When it comes to the energy sector, pipelines are like the veins that carry power from one place to another. They’re crucial for transporting oil, gas and water to where they’re needed. Without them, energy wouldn’t reach our homes or businesses.

Welspun Corp is a key player in making sure these pipelines are strong and reliable, keeping the energy flowing smoothly. This company is strategically well placed to benefit from several sectoral tailwinds and government initiatives across the geographies and its business segments. 

Amidst these vital roles, the spotlight in recent times has also turned towards initiatives like the Jal Jeevan Mission initiated by the Indian Government. This ambitious project aims to provide clean tap water to all rural households by 2024. 

The Jal Jeevan Project, budgeted at ₹70,000 crore for FY24, aims to supply tap water to all households. The Jal Shakti Ministry budget grew to ₹97,278 crore from ₹74,029 crore in the previous year.

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As the nation strives to realize this vision, the demand for high-quality line pipes surges. Herein lies a significant opportunity for Welspun Corp to contribute meaningfully. With its expertise in manufacturing durable and reliable line pipes, the company stands poised to play a crucial role in the realization of this endeavor.

The stock of the company has produced a stellar return over the past year, surging almost 150 percent. Over a longer time frame of three years, the stock has soared 296 percent. So, in this article, let’s explore its business, financials and what lies ahead. 

Corporate Overview Of Welspun Corp

Welspun Corp, a $5 billion company with excursions into Pipe Solutions and Building Materials, has taken on some of the world’s most difficult projects, including the world’s deepest pipeline, the world’s heaviest pipeline, and the world’s longest pipeline, among others.

As part of its Business Growth & Diversification plan, WCL has established a state-of-the-art Greenfield facility in Anjar, Gujarat, to manufacture Ductile Iron (DI) Pipes with a total production capacity of 500,000 MT annually.

This integrated complex has cutting-edge technology, including a Blast Furnace capable of producing 500,000 MT of hot metal per year, as well as a Sinter Plant, a PCI, an Oxygen Plant, and a Coke Oven.

WCL already manufactures BIS Certified Steel Billets and Direct Reduced Iron, which will be utilised to make TMT bars. With its latest offering, TMT Rebars, the company plans to shift from a large-scale B2C manufacturing organisation.

WCL finalised the acquisition of Sintex BAPL’s Plastic Products business in the first quarter of 2023, following a strategic acquisition of ABG Shipyard in 2022.

Review of the Acquisition of Sintex-BAPL

WCL paid ₹1,141 cr for Sintex’s plastic business, which was valued at ₹3,266 cr by creditors. Sintex’s cash position at the time of acquisition was ₹735 cr, resulting in a net acquisition cost of ₹406 cr for WCL.

This acquisition is consistent with WCL’s objective to expand its building material portfolio and establish a strong distribution channel (B2C objective). WCL will use Sintex’s extensive distribution network of 900 Distributors and 13,000 Retailers.

Sintex is a strong brand that allows WCL access to the marketplace. It is one of the few truly national brands in the country, with a premium position. Sintex is the most well-known brand of water storage tanks in India. Sintex is known for its water tanks.

Sintex’s current market share in water tanks is estimated to be approximately 9%. Sintex was the unchallenged market leader at its peak, with a market share more than twice that of today.

However, in recent years, several new competitors have made an impact in the market. WCL’s goal will be to reclaim as much market share as possible. WCL will make every effort to re-energize the distribution network, product, and brand, combining this with its expertise in supply chain efficiencies.

Financials Of Welspun Corp

FY2023FY2022FY2021FY2020
Revenue (in ₹crore)9,758.106,505.117,152.569,956.76
Net Profit (in ₹crore)199.17444.17837.69692.13
ROE3.21%10.44%18.41%21.76%
ROCE6.38%12.48%18.30%27.69%

In the fiscal year 2023, Welspun Corp saw a substantial increase in revenue, surging by 50% to reach ₹9,758.1 crore as opposed to ₹6,505.11 crore in FY2022. 

On the other hand, there was a noteworthy downturn in net profit, experiencing a 55% decrease from ₹444.17 crore in FY2022 to ₹199.17 crore in FY2023.

Although the revenue increased due to improvement in the volume of the products sold, there were several reasons why the profitability affected. Welspun Metallics Limited’s cost of goods sold grew as a percentage of sales as raw material costs rose.

Finance expenses also rose by 139% in FY23, owing to increasing gross debt for new greenfield projects and acquisitions. The profit in FY23 was lower than in FY22, owing principally to a loss at Welspun Metallics Limited.

In FY23, Welspun Corp maintained favourable financial metrics with a Return on Equity (ROE) of 3.21% and Return on Capital Employed (ROCE) of 6.38%.

Future Plans Of Welspun Corp

Diversification into TMT bars will enhance B2C connect of WCL

WCL set up a 350 KTPA facility in Anjar, Gujarat. This approach is consistent with the predicted increase in demand for TMT bars in the infrastructure and real estate sectors. WCL’s integrated blast furnace, which can produce 500 KTPA of hot metal, supports DI pipe and TMT bar manufacturing, resulting in operational and financial efficiencies.

This strategic expansion broadens the company’s product line and strengthens its B2C connections. Gujarat consumes 3.0 million tonnes of TMT bars per year, accounting for 6% of India’s total consumption.

However, Gujarat has a current production capability of only 2.0 million tonnes, with the remaining 1.0 million tonnes imported from other states. WCL discovered this gap, and its goal will be to first focus on the Gujarat market before progressively expanding throughout India.

This import substitution of TMT bars in Gujarat will reduce logistics costs and time for TMT bar importers.

Increasing demand for DI and ERW pipes

Concurrently with its interstate water transmission projects, the government is collaborating with municipalities to build an efficient intra-city water pipeline infrastructure that will use both DI and ERW pipes.

This programme is consistent with the Jal Jeevan Mission’s (JJM) goal of providing tap water to 194.1 billion households in India by December 2024. With around 60% of JJM work made, the remaining 40% is scheduled to be completed over the following 18 months, resulting in significant demand for DI and ERW pipes.

This momentum is expected to persist due to ongoing urbanisation and rural infrastructural improvements. Water treatment initiatives are expected to increase the demand for DI pipes significantly.

With its new DI pipe capacity of 400 KTPA and current ERW pipe capacity, WCL is ideally positioned to capitalise on this impending potential in intra-city water transmission and sewage discharge projects.

Conclusion

As Welspun Corp continues to diversify and expand its operations, leveraging opportunities in the infrastructure and water sectors, the future looks promising. With strategic acquisitions and new manufacturing capabilities, the company seems well-positioned to capitalize on emerging trends. 

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

Written by Nalin Suriya

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