• Investment World
• eWorld
• Brand Line
• Mentor
• Life
• Brand Quest
• The New Manager
• Smartbuy

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Cross Currency

• Rates
  
  

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources
• In Focus
• In Depth
• Events 2007

Group Sites

• The Hindu
• The Hindu ePaper
• Business Line
• Business Line ePaper
• Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

Investors with at least a two-year perspective can buy the stock of Welspun Gujarat Stahl Rohren, a leading manufacturer of steel pipes in the country.

A burgeoning order book, accreditations from global oil and gas companies and backward integration moves inspire confidence on the company’s ability to capitalise on growth opportunities. At the current market price of Rs 304, the stock trades at a reasonable valuation of 11 times and 7 times likely FY09 and FY10 per share earnings, on a fully diluted basis. However, considering volatile market conditions, investors can consider accumulating the stocks in lots.

Welspun’s business enjoys strong earnings visibility, which is a positive in an uncertain business environment.

The company, which is primarily an exporter of steel pipes has recently added significantly to its order book, taking its order book position to Rs 7,700 crore (1.9 times its FY08 revenues).

Over the last three years, the company’s revenues and earnings have grown at a compounded rate of 56 per cent and 118 per cent, respectively. Increasing spends on oil and gas exploration and production activities (E&P) would require the setting up of pipeline infrastructure and this may help support growth for Welspun over the next couple of years.

Most global pipe makers are running at full capacities. In this respect, Welspun’s expansion in pipe manufacturing capacities may help it garner incremental market share.

These expanded capacities (both longitudinal and helical pipes) are expected to become operational by March 2009. Further, Welspun is also setting up a spiral pipe manufacturing facility in the US (expected to become operational by September 2008). Considering that the demand for spiral pipes in the US has increased significantly in recent years, procuring orders for the new facility may not be difficult. The company’s affiliations with global majors such as Saudi Aramco and Chevron would also help it overcome any initial hiccups in order intake for this facility.

Further, Welspun is also integrated backward with a steel plate-cum-coil manufacturing unit. This plant with a capacity of over 1.5 million tonnes became operational in April 2008.

Apart from providing Welspun with the much-needed relief on the raw material front, this backward integration will also give it greater flexibility to take orders with shorter delivery schedules. The risks to the recommendation arise from any delay in commissioning of new capacities, policy intervention in steel product exports or any slowdown in capex by oil and gas companies.

Srividhya Sivakumar

More Stories on : Steel | Stocks | Recommendation

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Grasim Industries: Buy

Copyright © 2008, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line