By Priya Nigam
Companies across the globe are struggling with high raw material prices. With steel prices skyrocketing, it has become imperative for companies manufacturing steel products to capitalize on global demand opportunities. One company that is proving its mettle is Welspun Gujarat Stahl Rohren Limited (WGSRL).
The youngest member of the Welspun group has bagged an order worth Rs1,075 crore for the supply of spiral pipes in Northern Africa (Algerian market). The latest order comes in the wake of last month’s announcement of pipeline orders worth Rs120 crores for the supply of ERW line pipes in Southern Europe. These orders are extremely well timed for Welspun Gujarat, which has been investing in capacity expansion. Welspun Gujarat, which currently has an annual capacity of about 1 million tonnes, may be able to produce approximately 1.75 million tonnes every year after it is through with its expansion plans.
Welspun Gujarat won the Northern African order against stiff competition from European companies and this order will take the Mumbai-based company’s order book position to more than Rs5,900 crore. The order can be executed over 17 months, which offers Welspun Gujarat greater operational freedom.
The export market has been a significant source of revenues both for the Welspun Group and for Welspun Gujarat. Welspun Gujarat has strong ties (preferred vendor status) with several major oil and gas companies across the globe.
The company has not been able to make its presence felt in countries like the US and those in West Asia. The latest order win marks Welspun Gujarat’s expansion in a newer market. With Europe feeling the heat of the US slowdown, this development is of greater significance. The company is likely to face robust demand in the global market, with oil and gas companies spending more and more on exploration and production (E&P) activities. Welspun Gujarat maintains a conservative foreign exchange policy.
The company’s net profits surged 136% to Rs97.40 crore in the quarter ended December 2007. Its revenues climbed 39% to Rs1036.40 crore. Over the past few years, Welspun Gujarat has been able to achieve high realisations. However, its margins certainly remain an area of concern, in view of the rising steel prices.
If you are an investor with a long-term horizon, Welspun Gujarat could prove to be a good bet. I guess the company’s stock deserves to trade at the premium that it does to its peers like JSW Steel. Compared to its peers, it has:
1. Greater geographic diversification – This is good for any company, since it protects a company from a downturn in any particular economy.
2. Greater presence in the export market – This is beneficial since the export market affords higher margins than the domestic market.
3. A wider product mix with a focus on niche products.
4. Capacity expansion initiatives – While other companies are dealing with capacity constraints, Welspun Gujarat has plans to almost double its annual production capacity. This would position the company to capitalize on rising global demand.
5. Better growth prospects - Welspun Gujarat’s order book position underlines the company’s growth prospects.
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