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Tuesday, May 19, 2009

Welspun-Gujarat Stahl Rohren Ltd:-A very hot bet

Scripscan:Welspun-Gujarat Stahl Rohren Ltd
cmp:135
Traded in:Nse-bse

Story:Most international oil and gas companies recognise WGSRL as a preferred supplier, thanks to its stringent quality control processes. It is the only Indian company with the approval to bid for pipeline contracts floated by global majors such as Chevron, British Petroleum and Transcanada. WGSRL manufactures three types of pipes, namely LSAW, HSAW and ERW. Currently, the company has a total operational capacity of one million tonnes per annum (mtpa). It has manufacturing plants in Gujarat and is also setting up plate mills in the US.WGSRL''s future growth will come from three sources - higher capacity, improved operating margin and a strong order book - all indicators of strong demand.Looking at the new business opportunity, mainly from North America, the company has expanded its operational pipe capacity by around 0.75 mtpa.Steel plate/coil is a key input for manufacturing pipes and is in short supply, thanks to ever rising demand. The new plate mill will help WGSRL in improving availability of raw materials and lowering production costs. The plate mill is expected to improve the operating margin from current 17% to 22%The new plate mill will start contributing to the bottomline from FY09 onwards. The contribution from the 0.75-mtpa pipe plant expansion to the balance sheet will start coming from FY10 onwards.WGSRL is also bidding for different pipeline projects worth Rs 20,000 crore. The EPS for FY10 is estimated at Rs 45. At the current price level of Rs 135, the forward P/E multiple works out to 3x. This is much lower compared to its yearly average P/E multiple of 10-12.This provides a huge upside potential for investors with an investment horizon of 2-3 years.

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