAT of the company are expected to
grow at a CAGR of 10% and 36% over 2014 to
2017E respectively.
PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND
Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)
Welspun Corp Ltd 133.00 35002.94 2.62 50.70 1.25 10.00
Jindal Saw Ltd 63.70 19459.50 8.62 7.41 0.47 50.00
Ratnamani Metals and Tubes Ltd 555.10 25938.70 36.92 15.04 2.76 275.00
Maharashtra Seamless Ltd 184.20 12341.30 18.29 10.07 0.53 100.00

2. QUARTERLY HIGHLIGHTS (CONSOLIDATED)
Results updates- Q1 FY16,
Months Jun-15 Jun-14 % Change
Net Sales 19441.20 14260.60 36.33
Net Profit 163.80 (974.80) --
EPS 0.62 (3.71) --
EBITDA 2214.50 822.80 169.14
The company’s net profit jumps to Rs. 163.80 million as against net loss of Rs. 974.80 million in the
corresponding quarter ending of previous year. Revenue for the quarter rose by 36.33% to Rs. 19441.20 million
from Rs. 14260.60 million, when compared with the prior year period. Reported earnings per share of the
company stood at Rs. 0.62 a share during the quarter. Profit before interest, depreciation and tax is Rs. 2214.50
millions as against Rs. 822.80 millions in the corresponding period of the previous year, grew by 169.14%.
Break up of Expenditure
Break up of
Expenditure
Rs. In Millions
Q1 FY16 Q1 FY15
%
Change
Cost of materials
consumed
13985.20 10535.60 33%
Employee benefits
expense
1570.20 1129.70 39%
Depreciation &
Amortization
1118.10 1090.30 3%
Other Expenses 4135.90 2247.70 84%

3. Latest Updates
• The Company reported production and sales of pipes for Q1 at 274 KMT and 253 KMT; representing 29%
and 17% growth respectively over last year (Q1 FY15). The total order book as on date stands at a healthy
828 K MT, valued at approximately Rs.58 billion
• Finance Cost was at Rs. 672 million (Rs. 682 million in Q1 FY15) while depreciation was at Rs 1,118 million
(Rs. 1,090 million in Q1 FY15).
• Gross debt as at 30th June 2015 stands at Rs.30,725 million vs. Rs.30,205 million at the end of FY15. After
deducting cash and cash equivalents, net debt at the end of the quarter was at Rs.18,043 million, lower
compared to Rs.19,095 million at the end of FY15.
• At the end of the quarter, net worth stood at Rs. 28,537 million implying a net debt/equity of 0.63x as
compared to 0.68x at FY15 end.
COMPANY PROFILE
Welspun Corp Ltd (WCL), the flagship Company of the US$ 3 billion Welspun Group, is a one-stop service
provider offering complete pipe solutions with a capability to manufacture line pipes ranging from ½ inch to 140
inches, along with specialized coating, double jointing and bending. With current capacity of 2.425 million MTPA
in Dahej, Anjar and Mandya in India; Little Rock in the USA and Dammam in Saudi Arabia, Welspun takes pride in
being a preferred supplier to most of the Fortune 100 Oil & Gas companies. With 360 degree abilities, Welspun
Corp has undertaken some of the most challenging projects in different parts of the world. With business
excellence being a clear focus, the company is on the path of innovation and technology edge supported by its
state-of-the-art facilities and global scale operations.

4. FINANCIAL HIGHLIGHT (CONSOLIDATED) (A*- Actual, E* -Estimations & Rs. In Millions)
Balance Sheet as at March 31st, 2014 -2017E
FY14A FY15A FY16E FY17E
SOURCES OF FUNDS
Shareholder's Funds
Share Capital 1314.70 1315.90 1315.90 1315.90
Reserves and Surplus 27177.60 26672.30 28512.47 30636.74
1. Sub Total - Net worth 28492.30 27988.20 29828.37 31952.64
2. Minority interest 2088.20 3562.60 3776.36 3965.17
Non Current Liabilities
Long term borrowing 28034.60 26159.90 24590.31 23360.79
Differed Tax Liabilities 5608.90 5696.60 5981.43 6220.69
Other Long term Liabilities 1187.40 645.30 703.38 759.65
Long Term Provisions 250.40 395.50 474.60 550.54
3. Sub Total - Non Current Liabilities 35081.30 32897.30 31749.71 30891.66
Current Liabilities
Current maturities of long term
borrowings
5209.10 2161.80 1837.53 1617.03
Short term borrowings 4991.60 1883.80 2072.18 2237.95
Trade Payables 6509.70 24634.10 31038.94 36936.34
Other Current Liabilities 5315.50 3967.90 4563.09 5156.29
Short Term Provisions 613.90 1059.10 1313.28 1549.68
4. Sub Total - Current Liabilities 22639.80 33706.70 40825.02 47497.28
Total Liabilities (1+2+3+4) 88301.60 98154.80 106179.46 114306.75
APPLICATION OF FUNDS
Non-Current Assets
a) Fixed Assets 50372.20 47414.70 49785.44 52022.17
b) Goodwill on consolidation 4.70 4.70 4.98 5.23
c) Non-current investments 255.60 265.20 275.81 284.08
d) Long Term loans and advances 1059.90 1320.70 1532.01 1746.49
e) Other non-current assets 96.90 58.00 65.54 72.75
1. Sub Total - Non Current Assets 51789.30 49063.30 51663.78 54130.73
Current Assets
Current Investment 11142.50 7783.30 8250.30 8662.81
Inventories 12815.30 22082.10 24731.95 27452.47
Trade receivables 6373.80 11300.50 12882.57 14557.30
Cash and Bank Balances 1408.30 3327.50 3926.45 4554.68
Short-term loans and advances 3556.60 3434.60 3537.64 3714.52
Other current assets 1215.80 1163.50 1186.77 1234.24
2. Sub Total - Current Assets 36512.30 49091.50 54515.68 60176.03
Total Assets (1+2) 88301.60 98154.80 106179.46 114306.75

5. Annual Profit & Loss Statement for the period of 2014 to 2017E
Value(Rs.in.mn) FY14A FY15A FY16E FY17E
Description 12m 12m 12m 12m
Net Sales 77047.20 84504.90 92110.34 101321.38
Other Income 1742.00 1085.90 1118.48 1174.40
Total Income 78789.20 85590.80 93228.82 102495.78
Expenditure -70350.10 -76082.80 -82346.64 -90682.63
Operating Profit 8439.10 9508.00 10882.17 11813.15
Interest -2964.10 -2830.30 -3000.12 -3150.12
Gross profit 5475.00 6677.70 7882.06 8663.02
Depreciation -4063.00 -4365.00 -4757.85 -5138.48
Profit Before Tax 1412.00 2312.70 3124.21 3524.54
Tax -431.60 -177.40 -937.26 -1032.69
Profit After Tax 980.40 2135.30 2186.94 2491.85
Minority interest -246.60 -1444.90 -346.78 -367.58
Net Profit 733.80 690.40 1840.17 2124.27
Equity capital 1314.70 1315.90 1315.90 1315.90
Reserves 27177.60 26672.30 28512.47 30636.74
Face value 5.00 5.00 5.00 5.00
EPS 2.79 2.62 6.99 8.07
Quarterly Profit & Loss Statement for the period of 31st Dec, 2014 to 30th Sep, 2015E
Value(Rs.in.mn) 31-Dec-14 31-Mar-15 30-Jun-15 30-Sep-15E
Description 3m 3m 3m 3m
Net Sales 22496.60 23750.60 19441.20 24107.09
Other income 293.80 256.40 259.70 270.09
Total Income 22790.40 24007.00 19700.90 24377.18
Expenditure -20365.50 -19870.10 -17486.40 -21575.84
Operating profit 2424.90 4136.90 2214.50 2801.33
Interest -727.50 -698.80 -672.10 -651.94
Gross profit 1697.40 3438.10 1542.40 2149.40
Depreciation -1096.90 -1188.00 -1118.10 -1185.19
Profit Before Tax 600.50 2250.10 424.30 964.21
Tax -76.50 -779.00 -180.60 -289.26
Profit After Tax 524.00 1471.10 243.70 674.95
Minority interest -349.10 -33.40 -79.90 -75.91
Net Profit 174.90 1437.70 163.80 599.04
Equity capital 1314.70 1315.90 1315.90 1315.90
Face value 5.00 5.00 5.00 5.00
EPS 0.67 5.46 0.62 2.28

6. Ratio Analysis
Particulars FY14A FY15A FY16E FY17E
EPS (Rs.) 2.79 2.62 6.99 8.07
EBITDA Margin (%) 10.95% 11.25% 11.81% 11.66%
PBT Margin (%) 1.83% 2.74% 3.39% 3.48%
PAT Margin (%) 1.27% 2.53% 2.37% 2.46%
P/E Ratio (x) 47.66 50.70 19.02 16.48
ROE (%) 3.44% 7.63% 7.33% 7.80%
ROCE (%) 18.74% 23.84% 26.81% 28.65%
Debt Equity Ratio 1.34 1.08 0.96 0.85
EV/EBITDA (x) 7.19 5.69 4.72 4.15
Book Value (Rs.) 108.36 106.35 113.34 121.41
P/BV 1.23 1.25 1.17 1.10
Charts

7. OUTLOOK AND CONCLUSION
At the current market price of Rs.133.00 the stock P/E ratio is at 19.02 x FY16E and 16.48 x FY17E
respectively.
Earning per share (EPS) of the company for the earnings for FY16E and FY17E is seen at Rs.6.99 and Rs.8.07
respectively.
Net Sales and PAT of the company are expected to grow at a CAGR of 10% and 36% over 2014 to 2017E
respectively.
On the basis of EV/EBITDA, the stock trades at 4.72 x for FY16E and 4.15 x for FY17E.
Price to Book Value of the stock is expected to be at 1.17 x and 1.10 x for FY16E and FY17E respectively.
The Company reported production and sales of pipes for Q1 at 274 KMT and 253 KMT; representing 29% and
17% growth respectively over last year (Q1FY15). The growth was driven by strong performance in the Indian
LSAW and HSAW operations and the U.S. spiral mill. The total order book as on date stands at a healthy 828 K
MT, valued at approximately Rs.58 bn. Driven by higher volumes and realizations, net sales in Q1 FY16 were
significantly higher compared to Q1 FY15. Sales were boosted by operations of the US mill which was on
maintenance shutdown in Q1 FY15. Gross debt as at 30th June 2015 stands at Rs.30,725 mn vs. Rs.30,205 mn at
the end of FY15 due to higher working capital loans taken for ramping up production levels. After deducting cash
and cash equivalents, net debt at the end of the quarter was at Rs.18,043 mn, lower compared to Rs.19,095 mn at
the end of FY15, partly driven by higher client advances. At the end of the quarter, net worth stood at Rs. 28,537
mn implying a net debt/equity of 0.63x as compared to 0.68x at FY15 end. Welspun Corp is in a good position,
due to healthy order book combined with a robust project pipeline and its strong financials. It continues to focus
on cost-optimization to enhance profitability. Hence, we recommend ‘BUY’ in this particular scrip with a target
price of Rs.155.00 for Medium to Long term investment.

8. INDUSTRY OVERVIEW
While the recent drop in energy prices has prompted several exploration companies to cut their capital budgets,
there has not been any significant impact yet on the pipeline projects in North America. Oil production in USA is
at its highest and will continue to drive the demand for pipelines, which remains the most cost-efficient means of
transportation compared to alternatives such as rail. There are also ongoing discussions in the US regarding
replacement of ageing pipelines. Canada and Mexico also hold huge potential for pipelines in the near to medium
term.
While the geopolitical situation in Europe has led to the cancellation of a large pipeline project, alternate routes
are being discussed. While the outlook in Saudi Arabia looks challenging in the face of increased competition, the
outlook on the gas pipeline project is buoyant. Even though Saudi Aramco has announced a capex cut of 30%,
giant projects like Master Gas II are already on the anvil. Additionally, other regions in the Middle East and Africa
such as Mozambique, Algeria etc. provide growth opportunities.
India looks promising in the medium term with activity on the new pipeline projects expected to commence
soon. The recent announcement of 15,000 kilometres of Oil and Gas pipeline projects and several state water
projects is positive for the industry. In the Asia-Pacific region, potential demand from Thailand, Malaysia and
Indonesia could boost the regional demand.
Welspun Corp business outlook continues to be strong despite weakness in oil price. With the fall in oil price,
customers are getting more sensitive to transportation costs and prefer pipelines over rail and road.
Consequently, the North American bid pipeline continues to be strong, driven by robust activity in the region.
Middle Eastern demand, driven largely by gas pipeline projects continues to be strong. There are early signs of
recovery in activity in India as well, primarily driven by water pipeline projects. There is an interesting line-up of
projects across regions (including Latin America and Europe) coming up in the foreseeable future.
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in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the
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