Welspun Gujarat Stahl Roh - A Multibagger (by PN Vijay, Investment Advisor)

Welspun Gujarat Stahl Rohren is a part of high growth sector. The oil and energy sector is becoming very big in India and India is emerging as the pipe manufacturing hub due to its lower cost of production. Welspun is the largest player in this segment.

Welspun Gujarat Stahl Rohren Ltd

Welspun is a leading player in Steel Pipe and Tube manufacturing sector. It caters to the growing oil and energy industry, both domestically and overseas. It has shown spectacular growth and has also expanded and integrated its production capacities fast.

Financial Highlights:

For the first quarter of FY-2007-08 the company put up an impressive performance. While the revenues grew 50.5% to Rs 806.7 crores, the Net profit grew in a very robust fashion up 164% to Rs 69.3 crores. The operating margin went up a whopping 3.7% to 16.6% mainly due to the profitable global orders from Exxon Mobil and Kinder Morgan.

Reasons to buy:

- Part of high growth sector. The oil and energy sector is becoming very big in India and India is emerging as the pipe manufacturing hub due to its lower cost of production. Welspun is the largest player in this segment.

- Welspun can boast of an impressive client list which includes many overseas giants, apart from Indian majors.

- The company is completing a backward integration project with an installation of a plate mill. This will expand the margins and boost the bottom line for 2007-08.

- The company has commissioned a plant in the US to service that profitable market.

- The profit growth has not been fully discounted in the valuation on a forward PE basis. The company is attractively priced 16 times its 2007-08 earnings. This compares favourably with a profit growth of more than 100% which Welspun is witnessing.

Concerns:

- A slow down in oil and exploration and production may lead to reduction in order book.

- High Steel prices may make a dent on fixed price contracts which the company presently may have.

Recommendation:

We recommend this share at the current level with the target price of Rs 400 in the next 12 months.