Drive pipeline solutions and infrastructure growth

In the energy sector, pipelines are like veins that carry power from one place to another. It is critical to transporting oil, gas and water to where they are needed. Without them, energy would not reach our homes or businesses.

Welspun Corp plays a key role in ensuring these pipelines are strong, reliable and keep energy flowing smoothly. The company is strategically positioned to benefit from multiple sector tailwinds and government initiatives across its geographies and business segments.

Amid this important role, attention is also being paid to initiatives such as the Jal Jeevan Mission recently led by the Indian government. This ambitious project aims to provide clean tap water to every rural household by 2024.

The Jal Jeevan project, budgeted at ₹70,000 crore in FY24, aims to provide tap water to every household. The Jal Shakti ministry budget increased to ₹97,278 crore from ₹74,029 crore the previous year.

As the country works to realize this vision, demand for high-quality line pipe is rapidly increasing. There is a significant opportunity here for Welspun Corp to contribute meaningfully. With its expertise in manufacturing durable and reliable line pipe, the company is ready to play a key role in making this effort a reality.

The company’s stock has delivered stellar returns over the past year, soaring nearly 150%. Over a three-year period, the stock price soared 296%. So, in this article, we will take a look at its business, finances, and what lies ahead.

Welspun Corp Corporate Overview

Wellspun Co., Ltd.a $5 billion company in piping solutions and building materials, has undertaken some of the world’s most challenging projects, including the world’s deepest pipeline, the world’s heaviest pipeline, and the world’s longest pipeline.

As part of its business growth and diversification plans, WCL has set up a state-of-the-art greenfield facility at Anjar, Gujarat to manufacture Ductile Iron (DI) pipes with a total annual production capacity of 500,000 MT.

This complex is equipped with cutting-edge technology, including a blast furnace capable of producing 500,000 tons of molten iron per year, a sintering plant, PCI, an oxygen plant, and a coke oven.

WCL is already manufacturing BIS certified steel billets and direct reduced iron that will be used to make TMT bars. With its latest product, TMT Rebars, the company plans to transition from being a large B2C manufacturing organization.

WCL completed the acquisition of Sintex BAPL’s plastic products business in the first quarter of 2023, following the strategic acquisition of ABG Shipyard in 2022.

Review of Sintex-BAPL acquisition

WCL paid ₹1,141 cr for Sintex’s plastics business, which according to the creditor is valued at ₹3,266 cr. Sintex’s cash position at the time of acquisition was ₹735 cr, resulting in WCL’s net acquisition cost of ₹406 cr.

This acquisition is consistent with WCL’s goal of expanding its building materials portfolio and establishing strong distribution channels (B2C objectives). WCL will use Sintex’s extensive distribution network of 900 dealers and 13,000 retailers.

Sintex is a strong brand that gives WCL access to the market. It is one of the few truly national brands in the country and occupies a premium position. Sintex is the best known water storage tank brand in India. Sintex is famous for its water tanks.

Syntex’s current water tank market share is estimated at about 9%. At its peak, Sintex was the unrivaled market leader, with a market share more than double its current share.

However, in recent years, several new competitors have been influencing the market. WCL’s goal is to regain as much market share as possible. Combining this with our expertise in supply chain efficiency, WCL will make every effort to reinvigorate our distribution networks, products and brands.

finance Wellspun Co., Ltd.

In FY 2023, Welspun Corp saw significant growth in its revenue, surging 50% to reach ₹9,758.1 crore compared to ₹6,505.11 crore in FY 2022.

On the other hand, net profit declined noticeably, falling by 55% from ₹444.17 crore in FY2022 to ₹199.17 crore in FY2023.

Although sales increased due to increased product sales, there were several reasons why profitability decreased. Welspun Metallics Limited’s cost of goods sold increased relative to sales as raw material costs rose.

Finance costs also increased by 139% in FY23 due to increased total debt for new greenfield projects and acquisitions. Profits in FY23 were lower than FY22 mainly due to losses at Welspun Metallics Limited.

In FY23, Welspun Corp maintained favorable financial metrics with a return on equity (ROE) of 3.21% and a return on equity (ROCE) of 6.38%.

Future Plans Wellspun Co., Ltd.

Diversifying right into the TMT will enhance WCL’s B2C connectivity.

WCL has set up a 350-unit KTPA facility in Anjar, Gujarat. This approach is consistent with the expected growing demand for TMT bars in the infrastructure and real estate sectors. WCL’s integrated blast furnace, capable of producing 500 KTPA of molten iron, supports the manufacturing of DI pipe and TMT bar, increasing operational and financial efficiency.

This strategic expansion expands the company’s product line and strengthens its B2C connections. Gujarat consumes 3 million tonnes of TMT bars annually, accounting for 6% of India’s total consumption.

However, Gujarat’s current production capacity is only 2 million tonnes and the remaining 1 million tonnes is imported from other states. WCL has identified this gap and its aim is to focus on the Gujarat market first before gradually expanding across India.

Substitution of TMT bar imports from Gujarat will reduce logistics cost and time for TMT bar importers.

Increasing demand for DI and ERW pipes

Concurrent with the interstate transmission project, the government is working with municipalities to build an efficient intra-city water pipeline infrastructure using both DI and ERW pipes.

The program is in line with the goal of the Jal Jeevan Mission (JJM) to provide tap water to 1.941 crore households in India by December 2024. Approximately 60% of JJM’s work has been completed, with the remaining 40% scheduled to be completed over the next 18 months. This has significantly increased the demand for DI and ERW pipes.

This trend is expected to continue due to continued urbanization and ruralization. infra improvement. Demand for DI pipes is expected to increase significantly due to water treatment plans.

With a new DI pipe capacity of 400 KTPA and current ERW pipe capacity, WCL is ideally positioned to exploit the impending potential in intra-city water supply and wastewater discharge projects.

conclusion

The future looks promising for Welspun Corp as it continues to diversify and expand its business by capitalizing on opportunities in the infrastructure and water sectors. Through strategic acquisitions and new manufacturing capabilities, the company appears well-positioned to capitalize on emerging trends.

However, it remains to be seen how they will navigate the challenges and remain profitable. What do you think about Welspun Corp’s future prospects? Share your thoughts on their growth plans and the potential risks they may face.

Written by Narin Surya

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