Welspun Corp Limited - Business Outlook
USA: Rising fracking in the Permian basin has resulted in booming oil & gas production in the US. However, pipeline capacity to evacuate the oil & gas is constrained and this is driving pipeline demand from transportation companies. With shale drilling being profitable at the current oil prices combined with pipeline infrastructure bottlenecks as well as restrictions placed on pipe imports, local US players including Welspun, will continue to command good margins with higher volumes.
India: For the Indian market, the large-diameter pipe demand for oil and gas projects is primarily driven by gas grid development by GAIL and oil pipeline network by IOCL. The small-diameter segment will see significant demand from City Gas Distribution projects. The new government policy to grant pricing freedom to new gas discoveries is expected to increase exploration activities in the country, which in turn, should translate into higher pipeline demand.
Currently, issues surrounding water scarcity and stress have become important focus areas for the government; thus significant demand from water projects is expected across states. With the Bhopal facility commissioned, the Company will be geared to meet local demand and become a sizeable player in Central India.
Welspun Corp is well-placed to service demand for LSAW pipes across geographies, thanks to its global approvals and accreditations as well as an impeccable track record of supplying pipes for complex projects for Oil & Gas majors. With demand and price, both remaining strong for oil, the export business from India plants is expected to benefit.
Saudi Arabia: The JV in Saudi Arabia has a confirmed order book for more than two years. We see strong demand in both oil & gas as well as water sectors, driven by Saudi Aramco and SWCC respectively as both of them are actively working on development of a few big projects. Further, the recent find of shale gas in Saudi Arabia and the intent to connect the entire GCC and Middle East nations through a pipeline network with this gas is another big potential in the medium term. Thus Saudi Aramco’s continuous exploration for off-shore O&G fields, this new shale gas development as well as continuous high demand from water projects should exponentially grow the demand for pipelines in the near to medium term.
Welspun Corp being a “Global but Local” player with leadership position with sizeable capacities in India, US and Saudi Arabia is ideally poised to benefit from local sourcing by the large Oil and Gas players. The Company has continuously focussed on operational excellence by investing in building robust systems & processes for flawless execution, continuous development of people capabilities and impeccable customer-oriented delivery structure.
Also, recent measures of value unlocking from non-core assets, Plate and Coil Mill division (PCMD) and 43MW Power Division, would help the Company move towards an asset-light model, thus strengthening the balance sheet and achieving improvement in its profitability ratios as well as return ratios.