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    Welspun Corp

    WELCORPGood
    Capital Goods·8 Aug 2024
    Management Summary

    Welspun Corp delivered a strong Q1 FY25, characterized by significant profit growth and a robust order book across its diversified segments. The company is successfully transitioning from a standalone pipe manufacturer to a broader building materials and infrastructure player, with Sintex and DI pipes becoming major contributors. Management remains bullish on the U.S. market and the domestic water/oil & gas sectors, supported by a ₹2,300 crore expansion plan in the plastic pipes segment.

    Highlights

    8

    • Consolidated PAT increased by approximately 50% YoY, rising by ₹248 crores.

    • Total pipe volumes (India, U.S., and DI pipes) grew 8% YoY to 229,000 metric tons.

    • DI pipe order book remains strong at over 300,000 tons, valued at approximately ₹2,500 crores.

    • Stainless steel volumes rose 57% YoY to 4,700 tons; TMT sales volume grew by 175%.

    • Sintex revenue for the quarter rose by 14% YoY; announced acquisition of Weetek Plastics for ₹85 crores.

    • Maintained an annualized ROCE of over 20%.

    • Announced a ₹2,300 crore capex plan for Sintex to be spread over two financial years.

    • Line pipe order book for India and U.S. stands at approximately 0.5 million tons.

    Key financials

    Single quarter

    04 metrics
    1. 01PAT Growth50%+50%YoY
    2. 02Annualized ROCE20%
    3. 03Total Pipe Volume2,29,000 metric tons+8%YoY
    4. 04DI Pipe Order Book Value₹2,500 Cr

    Segment breakdown

    Sintex (Building Materials)
    14.0% Revenue Growth11% Volume Growth
    Stainless Steel
    4,700 tons Volume57.0% Volume Growth₹300 Cr Order Book Value
    DI Pipes
    3,00,000 tons Order Book16% Current Margins
    List

    Guidance & targets

    5
    CategoryTargetPriority
    Capex
    Sintex Expansion Capex
    ₹2,300 crores
    		High
    Capacity
    DI Pipe Capacity Enhancement
    600,000 tons
    		High
    Margin
    Steady-state DI Pipe Margins
    13-15%
    		Medium
    Volume
    U.S. Business Volume Target
    250,000 - 300,000 tons
    		Medium
    Other
    Internal ROCE Threshold
    18-20%
    		High

    Risks & concerns

    5
    RiskSeverity

    Raw Material Price Volatility

    Management noted that benefits from falling coking coal and iron ore prices are lagged by about two quarters due to inventory positioning. — Analyst acknowledged

    medium

    Execution of Large Capex

    The ₹2,300 crore Sintex capex requires a 2-3 year horizon to reach full potential, implying a period of high investment before peak utilization. — Both acknowledged

    medium

    U.S. Market Continuity

    Analysts questioned if U.S. elections would delay pipelines; management expressed high confidence in the Permian Basin's fundamental strength. — Analyst downplayed

    low

    Areas of Evasion(2)

    • Specific volume breakups for India vs U.S. for the quarter (deferred to offline sharing)
    • Specific size of the U.S. bids currently in progress

    Q&A highlights

    3

    “Typically, what happens in U.S. when you have completed a one major project of a Permian, it takes around 2 more -- 2 quarters before they come back with a new project.”

    Clarifies that the perceived delay in U.S. orders is a cyclical project gap rather than a structural or political issue.

    asked by Deepak Lalwani, Unifi Capital

    2 min read5 chapters

    Detailed Narrative

    01

    Strategic Pivot to Building Materials

    Welspun Corp is aggressively expanding its footprint in the building materials sector through Sintex. The company announced a ₹2,300 crore capex for Sintex, with 40% to be deployed in FY25. The acquisition of Weetek Plastics for ₹85 crores further accelerates their entry into the plastic pipe segment, adding 20,000 tons of capacity in Chhattisgarh. Management expects Sintex to grow faster than the market, leveraging its premium brand position.

    02

    DI Pipe Segment Emerges as Growth Engine

    The Ductile Iron (DI) pipe business shows strong visibility with an order book exceeding 300,000 tons, valued at ₹2,500 crores. This provides clear revenue visibility for the next 9 months. Capacity is being enhanced from 500,000 to 600,000 tons by Q3 FY25 through process engineering without additional capex. While current margins are high at 16-18%, management conservatively guides for a steady-state margin of 13-15% in the coming years.

    03

    U.S. Market Outlook and Project Cycles

    Despite a temporary gap in major project execution, management remains highly optimistic about the U.S. market, particularly the Permian Basin. They are targeting sustained annual volumes of 250,000 to 300,000 tons. The company is currently in a bidding phase for several large projects and expects to convert these into the order book shortly, ensuring business continuity beyond FY25.

    04

    Saudi Associate (EPIC) Performance

    The Saudi associate, EPIC, has a confirmed order book exceeding 2.5 years and recently received multiple contracts from Aramco valued at over 1.65 billion SAR. These are expected to contribute significantly to financial performance starting in Q4 FY25. Management clarified that while EPIC is a listed entity with its own board, Welspun remains the largest shareholder and actively participates in its strategic direction.

    05

    Operational Excellence and ROCE Focus

    Welspun Corp has successfully maintained an annualized ROCE of over 20%, reflecting efficient capital allocation. The company has evolved from a standalone pipe manufacturer with ₹7,000 crore revenue to a diversified player with ₹17,000 crore revenue in just two years. Management emphasized a strict internal threshold of 18-20% ROCE for all new investments and acquisitions.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.