Pipe Industry

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A C Choksi Sector - Pipe

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Amit Nisar - Research Analyst

Email : amit@acchoksi.com
6th January, 2010 Vinisha Parekh - Research Analyst
Email : vinisha@acchoksi.com
Mehul Jhaveri - Technical Analyst
A C Choksi
Research Report Indian Pipe Industry
Executive Summary
Domestic demand is superior over international demand- result of key
investment expected in oil and gas sector in India.
Major domestic demand in oil sector is a huge capacity addition by Indian refiners, which is
expected in next five years. This requires pipe infrastructure in place for oil distribution. On
natural gas side, government awarded new 44 exploration blocks recently, taking overall
blocks more than 200. Gas, being preferred fuel with high efficiency, demand for gas is
growing world wide. However India's penetration in gas segment is comparatively low,
which is expected to grow faster than world's growth in same segment. In water
infrastructure side in India, water and sewage system is at beginning stage of development
where government's target is to first reach at level at a which other developing countries are
currently. This requires massive pipe infrastructure to support such a target. Institution like
World Bank and Asian Development Bank has also started investing into Indian water
infrastructure.
Energy demand to grow at a healthy rate for the next 5 years

The envisaged growth of 9% in the Eleventh Plan can not be achieved without a
commensurate increase in the availability of energy. According to the EIA, energy demand
grew by 3.5% pa in 1999–2005, which is expected to increase at higher rate during 2005–15
and to slow slightly for 2015–30.
Oil to continue to be an important source of the growing energy demands

The oil and gas sector is the biggest consumer of steel pipes globally. Nearly 60% of the pipes
produced in India last year went to the oil and gas sector. The growing demand for
connectivity between the oil fields and the final demand has grown substantially creating
the requirement for pipeline infrastructure. The depleting oil reserves worldwide would
also lead to increased exploration activities going forward.
Projected production of crude oil during the XIth year Plan (2007-2012)
According to global consultancy Simdex, 710 pipeline projects of 326,000km are to be
implemented in the next five years, with principal demand coming from Asia, followed by
North America. The global demand for pipes could open up opportunities uptil US$78bn.
Natural gas – The most preferred fuel in the energy basket

Natural gas being the most clean source of energy along with greater efficiency and cost
effectiveness is becoming the most preferred fuel in the global energy market. The Energy
Information Administration forecasts natural gas to be 26% of total energy usage by 2030
from 24% in 2003 and the crude oil share to fall to 34%. Natural gas demand in India is
expected to increase from35bcm to 142 bcm in 2025 at CAGR of 8.5%.
Under-developed pipeline infrastructure to open up opportunities

Currently, the country's gas requirements are serviced primarily through GAIL's pipeline
network, supported by some pipelines of other PSUs like ONGC, and some regional
players like Gujarat State Petronet Limited (GSPL).Thus the bottleneck of pipeline
connectivity is set to be alleviated. Thus the Pipeline length is to triple from 5,826km to
13,685km in the 11th five-year plan.
A C Choksi Fundamental Research 2 research@acchoksi.com

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Substantial replacement demand from the US and Russia
Most of the pipelines need replacement after being in operation for 25–35 years. It is
expected that pipelines of ~50,000km to be replaced in the next five years which may in fact
turn out to be conservative as 1.8m km out of a total 2.7m km of pipelines in the US are over
30 years old and will need to be replaced.
Demand for water infrastructure set for robust growth

The urban water supply system is in need of an overhaul, water treatment capacities have
grown at an abysmally low pace, and the area under irrigation needs to grow to feed an ever
increasing population. Thus the Government has formulated plans under the Bharat
Nirman scheme to improve the situation. The need for additional water infrastructure will
give rise to immense demand of pipes.
Massive investments in oil and gas sector and strong initiative to develop water
infrastructure
Presently, there are 19 refineries with an installed capacity of 148.96 MMTPA which is
expected to reach ~ 240 MMTPA by the end of XIth year plan. Present installed capacity is
supported by network of 21 oil product pipelines with a length of 9,563 kms & capacity to
carry 58.0 MMTPA of products and 4 crude oil pipelines of 5,392 kms, with capacity of
transporting 42.2 MMTPA. This shows present capacity needs expansion to support
capacity addition in refineries. Due to number of recent gas discoveries in India by
companies such as Reliance Industries Limited (RIL), ONGC, GAIL and GSPL,
requirement of pipeline will be high in order to match with increase in gas output by these
companies. The Government of India has sanctioned USD 5.7 bn under Jawaharlal Nehru
National Urban Renewal Mission (JNNURM) for water infrastructure. This presents
significant opportunity to the pipe manufacturing sector, as pipes are the cheapest mode of
transporting oil, gas and water.
Welspun Gujarat, Jindal Saw and PSL – Three Strong Pillars of Industry:
With huge expansion and investment coming back to oil and gas sector, we believe Welspun
Gujarat, Jindal Saw and PSL are expected to fulfill major portion of domestic pipe demand
and continue to supply pipe to international market. Diversified business model of Jindal
Saw, focus on export market and backward integration in plate business by Welspun Gujarat
and focus on domestic market and single product strategy (leader in HSAW segment) of PSL
has a clear revenue potential for next 2-3 years. We recommend Strong BUY on Jindal Saw,
PSL and Welspun Gujarat.
Recommendation - Top Pick of Sector

A C Choksi
Content
Industry Overview……….……………………………………………………………………………........………………..6
Size of Industry…………………………………………….………………………………………………….........………….6
Domestic demand is superior over International demand………………….…………………….…...........…….7
Demand Triggers……………………….…………………………………………………………………………...........…..9
Massive investments in oil and gas sector and Water infrastructure………………….……...…….........……14
GAIL India – Largest investor in pipeline sector…….…………………………………..……………............…...16
Raw Material: Scenario……….……………………………………………………………………………….........………17
Key Concerns………….……………………………………………………………………………………..……….........…18
Annexure……………….……………………………………………………………………………………..….........………20
JINDAL SAW LTD………………..……………………………………………………………………………...............22

Company overview……….………………………………………....……………….……………...….............23
Investment Rationale…….………………………………………………………………….….…........…….....24
Financial……………………….…………………………………………………………………..………........…..30
Valuation……………………….………………………………………………………………..…………….........35
Technical...............................................................................................................................36
PSL LTD………………………….…………………………………………………………………….………….…........…..37
Company overview……………………………………………………………………………….………........…38
Investment Rationale…………………………………………………………………………..……........……..39
Financial…………………………………………………………………………………………..….…........……..46
Valuation………………………………………………………………………………………..…….……........….51
Technical...............................................................................................................................52
WELSPUN GUJARAT STAHL ROHREN LTD…………………………………………….…..….….......….…53

Company overview………………………………………………………………………………….…........……54
Investment Rationale………………………………………………………………………….….……......…....55
Financial…………………………………………………………………………………………..….………..........61
Valuation………………………………………………………………………………………..….………........….66
Technical...............................................................................................................................67

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Source : A C Choksi Research, Company Data

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Industry Overview
Pipelines are the preferred mode of transportation for liquids and gases globally.
Various developments in the oil & gas exploration and procurement sector are
providing an increasing need to create logistics infrastructure to market oil and gas. Pipe
sector is divided into different categories based on its application. Major application of
pipe is transportation of energy, water and sewage system. Helical Submerged Arc
Welded (HSAW) and Electric Resistance Welded (ERW) pipe, both are commonly used
for oil, gas, water and sewage transportation. Ductile Iron(DI) pipe is specifically used
for water and sewage transportation which is replacing cast iron pipe used traditionally.
Longitudinal Submerged-arc welded (LSAW) pipe are used for transportation of oil and
gas. In addition to transportation of oil and natural gas, pipelines find their application
in various other industries and applications such as mechanical, structural, chemical,
automobile and general engineering industries. Generally seamless pipe is used in these
sectors.
Source : Companies, A C Choksi Research.

Size of Industry
Global Pipe capacity
Total pipe capacity across the world is around 80.4 million MT per annum. East Asia,
the largest producer of pipe has around 30% of total capacity. East Asia together with
North America, Western Europe and CIS are major producer of pipes, 78% of world
supply are fulfilled by these nations.
Region wise East Asia accounts

for highest production share -
29.4%
Source : Company, A C Choksi Research.

Globally ERW accounts for
largest production share - 40%

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Domestic Pipe Industry: Welspun Gujarat, Jindal Saw and PSL – Three
Strong Pillars of Industry
Domestically this industry is ruled by Welspun Gujarat Stahl Rohren Ltd, Jindal Saw
Ltd and PSL Ltd, all three together contributing around 67% of total pipe capacity.
Four firm concentration ratio of this industry is around 77%. Welspun Gujarat is
market leader with 28% of market share followed by Jindal saw with 23%, PSL with
16% and Man Industries with 10%. Jindal saw is largest player in LSAW segment and
has presence in all the categories of pipe except ERW. PSL is largest player in HSAW,
Welspun Gujarat in ERW, Maharashtra Seamless in Seamless pipe and Electrosteel
casting in DI segment.
Capacity in (MT) LSAW HSAW ERW Seamless DI/CI Total
Welsp.Guj.Stahl 350000 900000 250000 0 0 1500000
Jindal Saw 1000000 400000 0 250000 200000 1850000
PSL 0 1475000 0 0 0 1475000
Mah. Seamless 0 0 200000 350000 550000
Electrost.Cast. 0 0 0 0 275000 275000
Man Inds. 1000000 175000 0 0 0 1175000
Ratnamani Metals 100000 100000 150000 18000 0 368000

* Revenue- March 2008-March 2009
Domestic demand is superior over International demand- Result of Key
investment expected in Oil and Gas sector in India.
Pipe sector being derived demand industry, demand for oil and gas, need of water and
Huge capacity additions by sewage infrastructure system are major demand drivers. Demand in oil sector is
Indian refiners as well as balanced by both, domestic and international needs. Major domestic demand in oil
increasing number of exploration sector is a huge capacity addition by Indian refiners. which is expected in next five
blocks awarded is leading the years. This requires pipe infrastructure in place for oil distribution. Internationally
domestic demand
replacement demand in US plays an important role. On natural gas side, government
awarded new 44 exploration blocks recently, taking overall blocks more than 200.
Gas, being preferred fuel with high efficiency; demand for it is growing world wide.
However India's penetration in gas segment is comparatively low, which is expected
to grow faster than world's growth in same segment. This makes pipe manufacturing
company to look towards domestic demand more than international demand, shifting
balance towards domestic side.

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Source : Company, A C Choksi Research
In water infrastructure side, water and sewage infrastructure of developed country is

already in mature stage. Demand for pipe in this segment will be result of replacement
demand since country like UK and US has developed their water and sewage system
around 40-45 years ago. In India, water and sewage system is at beginning stage of
Massive pipeline infrastructure
required to support the nascent
development where government's target is to first reach at level at which other
domestic water infrastructure developing countries are currently. This requires massive pipe infrastructure to
support such a target. Institution like World Bank and Asian Development Bank has
also started investing into Indian water infrastructure. Pipe manufacturing company,
in order to take advantage of opportunity arising are now focusing towards domestic
demand.
Source : Company, A C Choksi Research

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Demand Triggers
Energy Demand to grow at a healthy rate for the next 5 years
The envisaged growth of 9% in the Eleventh Plan can not be achieved without a
commensurate increase in the availability of energy.According to the EIA, energy
demand grew by 3.5% pa in 1999–2005, which is expected to increase at higher rate
during 2005–15 and to slow slightly for 2015–30. By 2030 India could be the third-
largest energy consumer in the world, after China and the US (it currently ranks
fourth). Also, India's energy demand is expected to surpass the energy demand of the
entire OECD Pacific region (which currently equals 60%).
Oil to continue to be an important source of the growing energy demands

The oil and gas sector is the biggest consumer of steel pipes globally. Nearly 60% of
the pipes produced in India last year went to the oil and gas sector. The growing
The depleting oil reserves leading demand for connectivity between the oil fields and the final demand has grown
to increased exploration substantially creating the requirement for pipeline infrastructure. The depleting oil
activities reserves worldwide would also lead to increased exploration activities going forward.
Developments in past months demonstrate how quickly and drastically the
fundamentals of oil prices and the world liquids market as a whole can change. Thus
leading to expectation of significant changes in crude oil prices estimates going
forward.
Crude Oil Reserves at the end of CY2008
Source : BP Satistical Review of Energy 2009
Projected production of crude oil during the Eleventh Plan (2007-2012)

Company 2007-08 2008-09 2009-10 2010-11 2011-12 Total
Production of Crude Oil ( MMT )
ONGC 27.16 28 29 28.53 27.37 140.06
OIL 3.5 3.55 3.73 3.91 4.3 18.99
Joint Venture/Private 10.57 10.78 9.76 8.87 7.85 47.71
Companies
Total 41.23 42.33 42.49 41.19 39.52 206.76
Actual Production 34.12
Source : Report of the working group on Petroleum and Natural Gas Sector for XI
Plan(2007-2012)

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According to global consultancy Simdex, 710 pipeline projects of 326,000km are to be
implemented in the next five years, with principal demand coming from Asia,
followed by North America. The global demand for pipes could open up
opportunities uptil US$78bn.
International Demand Outlook till 2014
Business Potential
Region Projects Total Length (kms) Quantity(mmt) (US$Bn)
North America 183 69953 14 17
Latin America 52 33934 7 8
The global demand for pipelines Europe 97 45974 9 11
estimated to open up Africa 47 17368 3 4
opportuniyies of $78bn until
Middle East 107 43655 9 11
2014
Asia 130 90825 18 22
Australia 60 15899 3 4
Total 676 317608 64 77
Note :
1. Conversion rate of 200 tonnes/km
2.Conversion rate of $1200/ton
Source : Simdex US, May 09 Update,Company
According to Douglas Westwood Report, report estimates a 16% increase in the

pipeline mileage installed from 2008-2012 compared to the historic five-year period
2003-2007. Nearly 75% of this expenditure is expected to be spent in Asia, Eastern
Europe, the FSU and North America. Asia stands out as the largest forecast market by
length of pipeline construction accounting for $42 billion of forecast capital
expenditure.
Natural gas – The most preferred fuel in the energy basket
Natural gas being the most clean source of energy along with greater efficiency and
Natural gas consumption cost effectiveness is becoming the most preferred fuel in the global energy market. The
projected to show an an Energy Information Administration forecasts natural gas to be 26% of total energy
increasing trend from 24% to usage by 2030 from 24% in 2003 and the crude oil share to fall to 34%. Natural gas
26% over FY2010-2030 demand in India is expected to increase from35bcm to 142 bcm in 2025 at CAGR of
8.5%. According to IEA estimates, electricity generation accounts for 35 percent of
the world's total natural gas consumption in 2030, up from 32 percent in 2006.This
would lead to construction of more large diameter pipes thus benefitting the SAW
pipe manufacturers.
Source : Energy Information Administration

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Sector wise Gas Demand Projection Sector wise Gas Supply Projection*
Sector 2008-09 2011-12 Source 2008-09 2011-12
Demand- supply scenario of natural Power 91 127 ONGC+OIL 56 51
gas Fertilizer 43 76 Pvt. JVs (As per DGH) 62 97
City gas 13 16 Projected Domestic Supply 120 148
Additional Gas Anticipated - New
Industrial 16 20 Discoveries 0 54
Petrochemicals/ refineries/
Internal consumption 27 33 Total Domestic Supply 120 202
Spong Iron/ Steel 7 8 Total LNG Supply 34 83
Total 197 280 Total Gas Supply 154 285
Source: As per working Group Report for Xith year Plan, * - in MMSCMD
Under-developed pipeline infrastructure to open up opportunities

India has a relatively under-developed gas pipeline infrastructure, which is rapidly
scaling up in tandem with the burgeoning demand and ramp-up in supplies.
Currently, the country's gas requirements are serviced primarily through GAIL's
pipeline network, supported by some pipelines of other PSUs like ONGC, and some
regional players like Gujarat State Petronet Limited (GSPL).Thus the bottleneck of
pipeline connectivity is set to be alleviated. Thus the Pipeline length is to triple from
5,826km to 13,685km in the 11th five-year plan.
Growing industrial sectors is the largest consumer of natural gas

The industrial sector currently consumes more natural gas than any other end-use
Increasing reliance on natural sector and is expected to continue that trend through 2030, when 40 percent of world
gas as feedstock natural gas consumption is projected to be used for industrial purposes. In particular,
new petrochemical plants are expected to rely increasingly on natural gas as a
feedstock—particularly in the Middle East, where major oil producers, working to
maximize revenues from oil exports, turn to natural gas for domestic uses.
Source : Oil and Gas Journal

Recent gas discoveries creating demand for massive gas infrastructure
The main reason for the slow development of gas transmission infrastructure in the
past was a lack of domestic supplies. This scenario is changing very rapidly now due to
the large number of recent gas discoveries in India by companies such as Reliance
Industries Limited (RIL), ONGC, GAIL and GSPL. RIL, which has started
producing gas from its D6 block in the Krishna-Godavari basin, is targeting
production of 40 million standard cubic metres per day by July 2009 and double this
by the end of 2009.

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Southern, central, eastern and northeastern parts of the country lack gas supply as
well as infrastructure and so the gas market has remained limited to the states where
gas sources were found. Other states have not been able to utilize the benefits of gas
due to less gas availability and a lack of infrastructure. Thus this will throw huge
opportunities for pipeline infrastructure.
Natural Gas Reserves at the end of CY2008
Source : BP Satistical Review of Energy 2009
National Gas Grid

This presents significant opportunity to the pipe manufacturing sector, as pipes are
the only means of transporting gas. Also one of the significant developments in recent
times is the initiative to establish a National Gas Grid. In the recent union budget of
2010 too, the government has proposed to develop a blueprint for long distance gas
highways leading to a national Gas Grid to facilitate transportation of gas across the
country.
Phase I Length in crs Add. Cap. Execution

CHAINSA-JHAJJHAR-HISSAR 449 Kms. 1248 35MMSCMD 2010
DADRI-BAWANA-NANGAL 459 Kms. 2356 31MMSCMD 2010
DAHEJ-VIJAIPUR /GREP Upgradation 1108 Kms. 8179 60MMSCMD 2010
Phase II Length in crs Add. Cap. Execution
DABHOL-BANGALORE 1370 Kms. 4500 16MMSCMD 2012
KOCHI-MANGALORE-BANGALORE 1110 Kms. 2850 16MMSCMD 2012
JAGDISHPUR-HALDIA 2050 Kms. 7000 32MMSCMD 2012
Source : GAIL India Presentation
Estimated demand of pipelines laying path for substantial growth for the
Indian pipe manufacturers
As per a report on India Hydrocarbon vision – 2025, Ministry of Petroleum and
Natural Gas , the estimated long term demand for natural gas is 391 MMSCMD by
2024-25. According to the Pipeline and Gas Journal, approximately 43,000km of new
pipelines will be under construction in the US in 2009, and natural gas will account for
27,000km. There are a total of 75 projects, 58 of which will involve pipes that are 30”
or bigger.

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Substantial replacement demand from the US and Russia

Demand for SAW pipes comes from both new pipelines and the replacement of old
pipelines.Most of the pipelines need replacement after being in operation for 25–35
years. It is expected that pipelines of ~50,000km to be replaced in the next five years
which may in fact turn out to be conservative as 1.8m km out of a total 2.7m km of
pipelines in the US are over 30 years old and will need to be replaced.
Indian pipe manufacturers – A competitive play over its global peers

Pipelines being the cheapest mode of transport as compared to roads and railways,
Indian players have won accreditions despite global competition is due to its cost
competitiveness as well as maintenance of quality and delivery schedules. Thus the
huge order books of Indian players show the confidence placed in them as compared
to its global peers. The demand is enormous throwing immense opportunity for the
entire industry.
Demand for water infrastructure set for robust growth

With a weak and inefficient institutional framework, India has been unable to rise to
the challenge of managing water resources in the face of the above two factors. Over
the past three decades, the per capita water availability in the country has declined
two-fifths. The urban water supply system is in need of an overhaul, water treatment
capacities have grown at an abysmally low pace, and the area under irrigation needs to
grow to feed an ever increasing population.
Water Requirement for various Sectors
Sector Water Demand in km3( or bcm )

Standing Sub-Committee of
MoWR NCIWRD
2010 2025 2050 2010 2025 2050
Irrigation 688 910 1072 557 611 807
Drinking Water 56 73 102 43 62 111
Industry 12 23 63 37 67 81
Energy 5 15 130 19 33 70
Others 52 72 80 54 70 111
Total 813 1093 1447 710 843 1180
Source : JNNURM
MOWR: Ministry of Water Resources
NCIWRD : National Commission on Integrated Water Resources Development
Thus the Government has formulated plans under the Bharat Nirman scheme to
improve the situation. The need for additional water infrastructure will give rise to
immense demand of pipes. The Government has focused primarily on irrigation and
water supply and sanitation segments under its Eleventh Five year Plans which shall
augment well for the SAW pipe manufacturers in a big way.

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Massive investments in oil and gas sector and initiative to develop water
infrastructure – Demand driver for Investment in Pipeline Infrastructure
Pipeline being important part of infrastructure, government's development plan and
planned investments for transportation of crude oil and gas from source to refineries
and distribution of its processed output is one of the important demand drivers for
pipeline infrastructure. India is a net importer of energy with more than 75% of the
crude it consumes. Furthermore, demand is expected to rise which would widen the
existing gap between demand and supply. Continued firmness and relatively high crude
oil prices, depleting output from productive oilfields and increasing demand have
compelled large investment from oil majors in Exploration and Production (E&P)
activities.
Six round of New Exploration Licensing Policy (NELP) policy initiative by
government have resulted into 162 Power Sharing Contracts being signed and seventh
round leading to 45 exploration blocks being underway. (Source: Ministry of
Petroleum and Natural Gas). The growing interest for domestic exploration has led
Currently exists 19 refineries with India to emerge as a refinery hub. Presently, there are 19 refineries with an installed
an installed capacity of 148.96 capacity of 148.96 MMTPA which is expected to reach ~ 240 MMTPA by the end of
MMTPA which is expected to XIth year plan. Present installed capacity is supported by network of 21 oil product
reach ~ 240 MMTPA by the end pipelines with a length of 9,563 KM & capacity to carry 58.0 MMTPA of products and 4
of XI plan
crude oil pipelines of 5,392 kms, with capacity of transporting 42.2 MMTPA. (Source:
Ministry of Petroleum and Natural Gas).
Along with oil, natural gas segment also demand for huge investment. India has a
relatively under-developed gas pipeline infrastructure, which is rapidly scaling up in
tandem with the growing demand and ramp-up in supplies. Requirement of Pipeline to
match with increase in gas output in future, which will be the result of number of recent
gas discoveries in India by companies such as Reliance Industries Limited (RIL),
ONGC, GAIL and GSPL will be high. With the finding of natural gas in the KG basin
on the eastern offshore of the country, the production of natural gas is set to double with
natural gas emerging as an important source of energy. Current pipeline network of
India is not enough to handle this production.
Potential long term opportunity for pipe companies (1-2 years)
Length
Projects (Kms)
Dadri-Bawana- Nangal pipeline 640
Chainsa-Jhajjar- Hissar pipeline 450
Dabhol- Bangalore pipeline 1,480
Kochi-Mangalore/ Bangalore 840
Kochi – Kayamkulam pipeline 110
Total expected pipeline 3,520
Source: GAIL website and news reports

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Potential long term opportunity for pipe companies (3-5 years)
Projects Length (kms)
GAIL
Jagdishpur – Haldia pipeline 1,690
RGTIL
Kakinada –Basudebpur- Howrah (Haldia) pipeline 1,100
Vijaywada-Nellore- Chennai pipeline 445
Chennai-Tuticorin pipeline 670
Chennai- Bangalore- Mangalore pipeline 660
GSPL 1,070
Total expanded pipelines 5,635
Source: GAIL website and news reports

RGTIL- Reliance Gas Transportation India Ltd
On water infrastructure front, government is focusing on water conservation and waste

water treatment under Jawaharlal Nehru National Urban Renewal Mission
(JNNURM). For this Government of India has sanctioned USD 5.7 bn. International
organizations like World Bank and Asian Development Bank (ADB) are also funding
such projects across India. This presents significant opportunity to the pipe
manufacturing sector, as pipes are the only means of transporting oil, gas and water.
Future pipeline projects to compliment expansion in world's energy sector
Increase in pipeline infrastructure investment is not only proposed in domestic market
but also planned globally. Revival in oil prices from bottom and restored demand has
seen investment coming back to energy sector globally. Proposed projects which were
kept on hold are now back. New project in sector requires infrastructure in place, hence
there is need of an investment in pipeline infrastructure for oil and gas sector to support
growth. As per the Pipeline & Gas Journal's 2008 international survey, 77,314 miles of
new and planned pipelines were under construction and planned. Of these, 66,642 miles
were projects in the planning phase and 10,672 miles account for pipelines in various
stages of construction.
Source : Simdex
Pipeline CAPEX has been rising primarily driven by North America and China.
According to the Simdex Future Pipeline Projects Worldwide Guide dated July, 2009,
North America would account for large chunk of projects, Middle East and Asia would
try to keep in pace as China, India to build pipeline infrastructure.

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GAIL India – Largest investor in pipeline sector

GAIL, India's leading public sector gas transmission and marketing company has
proposed to establish a National Gas Grid, under which gas from various sources, like
domestic gas fields, LNG terminals, and the proposed transnational pipelines could be
transferred to various parts of the country. GAIL is laying high pressure transmission
pipeline in 15 states across the country.
Existing Network (2008-09)
Source: GAIL.
Source: GAIL, , Capacity - MMSCMD and Length - kms.

Laying down the gas grid, which would expand GAIL's pipeline network to 12,000
KM, would entail an investment of around Rs. 18,000-24,000 crore. The company, at
present, has an existing network of 7,179-kilometres. GAIL has proposed investment
of around Rs. 8000 crore in year 2009-10, Rs. 11210 crore in year 2010-11 and Rs. 4780
crore in year 2011-12. By year 2012 GAIL will add aroung 2016 kms of new pipeline in
its existing network. GAIL's investment to almost double its pipeline network will
augur well for the pipeline manufacturer.
CAPEX plan of GAIL(in Rs. Cr.)
Source: GAIL.

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Power Sector
Power sector in India is poised for growth. With large population growth, rapid
industrialization, urbanization and increasing per capita income, will give rise to
demand for energy in India. The Government's stated mission is to provide “Power
for All” by 2012. Its objectives for power sector development include providing
sufficient, reliable and inexpensive power. Based on the 17th Electricity Power Survey
prepared by the CEA, India would require additional capacity creation of nearly
78,500 MW by 2012 to achieve this goal. Out of this planned 78,500 MW of capacity,
6843 MW is gas based power plant. Increase in gas based capacity will raise the demand
for new pipeline infrastructure to facilitate transportation of gas to these plants.
Power plant to be installed by end of plan XI - Government
Fuel type in MW
Hydro 15627
Coal 50570
Lignite 2280
Gas 6843
Nuclear 3380
Total 78700
Source: MOP
Raw Material: Scenario

Steel is one of the raw materials used for LSAW, HSAW and ERW pipes, account for
nearly 60-70% of total cost. LSAW requires API steel plate as a raw material,
Steel - in different forms a key availability of which is very limited in domestic market. Welspun Gujarat has its own
input for all type of pipes API grade steel mill as a backward integration, sells very small quantity to others.
Most of the units are consumed for captive use. As a result, other players have to
import this raw material from international market. Since most of the player's
significant amount of revenue is coming from export, there is natural hedge for
company from currency risk.
However HSAW requires HR coils which is available domestically. Steel is cyclic and
volatile commodity, variation in prices of steel has significant impact on the pipe
manufacturers. Pipe manufacturing companies approach supplier of steel first before
biding for any projects. Biding price comprise of steel price which is generally pass
through to clients. Rise and fall of steel price decides realization for company. High
steel prices makes pipe expensive for client hence it will be difficult to pass 100% rise
in steel price in rising price scenario, affecting margins of the company. Falling price
makes realization price to go down and affects absolute value of sales.
Earlier till 2005, pipe manufacturer buy steel at spot price based on order received.
But unexpected rise in steel prices made it difficult for the players to maintain their
margin. As a derisk strategy, players started approaching raw material suppliers
before bidding for raw material tie-up so players can at-least maintain their margin.

A C Choksi
To be on safer side 3-4% safety margin in raw material is always considered by Pipe
Company before bidding. However players were unable to derisk their raw material
management completely by this way. When there is steep rise in steel prices, some
times supplier may default on his part that may lead to no delivery or delay in delivery
of raw material.
As a result, players have to buy steel at high value which will again affects its margin or
need to find new supplier which results in delay in order delivery. Players had
experienced such situation in early to mid CY2008 where HR Coil increased by
nearly 75% from USD 630 to USD 1099 and steel plates by 57% to USD 1300 from
USD 837. However prices also came down by nearly 50-60% from its peak during
global meltdown. But demand from major sector oil and gas were also down during
same period, which did not allow player to take benefit of low raw material cost. This
uncertain nature of steel price makes it difficult for the players to maintain their
margins.
Source: MEPS, A C Choksi Research
Raw material price is also one of the demand drivers for industry. HSAW and LSAW
is being substitute product for energy transportation (except for high pressure area,
where use of LSAW is necessary), price of respective raw material may affect the
demand of both. If price of HR coil increases and come close to steel plates then
demand for LSAW will increase. Since strength and thickness of LSAW makes it is
better than HSAW (hence used for high pressure product) in given scenario where
difference of price of steel plate and HR coil are not much, LSAW would be preferred
option.
Key Concerns
Slowdown in Economy
Slowdown in economy may see low investment in oil and gas sector. Limited inflow
of investment may result in low exploration and production activities and hence low
demand for new pipeline. Recent global meltdown has seen delay in investment and
projects in oil and gas sector, resulting into almost flat demand for pipe.

A C Choksi

Foreign exchange risk
Most of the major pipe manufacturer has revenue coming from export. Some of them
have to source their raw material from international market. These players also have
their subsidiaries in different part of geography and their balance sheet contain
liability in foreign currency. Appreciation or depreciation of Rupee against their
functional currency can have adverse effect based on their balance sheet position.
Downturn in crude oil prices

Crude oil is one of the most basic global commodities. Fluctuation in the crude oil
prices has both direct and indirect impact on the global economy. Crude oil prices
behave much as any other commodity with wide price swings in times of shortage or
oversupply. The crude oil price cycle may extend over several years responding to
changes in demand as well as OPEC and non-OPEC supply. The demand of crude oil
is rising sharply due to high growth and demand from the emerging economies. On
the supply side, the major sources of supplies are still the same as they were in the last
decade. Rising prices gives motivation to OPEC and Non OPEC supplier to maintain
or increase their Exploration and Production activities of crude oil. But falling prices
may see production cut from these suppliers, resulting to falling demand for new
pipelines and slowdown in investment in this sector, as we had already experienced
the situation in year 2008-09, when crude oil reached to bottom of $30.28 in
December 2008 from peak of $147.27 in July 2008. This fall in price have reflected in
low demand for pipe. Crude oil being cyclical product, future may see similar
situation and may have an impact on demand for pipe line.
Source : A C Choksi Research.

New pipeline capacity addition in target market
Traditionally Middle East, North America and Latin America were potential market
where European and Asian exporter export pipe. The Middle East, a traditional
export ground for European and Asian exporters, is building LSAW mills, primarily
roll bending facilities. Russian LSAW capacity growth has been stunning and Russian
LSAW mills are now starting to look to the export market and this trend is likely to
continue. Russia is likely to be increasingly seen in the export market at a time when
the supply/demand balance is set to soften creating an even more competitive market
for European, Japanese and Indian exporters which may result in low volume growth
for Exports.
A C Choksi
Annexure

Order book - as on September 30, 2009

A C Choksi
Annexure

A C Choksi JINDAL SAW LTD
Share Brokers Private Limited. Well Diversified to Capture Growth
Research Report Indian Pipe Industry January 06 , 2010
Reco Price : Rs. 192.85 Target Price : Rs. 218 BUY

Vinisha Parekh - Research Analyst Investment Rationale
Email : vinisha@acchoksi.com We believe Jindal Saw Limited (JSL) with its resilient business model will
Amit Nisar - Research Analyst earn a strong revenue CAGR of 17% over FY2008-12E.
Capacity addition to capitalize upcoming opportunities :
JSL has planned to expand the capacity by 100,000 mtpa taking its total
Mehul Jhaveri - Technical Analyst capacity in HSAW segment to 500,000 mtpa which is expected to be
completed by December 2010. In the DI segment, JSL is expanding its
COMPANY SNAPSHOT
capacity from its current level of 200,000 mtpa to 400,000 mtpa. This new
Market Price (Rs. ) Sensex
capacity will be operational by end of year June 2011. JSL is thus well
192.85 16210
52 Wk H / L Bloomberg Code
poised to capture emerging opportunities.
Rs. 993.5/135 JSAW IN
Mkt Cap ( Rs. mn ) Shares O/S ( mn )
52766.56 274
Diversified portfolio to mitigate risk : JSL along with being a
BSE CODE NSE CODE leader in the LSAW segment has variety of pipes having wide application
500378 JINDALSAW under its portfolio. Overall JSL's product portfolio is diversified to auto,
12 Months Return Face Value power, water and sewage, and oil and gas segment which mutually
280.00% Rs.10 balances the upturns and downturns in any of the segments.
SHAREHOLDING PATTERN
Strong order book : JSL's current order book stands at USD 700
mn as at October 16, 2009. Out of this USD 700 mn, 40% order book are
export orders and rests are domestic orders. We infer that effective
execution of strong order book will lead to revenue growth of 52% for
current year as compare to previous year. We believe JSL's order book to
grow at healthy rate on huge investments flowing in energy due to revival
in global economic condition as well as in water, power and auto
segments
KEY FUNDAMENTALS Seamless pipe – Installation of PQF mills at Nasik to

Sector Pipe Sector
reduce wastages : To stream line the process efficiency, JSL setup
Asset Class Mid cap Precision Quality Finish (PQF) mill at its Nasik plant. Along with it JSL
Fiscal Year 2008 2009-10E* 2011E 2012E also went for capacity expansion from 100,000 mtpa to 250,000 mtpa for
Sales ( Net) Rs. Mn 51611 76331 64864 83586 seamless pipe at an investment of USD 220 mn. Now after the new
EPS 66 28 30 39
technology is installed, JSL's Seamless pipe will qualify for more number
OPM (%) 20.97% 25.86% 26.84% 27.22%
P/E Ratio - 6.9 6.4 4.9
of projects across the globe.
PEG Ratio(x) - - - 0.16
Price/Sales 0.19 0.69 0.81 0.68 New Business prospect to grow exponentially
Price/Book Value 0.49 1.60 1.29 1.04
EV/EBITDA 3.73 4.97 4.41 3.29
Along with the existing pipe business, JSL is looking for new business
EV/Sales 0.53 0.92 1.01 0.77 opportunities in other part of infrastructure segment such as water and
LT Growth (CAGR) 17% waste water management, rail infrastructure, shipbuilding and shipyard,
* 15 months
Source: AFinancial
CChoksi data Research logistics and waste to power.
SENSEX VS JSL LTD Key Concerns
JSL JSL vs SENSEX SENSX
Slowdown in economy and investment in oil and gas sector can see fall in
250 20000 demand for product.
200 16000
Valuations and Recommendations
150 12000
As per our DCF valuation, we believe the intrinsic value estimate of JSL
100 8000
is Rs. 218 which is at a premium of 13% from the current market price.
50 JSL 4000 Currently, the company is trading at 6.61x our FY10 EPS estimates and
0
BSE_SENSEX
0
at 6.38x our FY11 EPS estimates. Hence, we recommend BUY on JSL
Aug-09
with a price target of Rs. 218.

Feb-09
Jun-09
Sep-09
Jan-09
Mar-09
May-09
Oct-09
Dec-09

A C Choksi
Company Overview
Jindal SAW Limited. (JSL) (Erstwhile SAW Pipes Ltd), part of the USD $ 12 billion
O.P. Jindal Group, started operation in the year 1984. The company manufactures
large diameter submerged arc welded pipes, spiral pipes and bends for energy
transportation sector. JSL is India' first company to manufacture submerged arc
welded pipes for oil & gas sector. It produces LSAW pipes, HSAW Pipes, ductile iron
Pipes and seamless pipes for hydrocarbon and water sector requirements. Its product
portfolio is diversified across end-user segments, such as energy transportation,
industrial application, water and sewage transportation. The products manufactured
find application in exploration of oil and gas, transportation of fluids, water
infrastructure projects, boilers and heat exchangers, automotive and bearing industry.
Besides these, company also provides various value added products like pipe coatings,
bends and connector castings to its clients. The business operations of JSL are highly
structured with three strategic business units: Large Diameter Pipes (LSAW and
HSAW), Seamless Tubes, and DI (Ductile Iron) Pipes. The state-of-the-art
manufacturing facilities of the company are located at three places in India, Koshi
Kalan in UP, Nasik in Maharashtra and Mundra in Gujarat. JSL is reassured through
the ISO 9001, ISO 14001 and ISO 18001 certifications. The company is managed by
Mr. Prithvi Raj Jindal, Pioneer in production of SAW pipes for more than three
decades. The Company has investments worth more than USD 400 million in other
O P Jindal Group's listed entities. The Company's subsidiaries include Hexa
Securities & Finance Co. Ltd, Jindal ITF Ltd., IUP Jindal Metals & Alloys Ltd and
Highgate Consultants Ltd.
Product Profile

A C Choksi
Investment Rationale
Capacity addition to capitalize upcoming opportunities
JSL, largest producer of LSAW pipe has installed capacity of 1 mn mtpa at its plants
located at Koshi Kalan and Mundra. For HSAW pipe, the company has current
capacity of 400,000 mtpa at Mundra and Bellary. JSL has planned to expand the
JSL one of the largsest producer of
capacity by 100,000 mtpa taking its total capacity in HSAW segment to 500,000 mtpa
LSAW pipe
which is expected to be completed by December 2010. In the DI segment, JSL is
expanding its capacity from its current level of 200,000 mtpa to 400,000 mtpa. This
new capacity will be operational by end of year June 2011. JSL also has installed
capacity of 250,000 mtpa for seamless pipe which is remaining unchanged. JSL's
strategy to expand capacities for HSAW and DI pipes are mainly to capture upcoming
opportunities in respective segment.
Rise in demand for HSAW due to growing consumption of natural gas

and its transportation
HSAW being traditionally used for transportation of oil and gas and water under low
pressure condition finds application majorly in domestic market. Low penetration
National pipe grid planned by level of pipeline infrastructure in India with installed pipeline capacity of 7-7.5 mn
GAIL to boost India's pipeline tonne as compare to world average of 17 mn tonne capacity, gives country immense
capacity to 60,000 kms by year scope to expand most efficient and cheap mode of transportation for its energy
2011-12 requirements. HSAW is generally preferred for transportation of gas. As per world’s
energy outlook, natural gas and coal remain the most important fuels for electricity
generation, together accounting for 80% of the total increment in world
electricity generation from 2004 to 2030. The IEO estimates that the
consumption of natural gas will increase during 2004 to 2030 by almost 64%,
from 99.6 trillion cubic feet to 163.2 trillion cubic feet. Investment and
development of country's national pipe grid planned by GAIL Ltd and other pipeline
infrastructure project will boost India's pipeline capacity to 60,000 kms by year 2011-
12. Post expansion, JSL with its additional capacity will be well placed to take benefits
from ongoing expansion in domestic pipeline infrastructure, rise in demand for
HSAW due to growing consumption of natural gas and thus its transportation. We
believe with easy availability of HR coil required for HSAW pipe, the raw material
cost for it has been lower than LSAW pipe since years and hence has been preferred
option for the vendors unless requirement demands high pressure pipes where LSAW
is the only option.
JSL is doubling its capacity to take full benefits from foreseeing growing
demand for DI pipe for water transportation
DI pipes find application in water and sewerage transportation. Rise in population,
high standard of living and health consciousness has increased demand for safe water
and well established sewage system to drain out waste without affecting environment
and highly populated area. While total water resource availability remains constant,
per capita availability is declining due to steadily increase in population growth.
According to study by Asian Development Bank on Indian utilities, average water
supply in urban areas is ~4.3 hours/day.

A C Choksi
However, variance across different cities is substantial. It is pertinent to note here that
costs to consumers and utilities are lesser with 24-hour supply. Delivering ~123
litres/capita/day (average daily consumption per capita for urban areas) for one hour
requires larger pipes than delivering the same amount of water over 24 hours. With
ever increasing demand for water, setting up appropriate transportation
infrastructure in advance is necessity for the country to meet its water needs in urban,
industrial as well as agriculture segment. Cast iron pipe which was used traditionally is
being replaced by DI pipe for comparatively high durability has also triggered demand
for DI pipe for water transportation system. Foreseeing growing demand for DI pipe
for water transportation, JSL is doubling its capacity to take full benefits.
Existing Capacity

With downside in energy sector,
JSL’s diversified product
portfolio would offer flexibility Diversified Portfolio to mitigate risk
JSL along with being a leader in the LSAW segment has variety of pipes having wide
application under its portfolio. JSL's LSAW segment mainly caters to energy segment
in the world market with 100% of its production output is sold to countries like
Middle East, North America, and Africa etc. Recent meltdown in globe has seen fall in
demand for LSAW pipe. Thus with event of downside in the energy sector, JSL's
product portfolio offers flexibility in terms of target industry and application. JSL's
HSAW segment caters to energy as well as water transportation sector mainly to
domestic market. Indian energy and water transportation sector was among the least
affected sector during recession period. Thus demand for JSL's HSAW segment
balanced its stand reasonably. DI pipe finds application for transportation of water
and sewage system, which did not loose its momentum, rather propelled its expansion
plan. Seamless pipe however was affected by slowdown in oil and gas CAPEX as well
as downturn in auto sector. JSL's seamless pipe division meets demand from auto,
power and oil and gas segment. Auto and Power contributes 35-40% of revenue from
seamless division of JSL. Overall JSL's product portfolio is diversified to auto, power,
water and sewage, and oil and gas segment which mutually balances the upturns and
downturns in any of these segments.
Strong Order book

JSL's current order book stands at USD 700 mn as on October 16, 2009. Out of this
USD 700 mn, 40% order book are export orders and rest are domestic orders. The
major exports are in Middle East, Gulf region and South East Asia. Out of the total
order book, large diameter pipes constitutes 69%, and seamless and DI constitutes 3%
and 28% respectively.

A C Choksi
Generally large diameter pipes take 8-12months for execution and DI and seamless
pipe take 6 months. Current order book is expected to be implemented by end of
March 2010 completely. We infer that effective execution of strong order book will
lead to revenue growth of 52% for current year as compared to previous year. We
Effective execution of strong believe JSL's order book to grow at healthy rate on huge investments flowing in
order book will lead to revenue energy due to revival in global economic condition as well as in water, power and auto
growth of 52% for current year. segments. JSL with its expanded capacity will contribute to its top line and bottom
line growth.
Recently Jindal Saw also received various orders/ letter of intents aggregating to
more than Rs. 1100 crore for supply of large diameter welded pipes and Ductile iron
pipes. The orders mainly comprise of exports to middle- eastern market and carry
good margins.. These orders shall be executed in next 9-12 months time.
Seamless pipe – Installation of PQF mills at Nasik to reduce wastages

Seamless pipe division of JSL was operating at very low efficiency entailing 25%
wastages as compared to world average of less than 10%(+90% yield). This high
percentage of wastages resulted into low margin for the seamless pipe division. Thus
Installation of PQF mill to to stream line the process efficiency, JSL setup Precision Quality Finish (PQF) mill at
improve the yield and lead to its Nasik plant. Along with it JSL also went for capacity expansion from 100,000 mtpa
higher sales of seamless pipe to 250,000 mtpa for seamless pipe at an investment of USD 220 mn. The mill is
designed, manufactured and supplied by the German company SMS Meer, a leading
supplier of pipe rolling equipment. This installation has improve the yield by around
15% and lead to higher sales of seamless pipe. Earlier JSL faced more rejection in
international markets due to its poor quality seamless pipes. However now after the
new technology is installed, JSL's seamless pipe will qualify for more number of
projects across the globe. Thus new quality pipes will be able to command
comparatively higher realization than before leading to increase in margin of nearly
10%.
A C Choksi
New Business prospect to grow exponentially

Along with the existing pipe business, JSL is looking for new business opportunities in
other part of infrastructure segment such as water and waste water management, rail
infrastructure, shipbuilding and shipyard, logistics and waste to power. Drinking
New Business opportunity water was mainly the domain of Municipal Corporation before. The industry faced
entitling JSL’s future growth poor water management network due to leakage of pipe, theft, and low booster
trajectory. capacity mainly on account of poor financial condition. Thus government allowed
private sector participation realizing that 60% of water is non revenue water. JSL
perceived this business opportunity and arrived at strategic business model which was
not much capital intensive rather annuity based. It ventured into handling of water
management network to assure improved efficiency in channelizing safe water to
urban segment. Once being successful in managing current network, JSL may look for
other value added services under the same segment to enhance its presence in this new
segment. Further JSL saw potential in the industrial water management. The main
aim was to recycle the waste water from industrial cluster back to the industry, thus
reducing use of fresh water and pollution. It could be turned as a service model and JSL
currently has two projects and its overall investment is approximately Rs. 22cr to 30
cr.
Inland water transportation is another avenue ventured by JSL which is capital
intensive as the strategy evolves around running small ships to carry cargo on
reliability basis. JSL currently has seven ships at an investment of Rs. 300 cr. Waste to
Power management is another area where JSL saw good opportunity coming in.
Present Waste Management largely comprises of landfill, which leads to ground water
contamination, methane gas generation-green house gas emission. The wastage that is
disposed off has large calorific value which can generate energy, hence JSL has entered
into largest integrated waste to power project of 16 MW which has already achieved
financial closure and is expected to be an operational by next year. JSL is also looking
to enter into rail infrastructure and shipyard business for which 150 hectares of land
has been acquired.

A C Choksi

A C Choksi
Jindal SAW Ltd has already announced an investment of Rs 2,700 crore over the next
three to five years on the 116-acre Karjan facility, which will be available to Indian
Railways and other private sectors, and have the capacity to manufacture 3,000
wagons a year. Jindal has five other manufacturing units in Kutch, but this will be its
first rail coach-manufacturing unit. The first phase investment would be Rs 157 crore,
of which 30 per cent would be equity contribution. The factory will manufacture
Open Type Freight Wagons for Coal and Iron Ore, Container Flat Wagons (BLC),
and Covered (BCN) Wagons for cement and food grain among others. The factory, in
its second phase, will be expanded to manufacture Electric and Diesel Multiple Units
for the suburban railway.
Latest Quarter Result
Particulars (in Rs. Mn) Q3FY10 Q3CY08 Var (%) 9MFY10 9MCY08 Var (%)
Sales 14086.80 15197.20 -7% 44,247.80 35783.30 24%
Excise Duty 358.30 333.10 8% 854.70 1206.00 -29%
Net Sales 13728.50 14864.10 -8% 43,393.10 34577.30 25%
Other Income 10.70 22.70 -53% 20.70 55.80 -63%
Total Income 13739.20 14886.80 -8% 43,413.80 34633.10 25%
Total expenditure 11177.70 12868.70 -13% 36,589.40 29486.60 24%
PBIDTA 2561.50 2018.10 27% 6,824.40 5146.50 33%
Interest 365.70 547.30 -33% 1,118.10 1295.40 -14%
Depreciation 264.60 177.60 49% 680.70 484.40 41%
PBT 1931.20 1293.20 49% 5,025.60 3366.70 49%
Tax 466.90 292.40 60% 1,222.90 809.90 51%
PAT 1464.30 1000.80 46% 3,802.70 2556.80 49%
EPS* 26.76 19.20 39% 69.42 49.06 42%
Source : Company Data, A C Choksi Research; *not adjusted for Stock split
JSL's net sales has decreased by 7% from Rs. 15197.2 mn in 3rd quarter CY08 to Rs.
14086 mn in 3rd quarter FY10. Fall in net sales was result of delay in shipment of
15000 tonnes seamless pipe order which will be accounted in next quarter. However
JSL has seen 27% jump in EBIDTA due to low raw material cost. EBIDTA has
increased to Rs. 2561.5 mn in Q3 FY10 from Rs. 2018.1mn in Q3 CY08. JSL's Net
Profit has increased by 46% to Rs. 1464.3mn in Q3 FY10 against Rs. 1000 mn in Q3
CY08 on account of fall in interest cost by 33%. For 9M FY10, Net Sales has shown
jump of 24% to Rs. 44247 mn and Net Profit has shown jump of 49% to Rs. 3802 mn
against Net Sales of Rs. 35783.3 mn and Net Profit of Rs. 2556.8 mn in 9M CY08.
Blended EBITDA per Tonne for Q3 FY10 is app. Rs 15,040 (app. US$ 313 /MT) of
total pipes sold which is higher as against blended EBITDA per Tonne of Rs 12,517
(app. US$ 260) for Q2 FY10, Rs 8,934 (app. US$ 186) for Q3 CY08. The realizations of
Seamless Pipe during the quarter stood at US$ 2471 per tonne as compared to US$
1597 per tonne during the corresponding period last year indicating a rise of 54.7% on
back of commencement of seamless expansion plans including PQF mill.
Key Concern
Slowdown in economy and investment in oil and gas sector can see fall in
demand for product.

A C Choksi
Share Brokers Private Limited.
Standalone Financials
Income Statement
Income Statement (in Rs. mn.) 2008 2009-10E 2011E 2012E

Sales Turnover 51611 76331 64864 83586
Indirect tax 1579 3053 2595 3343
Sales (Net) 50032 73277 62269 80242
Other Income 101 50 56 63
Total Income 50133 73328 62326 80305
Total Expenditure 43024 59824 48049 61612
Operating profit 10490 18950 16711 21840
EBITDA 7108 13504 14277 18693
Interest 1758 1822 1420 1075
Depreciation & Amortization 706 1298 1723 1962
Earnings Before Taxes 4644 10385 11133 15656
Current Taxes 1221 2700 2895 4071
Net Income After Taxes 3423 7685 8238 11586
Extraordinary Items 22 0 0 0
PAT 3445 7685 8238 11586
Earnings Per Share (Rs)* 66 28 30 39
Shares Outstanding (Diluted)(mn) 52 274 274 293
Source : Company Data, A C Choksi Research; 2009-10is 15month result; *adjusted for Stock split

A C Choksi
Balance Sheet
Balance Sheet ( in Rs. mn) 2008 2009-10E 2011E 2012E

Cash 1408 361 1664 4186
Receivables 11886 19852 19619 27260
Inventories 16430 14724 16207 21764
Loans and Advances 4169 4302 4607 4178
Total Current Assets 33893 39238 42097 57388
Gross Fixed Assets 14687 22390 26851 29209
Less:Depreciation 3834 5132 6856 8818
Net Fixed Assets 10853 17258 19996 20392
Capital WIP 8005 3801 2340 1182
Investments 2153 2153 2584 3617
Foreign currency translation A/C 0 0 0 0
Misc Exp 0 0 0 0
Total Assets 54904 62451 67017 82579
Current Liabilities 13135 12155 12506 17049

Provisions 790 790 790 790
Current Liab & Provns 13925 12946 13296 17839
Total Debt 16366 15181 11528 8651
Shareholders' Equity 1734 1547 1547 1587
Reserves 21773 31671 39539 53396
Deferred Tax Liability 1106 1106 1106 1106
Minority Interest 0 0 0 0
Total Liabilities and Equity 54904 62451 67017 82579
Capital Employed 39873 48399 52615 63634
Source : Company Data, A C Choksi Research, 2009-10 is 15 month result

A C Choksi
Cash Flow Statement

Cash Flow ( in Rs. mn ) 2008 2009-10E 2011E 2012E
Cash flow from operating Activities
Net profit before taxation, and after prior period &
extraordinary item 4644 10781 11170 15693
Add :
Depreciation 706 1298 1723 1962
Miscellaneous Expenditure 1142 0 0 0
Interest 1636 1822 1383 1038
Operating Profit before working Capital Changes 8127 13901 14277 18693
(Increase) / Decrease in Inventories -4774 1706 -1484 -5557

(Increase) / Decrease in Debtors -936 -7966 233 -7641
(Increase) / Decrease in Other Current Assets -590 -133 -305 429
Increase / (Decrease) in Trade Payables 4012 -979 351 4543
Change in Working Capital -2288 -7372 -1205 -8226
Cash Generated from Operating Activities after working capital
changes 5840 6529 13072 10467
Tax Paid -1752 -2803 -2904 -4080
Net Cash flow from operating activities 4088 3726 10167 6387
Cash flow from Investing activites
Purchase of Fixed Assets -5773 -7703 -4461 -2358
Purchase of Investments including investment in subsidiaries -850 0 -431 -1034
Change in Capital work in Progress 0 4203 1461 1158
Net Cash flow from Investing activites -6623 -3500 -3431 -2234
Cash flow from Financing activities
Proceeds from Share Capital 0 2129 0 2681
Interest -1870 -1822 -1383 -1038
Proceeds from Secure borrowings - Net -1033 1051 -1318 771
Proceeds from unSecure term borrowings - Net 4620 -2236 -2335 -3648
Dividend payment -469 -397 -397 -397
Deferred Tax Liability 0 0 0 0
Net Cash flow from Financing activities 1249 -1274 -5433 -1631
Net Increase in Cash and Cash equivalents -1287 -1048 1304 2522
Cash and Cash equivalents at the Beginning of period 2695 1408 361 1664
Cash and Cash equivalents at the End of period 1408 361 1664 4186
Source : Company Data,A C Choksi Research , 2009-10 is 15 month result

A C Choksi
Ratio Analysis
Ratios 2008 2009-10E 2011E 2012E

GROWTHPOTENTIAL
Inventory Turnover 3.56 4.84 4.03 4.23
Inventory Turnover - Days 102.45 94.16 90.65 86.36
A/RTurnover 4.38 4.75 3.16 3.42
A/RTurnover - Days 83.25 95.92 115.68 106.62
Creditors Turnover 3.28 5.07 3.84 3.61
Creditors Turnover - Days 111.43 90.00 95.00 101.00
Gross Fixed Asset Turnover 3.41 3.37 2.32 2.75
Net Fixed Asset Turnover 4.61 4.37 3.11 3.94
Payout Ratio 10% 4% 4% 3%
Working Capital - days 74.27 100.08 111.33 91.98
PROFITABILITY 2008 2009-10E 2011E 2012E

Gross Margin 14% 18% 23% 23%
Net Sales Growth -26% 51% -17% 29%
Net Income Growth(PAT) -61% 132% 4% 40%
EBIDTA Growth -14% 96% 3% 31%
Operating Margin 21% 26% 27% 27%
Pretax Margin 9% 14% 18% 20%
Eff Tax Rate 22% 26% 26% 26%
PAT Margin 7% 11% 13% 14%
Return on Assets 8% 16% 15% 18%
Return on Equity 15% 25% 21% 22%
Return on Capital Employed (ROCE) 16% 26% 24% 26%
ROE DECOMPOSITION 2008 2009-10E 2011E 2012E

Interest Burden (Interest Coverage) 3.6 6.9 9.1 16.1
EBIT Margin % 13% 17% 20% 21%
Asset Turnover 1.2 1.5 1.2 1.2

A C Choksi
DEBT FACTORS 2008 2009-10E 2011E 2012E

Debt to Assets(%) 40% 31% 22% 14%
Debt/Equity 0.73 0.48 0.30 0.17
ST & LT Debt to EBITDA (Debt Service ratio) 2.30 1.12 0.83 0.48
Common Equity to Assets 60% 69% 78% 86%
Common Equity to Total Capital 57% 67% 76% 84%
Total Debt to Total Capital(Gearing Ratio) 43% 33% 24% 16%
PERSHARE DATA* 2008 2009-10E 2011E 2012E

Sales per share 959.88 267.81 227.58 273.42
Operating Income per share 201.26 69.26 61.08 74.42
Pretax Income per share 89.10 37.95 40.69 53.35
Basic EPS 66.10 28.09 30.11 39.48
P/BV 0.49 1.60 1.29 1.04
Book Value per share 450.99 120.33 148.99 186.17
Cash per Share 68.33 10.91 15.47 26.45
P/E 3.35 6.87 6.40 4.89
DPS 6.51 1.24 1.24 1.16
ENTERPRISE VALUE 2008 2009-10E 2011E 2012E

Market Cap (in Rs. Mn) 11550.43 52766.56 52766.56 56595.86
Enterprise Value (in Rs. Mn) 26507.94 67115.52 62951.29 61408.94
Market Cap/ Sales 0.23 0.72 0.85 0.71
EV to Sales 0.53 0.92 1.01 0.77
EV to EBITDA 3.73 4.97 4.41 3.29
EV to EBIT 4.14 5.50 5.01 3.67
EV to Net Income 7.69 8.73 7.64 5.30
EV to Book Value 1.13 2.04 1.54 1.12
EV to Market Cap 2.29 1.27 1.19 1.09
Source : Company Data,A C Choksi Research, 2009-10is 15month result, *adjusted for Stock split

A C Choksi
Valuation
DCF Analysis (in Rs. Mn) 2009

WACC 9%
Growth 2%
Residual Value 79814.47

PV of residual value 61631.41
Cum. PV of Cash Flows and Residual Value 69483.05
Cash 1408.15
Investments 2153.15
Corporate value 73044.36
Debt 16365.66
Shareholder value 56678.70
no.of shares 260.61
Target Price 217.48
CMP 192.85
% POTENTIAL UPSIDE 13%
Source : Company Data,A C Choksi Research
Valuation and Recommendation

As per our DCF valuation, we believe the intrinsic value estimate of JSL is Rs. 218 which is at a premium of 13%
from the current market price. Currently, the company is trading at 6.61x of our FY10 EPS estimates and at 6.38x of
our FY11 EPS estimates. Hence, we recommend BUY on JSL with a price target of Rs. 218.

A C Choksi
TECHNICAL VIEW OF JINDAL SAW LTD.
The current up move started from Rs. 27dated march'09 2009 to Rs. 198.70 dated dec'12 2009 is ripe for
correction. Technical indicators are in highly overbought zone and suggest a consolidation in the scrip
before it starts its upward journey.
On the upper side the scrip faces strong resistance at Rs 212 price level. On the downside correction is
expected to continue and it can come down to Rs. 167 level and strong support is placed at Rs150 level. In the
medium term that is six to twelve months target is placed at Rs. 292 level. To sum up
BUY ON DECLINES
SHORT TERM SUPPORT : 167 – 150

SHORT TERM TARGET : 212
MEDIUM TERM TARGET:292
Mehul Jhaveri
Technical Analyst

A C Choksi PSL LTD
Share Brokers Private Limited. Single technology focus
Nurturing Wealth, Nurturing your future to propel growth
Reco Price : Rs. 178 Target Price : Rs. 203 BUY

Email : vinisha@acchoksi.com With the backdrop of single product strategy and largest player in
Amit Nisar - Research Analyst the HSAW segment shaping up its growth path, we believe PSL is
well placed in terms of its experience in this technology and with
its first mover advantage to make the most of the moving
Mehul Jhaveri - Technical Analyst advantage in the offing
COMPANY SNAPSHOT
Market Price (Rs. ) Sensex PSL Leader in HSAW technology : The company has been pioneer in
177.75 16210 technology and with early mover advantage it has been able to build up a
52 Wk H / L Bloomberg Code capacity of approx.1475000 tonnes currently . PSL is in process to add
Rs.188/59.5 PSLL IN further capacity to the tune of 350000 tons at its Vizag plant thus taking
Mkt Cap ( Rs. mn ) Shares O/S ( mn )
its total capacity to 17750000 tons by March 2010. The company firmly
9502.52 53.46
BSE CODE NSE CODE
believes in the HSAW technology as compared to LSAW especially on
526801 PSL the robust demand emerging from domestic market, its flexibility in
12 Months Return Face Value terms of raw material requirement as well as the size of the pipe that can
98.70% Rs.10 be manufactured from the same.
SHAREHOLDING PATTERN
Locational advantage : Transporation of pipelines is one of the most
Foreign
16%
crucial element in the pipe sector. PSL is well placed across the country to
Public &
Others
take full benefits from the same. The company has 13 HSAW plants
10%
Institutions spread across the world, out of which 11 plants are in India and the
23%
balance in USA and UAE.
Strong order book : As on 24th August,2009 company has aprox Rs

Non 52bn order under execution. This comprise of around Rs. 16 bn under
Promoters Promoter
39% Corporate Oil sector, Rs 32 bn under gas segment, around Rs. 4 bn under water
12%
segment and Rs. 2 bn are other projects. The robust order book
KEY FUNDAMENTALS determines a strong order book to sales ratio of 1.5x against 1.2x of
Sector Pipe Sector Welspun Gujurat and 0.7x of Jindal Saw.
Asset Class Mid cap
Fiscal Year 2009 2010E 2011E 2012E Capex plan to drive future growth : Keeping in mind the growing
Sales ( Net) Rs. Mn 36489 35155 33020 37753 demand and quantum of projects coming up in the oil and gas as well as
EPS 22 19 21 24
water segments mainly domestically, PSL has further gone in for capacity
OPM (%) 12.90% 13.90% 16.33% 15.75%
P/E Ratio - 9.4 8.6 7.4
addition of 300,000 mtpa at its Vizag pipe mill. This capacity is expected
PEG Ratio(x) - - 0.92 0.48 to be operational by March 2010, enhancing PSL's total capacity to
Price/Sales 0.21 0.27 0.29 0.25 17,750,000 mtpa.
Price/Book Value 0.86 0.81 0.74 0.67
EV/EBITDA 4.92 5.62 4.69 4.26
EV/Sales 0.46 0.56 0.58 0.50
LT Growth (CAGR) 1% Key Concerns
Source : Company, A C Choksi Research. Slowdown in economy and investment in oil and gas sector can see fall in
SENSEX VS PSL LTD demand for product.
PSL SENSE
PSL vs SENSEX
200 20000
180
160 16000
Valuations and Recommendations
140
120 12000 As per our DCF valuation, we believe the intrinsic value estimate
100
80 8000
of PSL is Rs. 203 which is at a premium of 14% from the current
60
40 PSL 4000
market price. Currently, the company is trading at 9.39x our
20 BSE_SENSEX FY10 EPS estimates and at 8.59x our FY11 EPS estimates. Hence,
0 0
we recommend BUY on PSL with a price target of Rs.203.
Apr-09
Aug-09
Feb-09
Jun-09
Sep-09
Nov-09
Jan-09
Mar-09
May-09
Jul-09
Oct-09
Dec-09
Jan-10

A C Choksi
Company Overview
PSL Limited (PSL) is the largest manufacturer of high-grade large diameter Helical
Submerged Arc Welded (HSAW) pipes in India, which was incorporated on August
1987 as a Private Limited Company. PSL is India's largest manufacturer of high-grade
large diameter (18-120 inches) Helical Submerged Arc Welded (HSAW) pipes for oil,
gas and water transmission as well as structural and piling applications for the onshore
and offshore sectors. PSL also exports large diameter pipes to neighboring countries.
With 13 pipe mills at multiple and strategically coast-based locations in Kandla,
Chennai, Visakhapatnam, Ahmedabad, and Jaipur along with the recently
commissioned Sharjah and USA unit the company producing pipes, accounts annual
capacity of 1,475,000 MT per year. Other business segments that PSL caters to,
include pipes coating, induction pipe bending and sacrificial anode manufacturing,
rebar coating, modular furniture and structural building fabrication. The company is
also involved into turnkey projects. Late Mr. Y.P. Punj, Chairman PSL Ltd, had been
at the helm of affairs of many companies for almost five decades. Mr. Punj's rich and
varied experience guided PSL on path of success ever since its inception. To better
address the needs of the rapidly growing market for SAW pipes and to improve its cost
competitiveness, PSL is expanding its installed current capacity by 300,000 mtpa to
total install capacity of 1,775,000 mtpa.
Product Profile

A C Choksi
PSL Leader in HSAW technology
PSL with huge capacity in PSL is the leader in the HSAW technology across sector. The company has been
HSAW segment will ride high pioneer in the technology and with the early mover advantage it has been able to build
on new upcoming project from up a capacity of approx.1475000 tonness currently . PSL is in process to add further
GAIL as well as emerging water capacity to the tune of 300000 tons at its Vizag plant thus taking its total capacity to
infrastructure demand. 1775000 tons by March 2010. The company firmly believes in the HSAW technology
as compared to LSAW especially on the robust demand emerging from domestic
market, its flexibility in terms of raw material requirement as well as the size of the
pipe that can be manufactured from the same.
Domestic demand of HSAW pipes from oil and gas as well as water segment is the
major driver behind its single product strategy. Large domestic gas discoveries by
major players like Reliance, Cairn India, GSPC,GAIL have opened up new pipeline
demand to carry the output from the discovery field to their respective destination.
With relatively underdeveloped pipeline infrastructure in domestic market and
increasing demand for natural gas will lead to rapid growth and improvement in the
existing pipeline network. The new upcoming project from GAIL of 2016 kms by
Phase I( Year 2011) and 4530 km by Phase II( Year 2012) has laid strong driver to boost
the demand further. Apart from the gas transportation, water infrastructure is
another avenue throwing immense opportunities for pipelines on the domestic front.
The government is taking several initiatives to improvise poor water infrastructure
existing across the country.In the crude oil segment, demand for pipeline will be
robust to support the new refinery capacities coming up by the end of Eleventh Five
Year Plans.
PSL with its huge capacity, in house design and engineering capabilities has
successfully implemented pipes of various diameters. Due to varying diameter range
pipes PSL has utilization level at an average rate of 30%.Though the company has
lower utilization level as compared to other industry players, it has the expertise and
proven track record to manufacture pipes with diameter ranging from 10'to 120' used
for various applications. With most of the capacities in the steel industry coming in
HR Coils strengthened the foundation of PSL giving it wide base for raw material
suppliers. PSL thus specialized in the segment with a strategy that was later on
followed by all the industry players.

A C Choksi
Recently Executed Orders
OIL & GAS
Water

A C Choksi

Others

Locational Advantage
Transporation of pipelines is one of the most crucial element in the pipe sector. It
PSL’s locational Advantage to could be one of the most important deciding factor for any pipe manufacturer to bid
save transportation cost and for the projects according to the location of its requirements. The vendor closer to the
enhance better reach to point of supply will surely be in a reasonably good position to give a better quote than
customers. the rest of the bidders and at the same time will also be able to protect its margins. PSL
is well placed across the country to take full benefits from the same. The company has
13 HSAW plants spread across the world, out of which 11 plants are in India and the
balance in USA and UAE.

Existing plant locations of PSL gives it advantage of virtually being present at all the
regions across the country. Thus PSL has edge over its other peers who are mostly
concentrated in the western part of the country. PSL caters to the northern region
mainly through its plant at Jaipur and southern region through its Vizag and Chennai
mill. In the eastern region, it virtually has a strong foothold through its closest pipe
mill at Vizag. Since there are no players including PSL who have direct presence in the
region, PSL being the closest, faces low competition as transportation of pipes from
distant places by other players would become a highly costly transaction and dent
their margins. This could be one of the major differentiator factor for PSL to be a
strong bidder to bag new pipelines proposed by GAIL at the southern and eastern
regions totaling to projects worth Rs.1410 mn.

A C Choksi

All the major players are present in the western region giving immense competition to
each other making it difficult to bid for the projects with healthy margins. Inspite PSL
is well equipped with 7 pipe mills with a total capacity of 800000 tonnes to face the
competition fiercely. However the players are enhancing their capacities in the same
region making it difficult for one player to rule the market in this region. Thus
GAIL's new proposed pipeline projects especially the Dahej Vijaypur, one of the
largest project worth Rs.1100 mn is likely to invite highly competitive bids leading to
pressure on margins. Other two proposed project in north region are likely to have
low competition for PSL.

A C Choksi
Order Book
As on 24th August,2009 company has aprox Rs 52bn order under execution. This
comprise of around Rs. 16 bn under Oil sector, Rs 31 bn under gas segment, around
Rs. 4 bn under water segment and Rs. 2 bn are other projects. The robust order book
determines a strong order book to sales ratio of 1.5x against 1.2x of Welspun Gujurat
and 0.7x of Jindal Saw. Being into specific product line PSL has maintained its
leadership in the HSAW segment on the back of highest order book as compared to its
peers. Going forward we believe the order book of PSL will continue to grow as more
and more projects are expected and announced to support development and growth in
the oil and gas as well as water segment. GAIL has recently announced its plan to
double its current capacity by next 3-4 years. It is planning to add around 6000 kms to
its existing pipeline network of 7000 kms which are worth Rs.180 bn.

Upcoming Projects from GAIL Length(Kms)
Kolkota - Jagdishpur 887
Kakinada- Chennai 584
Uran-Hyderabad-Kakinada 955
Bangalore-Chennai 300
Kochi-Kayamakulam-Bangalore 927
Dabhol - Bangalore 700
Panvel- Dhabhol 187
Kota-Mathania 301
Vijaipur-Kota 245
Dadri-Bhatinda 427
Dahej-Vijaipur 610
Dahej-Hazira-Uran 504
Thulendi - Phulpur 139
Dadri - Panipat 114
A C Choksi
The new installation of 6000 kms alone from GAIL will require tonnage of around
4.5-5 mn tones of pipes p.a. Other projects in same segment from players other than
GAIL, upcoming refineries in India and development under water and waste
management may increase per annum requirements. With huge Installed capacity,
PSL has an ability to take up these projects. However these new projects may not be
necessarily require HSAW pipe but large portion of it may require, especially in gas
based projects. Although there are other players who are present in same segment,
PSL with its highest capacity has an edge against them. We believe being specialized in
HSAW technology and high capacity, PSL will continue to bag orders from new
projects in sector.

PSL has also announced new order inflow of worth Rs. 4.25bn for supply of 112000
tonnes of HSAW pipe from L&T and Nagarjuna Construction Ltd in early January.
This order was result of its strategic location spread across the India.

A C Choksi
Capex plan to drive future growth

Keeping in mind the growing demand and quantum of projects coming up in the oil
and gas as well as water segments mainly domestically, PSL has further gone in for
capacity addition of 300,000 mtpa at its vizag pipe mill. This capacity is expected to be
operational by March 2010, enhancing PSL's total capacity to 17,750,000 mtpa.
However the additional capacity will not only add to the tonnage but also expand its
reach mainly in the Eastern region where PSL is currently sole supplier through its
pipeline located at vizag. To fund this expansion together with its plans to invest in its
overseas subsidiary PSL has recently raised Rs. 146 mn through its QIP issue. Funds
will be used for Procurement of capacity enhancing equipments, balancing
equipments and quality enhancing equipments for various plants of PSL strategically
located in Chennai, Varsana, Vizag, Mahudi etc. so as to prepare them for production
of high pressure gas pipes.
Latest Quarter Result
Particulars (in Rs. Mn) Q2FY10 Q2FY09 Var (%) H1FY10 H1FY09 Var (%)
Sales 6062.20 6612.90 -8% 12395.00 13201.50 -6%
Excise Duty 0.00 0.00 - 0.00 0.00 -
Net Sales 6062.20 6612.90 -8% 12395.00 13201.50 -6%
Other Income 0.00 0.00 - 0.00 0.00 -
Total Income 6062.20 6612.90 -8% 12395.00 13201.50 -6%
Total expenditure 5377.30 5950.40 -10% 10967.00 11878.90 -8%
EBIDTA 684.90 662.50 3% 1428.00 1322.60 8%
Interest 185.80 204.00 -9% 416.10 330.50 26%
Depreciation 180.90 136.40 33% 361.20 281.60 28%
EBT 318.20 322.10 -1% 650.70 710.50 -8%
Tax 102.40 106.00 -3% 209.40 234.00 -11%
Net Profit 215.80 216.10 -0.14% 441.30 476.50 -7%
EPS 4.12 5.08 -19% 8.43 11.19 -25%
For Q2 FY10, PSL have reported Net Sales Rs. 6062.2 mn against Rs. 6612.90 mn in
Q2 FY09 marginaly lower than corresponding quarter of previous year. However
EBIDTA has seen growth of 3% due to low raw material cost. EBIDTA has inceased
to Rs. 684.9 mn in Q2 FY10 from Rs. 662.5 mn in Q2 FY09. The company has
enhanced its operating margin to 11.3% from 10% in the corresponding quarter of last
year. PSL's Net Profit was down by nearly 1% to Rs. 215.8 mn in Q2 FY10 against Rs.
216.1 mn in Q2 FY09 due to high depreciation cost. For H1 FY10, Net Sales was
down by 6% to Rs. 12395.0 mn and Net Profit by 7% to Rs. 441.3 mn against Net Sales
of Rs. 13201.5 mn and Net Profit of Rs. 476.5 mn in H1 FY09.
Key Concern
Slowdown in economy and investment in oil and gas sector can see fall in demand for
product.

A C Choksi
Consolidated Financials
Income Statement
Income Statement (in Rs. mn.) 2008 2009 2010E 2011E 2012E
Sales Turnover 22931 36489 35155 33020 37753
Indirect tax 1749 3294 2812 2642 3020
Sales (Net) 21182 33195 32343 30379 34733
Other Income 0 0 0 0 0
Total Income 21182 33195 32343 30379 34733
Total Expenditure 18811 30094 29140 26633 30652
Operating profit 3303 4283 4497 4961 5470
EBITDA 2371 3101 3203 3746 4081
Interest 579 1027 1119 1316 1432
Depreciation & Amortization 539 688 724 942 930
Earnings Before Taxes 1253 1385 1361 1488 1719
Current Taxes 409 437 340 372 430
Net Income After Taxes 844 948 1020 1116 1289
Extraordinary Items 0 0 0 0 0
PAT 844 948 1020 1116 1289
Earnings Per Share (Rs) 20 22 19 21 24
Shares Outstanding (Diluted)(mn) 43 43 54 54 54

A C Choksi
Balance Sheet
Balance Sheet ( in Rs. mn) 2008 2009 2010E 2011E 2012E

Cash 4005 2133 2981 4238 6034
Receivables 3460 5430 5760 5660 6756
Inventories 7436 34800 20252 17366 15282
Loans and Advances 2070 5539 3258 3745 4520
Total Current Assets 16971 47901 32251 31009 32593
Gross Fixed Assets 7827 12720 16232 18035 19156
Less:Depriciation 2747 3478 4201 5144 6074
Net Fixed Assets 5081 9243 12030 12891 13083
Capital WIP 1311 3731 1719 916 595
Investments 43 43 43 43 43
Foreign currency translation A/C 0 0 0 0 0
Misc Exp 167 0 0 0 0
Total Assets 23572 60917 46043 44859 46313
Current Liabilities 7686 41781 22503 19623 18412

Provisions 679 682 682 682 682
Current Liab & Provns 8365 42463 23184 20305 19094
Total Debt 9317 11423 13435 14264 15888
Shareholders' Equity 426 426 539 539 539
Reserves 5271 6480 8758 9625 10665
Deferred Tax Liability 16 -147 -147 -147 -147
Minority Interest 178 273 273 273 273
Total Liabilities and Equity 23572 60917 46043 44859 46313
Capital Employed 15014 18328 22733 24428 27093
Source : Company Data, A C Choksi Research

A C Choksi
Cash Flow Statement
Cash Flow ( in Rs. mn ) 2008 2009 2010E 2011E 2012E

extraordinary item 1253 1385 1361 1488 1719
Add :
Depreciation 539 688 724 942 930
Miscellaneous Expenditure 0 0 0 0 0
Interest 579 1027 1119 1316 1432
Operating Profit before working Capital Changes 2371 3100 3203 3746 4081
(Increase) / Decrease in Inventories -1211 -27364 14548 2886 2084

(Increase) / Decrease in Debtors -1303 -1970 -330 100 -1097
(Increase) / Decrease in Other Current Assets -1024 -3170 2281 -487 -775
Increase / (Decrease) in Trade Payables 2514 34134 -19278 -2880 -1210
Change in Working Capital -1023 1630 -2780 -381 -998
Cash Generated from Operating Activities after working
capital changes 1347 4730 423 3365 3083
Tax Paid -252 -390 -340 -372 -430
Net Cash flow from operating activities 1095 4340 83 2993 2653
Purchase of Fixed Assets -1799 -7312 -3511 -1803 -1121
Purchase of Investments including investment in
-18 0 0 0 0
subsidiaries
Change in Capital work in Progress 0 0 2011 803 321
Net Cash flow from Investing activites -1816 -7312 -1500 -1000 -800
Proceeds from Share Capital 1677 0 1620 0 0
Interest -579 -1027 -1119 -1316 -1432
Proceeds from Secure borrowings - Net 2619 2376 2140 829 1624
Proceeds from unSecure term borrowings - Net 0 0 -127 0 0
Dividend payment -254 -249 -249 -249 -249
Deffered Tax Liability 0 0 0 0 0
Net Cash flow from Financing activities 3463 1100 2265 -736 -57
Net Increase in Cash and Cash equivalents 2742 -1872 849 1257 1796
Cash and Cash equivalents at the Beginning of period 1263 4005 2133 2981 4238
Cash and Cash equivalents at the End of period 4005 2133 2981 4238 6034

A C Choksi
RATIO ANALYSIS
Ratios 2008 2009 2010E 2011E 2012E

GROWTH POTENTIAL
Inventory Turnover 2.22 1.57 1.60 1.75 2.27
Inventory Turnover - Days 164.50 232.21 228.56 208.66 160.60
A/R Turnover 6.12 6.11 5.62 5.37 5.14
A/R Turnover - Days 59.62 59.71 65.00 68.00 71.00
Creditors Turnover 2.31 1.22 1.29 1.36 1.66
Creditors Turnover - Days 157.91 299.98 281.87 268.93 219.25
Gross Fixed Asset Turnover 2.21 3.23 2.23 1.77 1.87
Net Fixed Asset Turnover 3.21 4.64 3.04 2.44 2.67
Payout Ratio 26% 22% 21% 19% 17%
Working Capital - days -8.07 11.69 7.72 12.35 0.00
PROFITABILITY 2008 2009 2010E 2011E 2012E

Gross Margin 11% 9% 10% 12% 12%
Net Sales Growth -69% 57% -3% -6% 14%
Net Income Growth(PAT) -90% 12% 8% 9% 16%
EBIDTA Growth -71% 31% 3% 17% 9%
Operating Margin 16% 13% 14% 16% 16%
Pretax Margin 6% 4% 4% 5% 5%
Eff Tax Rate 31% 32% 25% 25% 25%
PAT Margin 4% 3% 3% 4% 4%
Return on Assets 6% 5% 4% 5% 5%
Return on Equity 15% 14% 11% 11% 12%
Return on Capital Employed (ROCE) 12% 13% 11% 11% 12%
ROE DECOMPOSITION 2008 2009 2010E 2011E 2012E

Interest Burden (Interest Coverage) 3.2 2.3 2.2 2.1 2.2
EBIT Margin % 9% 7% 8% 9% 9%
Asset Turnover 0.9 2.0 1.6 1.3 1.3

A C Choksi
DEBT FACTORS 2008 2009 2010E 2011E 2012E

Debt to Assets(%) 61% 62% 59% 58% 58%
Debt/Equity 1.6 1.7 1.4 1.4 1.4
ST & LT Debt to EBITDA (Debt Service ratio) 4.4 3.3 3.9 3.7 3.7
Common Equity to Assets 0.4 3.3 3.9 3.7 3.7
Common Equity to Total Capital 39% 38% 41% 42% 42%
Total Debt to Total Capital(Gearing Ratio) 37% 37% 41% 41% 41%
PER SHARE DATA 2008 2009 2010E 2011E 2012E

Sales per share 497.44 779.55 599.95 563.51 644.28
Operating Income per share 77.56 100.58 83.41 92.03 101.47
Pretax Income per share 29.42 32.53 25.24 27.60 31.88
Basic EPS 19.82 22.27 18.93 20.70 23.91
P/BV 1.05 0.86 0.81 0.74 0.67
Book Value per share 133.79 162.17 172.46 188.54 207.84
Cash per Share 95.06 51.08 56.09 79.41 112.73
P/E 7.06 6.29 7.40 6.76 5.85
DPS 5.24 5.00 3.95 3.95 3.95
ENTERPRISE VALUE 2008 2009 2010E 2011E 2012E

Market Cap (in Rs. Mn) 5961.38 5961.47 7547.31 7547.31 7547.31
Enterprise Value (in Rs. Mn) 11273.18 15251.83 18001.53 17573.18 17401.15
Market Cap/ Sales 0.28 0.18 0.23 0.25 0.22
EV to Sales 0.53 0.46 0.56 0.58 0.50
EV to EBITDA 4.75 4.92 5.62 4.69 4.26
EV to EBIT 6.16 6.32 7.26 6.27 5.52
EV to Net Income 13.36 16.08 17.64 15.75 13.50
EV to Book Value 1.98 2.21 1.94 1.73 1.55
EV to Market Cap 1.89 2.56 2.39 2.33 2.31

A C Choksi
Valuation
DCF Analysis 2009

WACC 10%
Growth 2%

Cash 2132.62
Investments 42.62
Debt 11422.98
no.of shares 42.58
Target Price 202.53
CMP 177.75
Valuation and Recommendation

As per our DCF valuation, we believe the intrinsic value estimate of PSL is Rs. 203 which is at a premium of 14% from
the current market price. Currently, the company is trading at 9.39x our FY10 EPS estimates and at 8.59x our FY11
EPS estimates. Hence, we recommend BUY on PSL with a price target of Rs.203.

A C Choksi
TECHNICAL VIEW OF PSL LIMITED.
Scrip is the new bull phase after making a bottom at Rs 126 dated 03 November'2009 and strong movement
is under way in coming weeks. Short and medium term technical indicators are positive suggesting strong
bull run in coming months and it will outperform the sector in terms of return on investment at current
level.
Short term target i.e in three months is Rs 240-Rs 262 price level. Medium term target for the scrip i.e six to
twelve months is Rs324 – 365 price level. Strong support to current bull run is placed at Rs160.
STRONG BUY RECOMMENDATION

SHORT TERM SUPPORT :160
SHORT TERM TARGET :240 – 262
MEDIUM TERM TARGET :324 - 365
Mehul Jhaveri
Technical Analyst

A C Choksi WELSPUN GUJARAT
Share Brokers Private Limited. STAHL ROHREN LTD
Nurturing Wealth, Nurturing your future Backward Integration
to Capture Growth
Reco Price : Rs.276 Target Price : Rs. 437 BUY

Email : vinisha@acchoksi.com WGSRL with its strong backward integration and accredition
Amit Nisar - Research Analyst among 50 oil and gas majors , the company is set to take benefit
of the immense opportunity across world markets.
Mehul Jhaveri - Technical Analyst India's largest and world's second largest pipe producer
WGSRL is the largest player in large diameter pipe segment in India with
COMPANY SNAPSHOT total installed capacity of 1500000 mtpa and tops the second position in
M arke t Price (Rs. ) Se nse x the world market. WGSRL has installed capacity of 350000 mtpa in
276.1 16210
LSAW segment, 900000 mtpa in HSAW segment which includes 350000
52 W k H / L Bloom be rg C ode
Rs.296.35/48.5 W G S IN
mtpa installed in US and 250000 mpta in ERW segment.
M kt C ap ( Rs. m n ) Share s O /S ( m n )
56280.22 203.84 Strong relationship with global clients
BSE C O DE N SE C O DE
WGSRL's major revenue around 80- 85% is accruing through export
532144 W ELG U J
12 M onths Re turn Face V alue
market and rest from domestic market. Out of total revenue, US account
132.60% Rs.5 for 60%, Africa 12% and rest from Middle East and South America. Being
strategic move to focus on US market, WGSRL has established strong
SHAREHOLDING PATTERN relationship with clients by cashing on the opportunity to locate closer to
Foreign customers who were facing supply challenges.
21%
Public &
Others
12% Institutions
11%
Backward integration by installation of plate mill – De
risking raw material requirement and enhancing margin
WGSRL has taken that initiative and build up API plate mill plant at
Non Anjar with Installed capacity of 1.5 mtpa. It has capacity to produce
Promoter
Corporate plates upto 4.5 meters wide and steel grade of X70 API grade. This will
12%
Promoters
44%
help WGSRL, from uncertainty in steel plate prices to some extend and
reduce risk of default from supplier of Steel plates after blocking deal
KEY FUNDAMENTALS with them before bidding. WGSRL fulfill 70% of its plates requirement
Sector Pipe Sector through this mill and balance it procure from international market
Asset Class Mid cap
Fiscal Year 2009 2010E 2011E 2012E Highest order book among its peer
Sales ( Net) Rs. Mn 57395 76590 96097 116506
WGSRL has total order book of Rs. 7800 cr. This is highest among the all
EPS 11 30 41 52
major Indian pipe manufacturer. Out of this total order book LSAW
OPM (%) 11% 17% 17% 17%
P/E Ratio - 9.1 6.8 5.3 pipe accounts for 16%, ERW pipe accounts for 2% and HSAW accounts
PEG Ratio(x) - - 0.21 0.19 for 71% including new order received recently in the HSAW segment of
Price/Sales 0.90 0.73 0.59 0.48 around 400,000 tonnage. Balance of the order book comprise of plate
Price/Book Value 3.30 2.61 1.91 1.42 segment contributing 7% and coating services account for 4%. Average
EV/EBITDA 10.49 5.81 4.58 3.49 execution period for order book is 12 – 15 month, hence ensuring clear
EV/Sales 1.19 1.02 0.78 0.59
revenue visibility for the same period.
LT Growth (CAGR) 27%
Source: A C Choksi Research Key Concerns
SENSEX VS Welspun Gujarat. Slowdown in economy and investment in oil and gas sector can see fall in
demand for product.
Welspun Guj. W elspun Guj. vs SENSEX SENSE
350 20000
300
18000
16000 Valuations and Recommendations
250 14000
200 12000
10000
As per our DCF valuation, we believe the intrinsic value estimate
150 8000 of WGSRL is Rs. 437 which is at a premium of 58% from the
100 6000
50
W e ls pun Guj. 4000 current market price. Currently, the company is trading at 9.06x
2000
0
BSE SENSEX
0 our FY10 EPS estimates and at 6.82x our FY11 EPS estimates.
Apr-09
Aug-09
Feb-09
Jun-09
Sep-09
Nov-09
Jan-09
Mar-09
May-09
Jul-09
Oct-09
Dec-09
Hence, we recommend strong BUY on WGSRL with a price

target of Rs. 437.
A C Choksi
Company Overview
Welspun Gujarat Stahl Rohren Ltd. (WGSRL), the flagship company of Welspun
Group is the 2nd Largest (Large Diameter) Pipe Producer in the World. WGSRL is
manufacturer of high grade line pipes-Submerged Arc Welded (both spiral and
longitudinal), branch pipes (Electric Resistant Welded Pipes-ERW) and coating in the
widest range starting from 1/2 inch to 100 inch of outer diameter. With a strong
culture of 'Engineering Excellence' WGSRL is all set to be the World's Largest Pipe
Company with an increase in capacity from 1.5 million ton per annum to 2.1 million
ton by March 2011. The company has supplied high end pipes for most critical
projects in the deepest of ocean ('Independence Trail' Project, Gulf of Mexico) to the
toughest of terrain ('Rockies mountain', USA ). It is a supplier of products for over 50
oil and gas companies across the world. The company’s clients include Transcanada,
Enterprise, Kinder Morgan, Texas Gas, British Petroleum, Hunt Oil, Saudi Aramco,
Elpaso, Exxon Mobil, Qatar Petro DOW, and Gazprom to name a few. To address
the needs of customers in the North American market, Welspun TUbular LLC (A
subsidiary of WGSRL) has recently completed a World-class spiral pipe making
facility in the city of Little Rock , Arkansas , USA . The company has plant located at
Anjar - L-Saw Mill, Anjar - Spiral Mill 2, Anjar-HFERW Pipes (Mill1), Anjar -
HFERW Pipes (Mill2), Anjar - Coating Mill, Anjar - Bending Mill, Dahej - L-Saw Mill,
Dahej - Spiral Mill and Dahej - Coating Mill. In April 2009, the Company announced
the demerger of its Plate-cum-Coil mill into a 100% subsidiary. Mr. B K Goenka,
Chairman and Managing Director WGSRL, has left an indelible mark on the business
world through his entrepreneurial skills, and modesty that is amply on display in his
well-diversified venture - Welspun Group.
Product Profile

A C Choksi
India's largest and world's second largest pipe producer
WGSRL is the largest player in large diameter pipe segment in India with total
installed capacity of 1500000 mtpa and tops the second position in the world market.
WGSRL has installed capacity of 350000 mtpa in LSAW segment, 900000 mtpa in
HSAW segment which includes 350000 mtpa installed in US and 250000 mpta in
ERW segment. With this huge capacity, company has captured share of huge
opportunity available in global market. 80% of exports mainly cater to US, Europe,
Latin America and Middle East. WGSRL has also established strong relationship with
its marquee clients including Fortune 100 companies and thus becoming partner of
choice for more than 50 oil and gas client across the globe. WGSRL has one of its pipe
mills situated at US which further compliments its business model to have stronger
foothold over international market. To further augment its existing capacity,
company is also expanding its LSAW capacity by 300000 mtpa and HSAW capacity
by 300000 mtpa making its total installed capacity to 2100000 mpta. The new
capacities will commence their operation by end of December 2010. With this
WGSRL's total capacity in LSAW segment will be 650000 mtpa and HSAW segment
will be 1200000 mtpa, 2nd largest after PSL Ltd with capacity of 1775000 mtpa.

Export markets is key differentiator
Strong relationship with global clients
WGSRL's major revenue around 80- 85% is accruing from export market and rest
from domestic market. Out of total revenue, US account for 60%, Africa 12% and
balance from Middle East and South America. Being strategic move to focus on US
market, WGSRL has established strong relationship with clients by cashing on the
opportunity to locate closer to customers who were facing supply challenges. Supply
was restricted as the transportation cost would become quite large for
intercontinental shipment as well as insufficient capacity in US to serve the
requirement. WGSRL also has been key suppliers for last five years in US to the
clients including Chevron, Exxon Mobil, Kinder Morgan and Ruby. It has entered
into the frame work agreement with Chevron making it one of the three global
proffered vendors for next 3-5 years. WGSRL has gained rich expertise in the offshore
segment after supplying world's deepest pipeline in Gulf of Mexico.
A C Choksi
Top clients of WGSRL
Trend in exploration and production scenario of WGSRL
Deep Offshore pipeline demand poised to boost global pipeline

infrastructure
According to Quest offshore projects pipeline demand is set to grow approximately

58% from year 2008 to 2013 as compared to previous 6 years. The review of worlds
demand for deepwater pipeline revels significant growth will be seen in West Africa,
Gulf of Mexico and its highest levels in South East Asia. West Africa pipeline demand
looks to remain strong as a slew of upcoming projects near award and / or installation.
The Region is poised to realize a 39 percent growth during the 2008 to 2013 time frame
(compared to the previous six years). The U.S. Gulf of Mexico will continue its
position as an industry leader for pipeline installations over the coming years, with a
projected growth for the forecast period (2008 to 2013) of 20 percent. The primary
drivers behind this growth are the region's propensity for subsea tiebacks, as well as
the vast majority of projects in the Lower Tertiary forecasted for installation after the
2008 to 2013 period, would see installation of many notable fields in the period.
While the West Africa and Gulf of Mexico regions are poised to see impressive
growth, the Southeast Asia regions easily trumps the rest of the world when it comes
to pipeline demand. Due to its comparably less developed pipeline infrastructure, the
Asia Pacific region is projected to see a growth of 67 percent over 2008 to 2013. As
with other sectors of the market, Southeast Asia is poised to be the largest driver of
industry growth for the foreseeable future.

A C Choksi
Source : Douglas Westwood.
Source : U.S. Department of the Interior Minerals Management Service
Replacement demand in North America

Demand is likely to remain robust for pipes looking at the US Simdex Data Nov'08,
which suggests that 534 pipeline projects are planned for next 3-5 years. This means
demand for 70 million tonnes of pipes. Moreover, replacement demand from the US
alone is estimated at around 25 million tonnes. More than 1 mn of total of 1.5mn miles
of USA pipelines were laid during 1960s and 1970s. Since most of the pipelines have an
economic life of 30 years, it is most likely that US government may go in for
replacement to avoid systematic failure and supply disruptions. Considering that the
annual production of pipes have been over 16 – 17mn tonnes, the replacement of
1mnmiles of pipelines would take at least 25 years to complete. If we take capacities of
all major player together, demand is good enough to be fulfilled by each one of them at
their own strength and execution capabilities.
Traditionally, major part of WGSRL's revenue around 80-85% is coming from export market. In order to
sustain this ratio, WGSRL has already established good relationship with its global clients. We believe
relationship with existing clients, growth opportunity in deepwater pipeline where WGSRL has already proven
its expertise by executing world's deepest pipeline in Gulf of Mexico and upcoming replacement demand from
North America will not only help them to sustain contribution from export but also boost their revenue from
these markets.

A C Choksi

Backward integration by installation of plate mill – De risking raw
material requirement and enhancing margin
Pipe industry especially for LSAW pipe, it is mandatory to use API plates for oil
transportation. Domestically, supplies of API plates are almost negligible. Most of the
pipe manufacturers have to buy API plates from international market. WGSRL has
taken that initiative and build up API plate mill plant at Anjar with installed capacity
of 1.5 mtpa. It has capacity to produce plate's upto 4.5 meters wide and steel grade of
X70 API grade. This will help WGSRL, from uncertainty in steel plate prices to some
extend and reduce risk of default from supplier of steel plates after blocking deal with
them before bidding. WGSRL fulfill 70% of its plate's requirement through this mill
and balance it procures it from international market. Part of its plate production is
sold to other clients. In this plate mill, WGSRL also manufacture commercial grade
plate again sold to outside clients. Plate mills need steel slab as raw material which is
not scarce supply. Difference in price of steel slab and plates generally move around
USD 250-300. WGSRL has sold plates at the EBIDTA Rs. 5500. While for captive use
company has enhanced the margin by incurring cost less than cost of plate procured
from outside. We believe with backward integration, the company will not only
improve its EBIDTA margin for its LSAW segment but also earn revenue from plate
business thus increasing overall profitability of the company. The company has also
reduced it exposure to volatility in steel plate prices. With this reduced exposure,
WGSRL is now in position to bid aggressively for project and avoid delay in delivery
of pipe with self raw material management.

A C Choksi
Highest order book among its peer

WGSRL has total order book of Rs. 7800 cr. This is highest among the all major Indian
pipe manufacturer. Out of this total order book LSAW pipe accounts for 16%, ERW
pipe accounts for 2% and HSAW accounts for 71% including new order received
recently in the HSAW segment of around 400,000 tonnage. Balance of the order book
comprise of plate segment contributing 7% and coating services account for 4%.
Average execution period for order book is 12 – 15 month, hence ensuring clear
revenue visibility for the same period. Currently, WGSRL has order book to sales
ratio 1.67x of its FY09 sales. We believe that order book is set to grow at healthy rate
on the back of strong demand drivers mainly emerging from export market, since
global oil and gas scenario propels huge requirement of pipeline infrastructure to
support the ever growing energy needs of the economies.
City gas distribution (CGD) project - Promising opportunity for ERW

pipe manufacturer
WGSRL is only major player in large diameter segment which has ERW pipe in its
portfolio. The company has total installed capacity of 250,000 mtpa. ERW pipe is
smallest form of large diameter pipes; mainly find application in city gas distribution.
City gas distribution is poised for high growth trajectory on account of natural gas
being preferred fuel of choice across the world due to its environmentally friendly and
economical characteristics. While natural gas is widely used as fuel for city energy
needs worldwide, in India use of natural gas has been restricted to power and fertilizer
sectors on account of limited availability of gas and lack of clarity on regulatory issues
with regard to local distribution companies. However with expected increase in gas
supply, changing regulatory scenario and growing concern over pollution in cities due
to use of traditional fossil fuels, city gas distribution projects present a tremendous
investment opportunity to prospective investors. In an endeavor to develop and fuel
growth for the natural gas market, government has set-up Petroleum and Natural Gas
Regulatory Board (PNGRB) which, in turn has notified regulations for CGD
networks for supplying gas to compressed natural gas stations and piped natural gas
(PNG) to household consumers, other industrial and commercial consumers.
Currently CGD networks are operative in multiple cities including Delhi, Mumbai,
Indore, Pune, Vijayawada, Vadodara, Surat, Ankleshwar, Ahmedabad and Kanpur.
PNGRB has commenced expansion of CGD networks to nearly 200 cities.
A C Choksi
This would entail investments of nearly USD 2 bn according to the eleventh plan.
With support of huge investments coming in the city gas distribution segment, we
believe WGSRL having quantum capacity in ERW segment is well poised to take
advantage of emerging opportunity.
Latest Quarter Results

Particulars (in Rs. Mn) Q2FY10 Q2FY09 Var (%) H1FY10 H1FY09 Var (%)
Sales 18716.10 15455.50 21% 38120.20 26904.50 42%
Excise Duty 584.40 527.70 11% 1190.50 1006.10 18%
Net Sales 18131.70 14927.80 21% 36929.70 25898.40 43%
Other Income 31.70 39.00 -19% 71.80 102.70 -30%
Total Income 18163.40 14966.80 21% 37001.50 26001.10 42%
Total expenditure 15197.10 13358.40 14% 30965.50 22589.30 37%
EBIDTA 2966.30 1608.40 84% 6036.00 3411.80 77%
Interest 479.90 314.30 53% 1097.10 754.10 45%
Depreciation 375.80 300.10 25% 737.70 594.10 24%
EBT 2110.60 994.00 112% 4201.20 2063.60 104%
Tax 708.40 340.90 108% 1416.80 699.20 103%
Net Profit 1402.20 653.10 115% 2784.40 1364.40 104%
EPS 7.51 3.50 114% 14.90 7.32 104%
For Q3 FY10, Net Sales has increased by 21% to Rs. 18716.1 mn from Rs. 15455.5 mn in 3rd
quarter FY09 mainly on back of high realisation per tonne. EBIDTA has seen robust growth of
84% due to low raw material cost. EBIDTA has inceased to Rs. 2966.3.5 mn in Q3 FY10 from
Rs. 1608.4 mn in Q3 CY08. Welspun's Net Profit has increased by 115% to Rs. 1402.2 mn in
Q3 FY10 against Rs. 653.1 mn in Q3 CY08. For H1 FY10, Net Sales has shown a jump of 42%
to Rs. 38120.2 mn and Net Profit has shown jump of 103% to Rs. 2784.4 mn against Net Sales of
Rs. 26904.5 mn and Net Profit of Rs. 1364.4 mn in H1 CY09. The reported Operating profit
for the current quarter included Rs 29 crore of forex gain on realignment of foreign currency
monetary assets and liabilities. Hence the adjusted OPM stood at 14.6%. During the quarter,
the EBITDA/tonne incase of pipes stood at around Rs 11 000 per tonne while that incase of
plates stood at around Rs 6000 per tonne.
Key Concern
Slowdown in economy and investment in oil and gas sector can see fall in demand for
product.

A C Choksi
CONSOLIDATED FINANCIALS
Income Statement
Income Statement (in Rs. mn.) 2008 2009 2010E 2011E 2012E
Sales Turnover 41570 59709 78959 99274 120109
Indirect tax 1626 2314 2369 3177 3603
Sales (Net) 39945 57395 76590 96097 116506
Other Income 107 187 131 135 140
Total Income 40052 57582 76721 96232 116646
Total Expenditure 33389 51048 63246 79940 97093
Operating profit 6555 6348 13345 16157 19413
EBITDA 6663 6535 13476 16292 19553
Interest 818 1766 2628 2183 1834
Depreciation & Amortization 609 1433 1487 1661 1794
Earnings Before Taxes 5236 3336 9360 12448 15926
Current Taxes 1828 1200 3151 4190 5361
Net Income After Taxes 3408 2135 6210 8258 10565
Extraordinary Items 0 0 0 0 0
Adjusted Net Income Before MI 3408 2135 6210 8258 10565
PAT 3408 2135 6210 8258 10565
Earnings Per Share (Rs) 19 11 30 41 52
Shares Outstanding (Diluted)(mn) 178 186 204 204 204

A C Choksi
Balance Sheet
Balance Sheet ( in Rs.mn) 2008 2009 2010E 2011E 2012E
Cash 2703 9470 1530 1746 5237
Receivables 7259 4601 9443 10531 17556
Inventories 12878 26113 22033 30277 38303
Loans and Advances 3281 5664 6408 8011 7773
Total Current Assets 26121 45848 39413 50566 68870
Gross Fixed Assets 22499 34844 39531 43498 46188
Less:Depriciation 2406 3847 5335 6995 8789
Net Fixed Assets 20094 30996 34196 36503 37399
Capital WIP 6713 5839 3953 3272 2263
Investments 3250 1140 1425 1425 1710
Foreign currency translation A/C 0 355 355 355 355
Misc Exp 0 0 0 0 0
Total Assets 56179 84178 79342 92120 110597
Current Liabilities 17414 38955 31190 39423 50542

Provisions 677 601 601 601 601
Current Liab & Provns 18092 39555 31790 40023 51142
Total Debt 20677 26538 23513 20142 17278
Shareholders' Equity 889 932 1019 1019 1019
Reserves 14783 14664 20532 28447 38670
Deferred Tax Liability 1738 2488 2488 2488 2488
Total Liabilities and Equity 56179 84178 79342 92120 110597
Capital Employed 36349 42135 45064 49609 56967
Source : Company Data, A C Choksi Research

A C Choksi
Cash Flow Statement

Cash Flow ( in Rs. mn ) 2009 2010E 2011E 2012E
extraordinary item 3336 9360 12448 15926
Add :
Depreciation 1433 1487 1661 1794
Miscellaneous Expenditure 2751 0 0 0
Interest 2262 2628 2183 1834
Operating Profit before working Capital Changes 9781 13476 16292 19553
(Increase) / Decrease in Inventories -13234 4080 -8244 -8026

(Increase) / Decrease in Debtors 408 -4841 -1089 -7025
(Increase) / Decrease in Other Current Assets 0 -744 -1603 238
Increase / (Decrease) in Trade Payables 17884 -7765 8233 11119
Change in W orking Capital 5058 -9270 -2703 -3694
Cash Generated from Operating Activities after working
capital changes 14839 4205 13588 15859
Tax Paid -552 -3151 -4190 -5361
Minority Interest
Net Cash flow from operating activities 14287 1055 9398 10498
Purchase of Fixed Assets -10690 -4687 -3967 -2690
Purchase of Investments including investment in
2161 -285 0 -285
subsidiaries
Change in Capital work in Progress 0 1885 681 1009
Net Cash flow from Investing activites -8530 -3087 -3286 -1967
Proceeds from Share Capital 5 87 0 0
Interest -2018 -2628 -2183 -1834
Proceeds from Secure borrowings - Net 3297 -3965 -3370 -2865
Proceeds from unSecure term borrowings - Net 52 940 0 0
Dividend payment -326 -343 -343 -343
Deffered Tax Liability 0 0 0 0
Net Cash flow from Financing activities 1010 -5909 -5896 -5041
Net Increase in Cash and Cash equivalents 6767 -7941 217 3491
Cash and Cash equivalents at the Beginning of period 2704 9470 1530 1746
Cash and Cash equivalents at the End of period 9470 1530 1746 5237

A C Choksi
Ratio Analysis
Ratios 2008 2009 2010E 2011E 2012E

GROWTH POTENTIAL
Inventory Turnover 4.43 2.94 3.18 3.67 3.40
Inventory Turnover - Days 82.30 123.98 114.72 99.34 107.43
A/R Turnover 6.09 9.68 10.91 9.62 8.30
A/R Turnover - Days 59.89 37.71 33.46 37.93 44.00
Creditors Turnover 2.43 1.81 1.80 2.26 2.16
Creditors Turnover - Days 150.33 201.53 202.41 161.20 169.10
Gross Fixed Asset Turnover 2.53 2.00 2.06 2.31 2.60
Net Fixed Asset Turnover 2.92 2.25 2.35 2.72 3.15
Payout Ratio 8% 14% 5% 4% 3%
Working Capital - days -8 -40 -54 -24 -18
PROFITABILITY 2008 2009 2010E 2011E 2012E

Gross Margin 17% 11% 18% 17% 17%
Net Sales Growth 49% 44% 33% 25% 21%
Net Income Growth(PAT) 139% -37% 191% 33% 28%
EBIDTA Growth 96% -2% 106% 21% 20%
Operating Margin 16% 11% 17% 17% 17%
Pretax Margin 13% 6% 12% 13% 14%
Eff Tax Rate 17% 13% 34% 34% 34%
PAT Margin 9% 4% 8% 9% 9%
Return on Assets 9% 5% 13% 16% 18%
Return on Equity 23% 14% 29% 28% 27%
Return on Capital Employed (ROCE) 17% 12% 27% 29% 31%
ROE DECOMPOSITION 2008 2009 2010E 2011E 2012E

Interest Burden (Interest Coverage) 7.4 2.9 4.6 6.7 9.7
EBIT Margin % 15% 9% 16% 15% 15%
Asset Turnover 1.3 1.4 1.7 1.9 2.1

A C Choksi
DEBT FACTORS 2008 2009 2010E 2011E 2012E

Debt to Assets(%) 54% 21% 17% 14% 10%
Debt/Equity 1.4 1.7 1.1 0.7 0.4
ST & LT Debt to EBITDA (Debt Service ratio) 269% 361% 186% 134% 96%
Common Equity to Assets 46% 41% 51% 61% 71%
Common Equity to Total Capital 39% 35% 45% 57% 67%
Total Debt to Total Capital(Gearing Ratio) 61% 65% 55% 43% 33%
PER SHARE DATA 2008 2009 2010E 2011E 2012E

Sales per share 224.72 307.76 375.74 471.43 571.56
Operating Income per share 36.88 34.04 65.47 79.26 95.24
Pretax Income per share 29.45 17.89 45.92 61.07 78.13
Basic EPS 19.17 11.45 30.46 40.51 51.83
P/BV 3.32 3.30 2.61 1.91 1.42
Book Value per share 83.18 83.63 105.72 144.56 194.71
Cash per Share 33.49 56.89 14.50 15.56 34.08
P/E 14.40 24.12 9.06 6.82 5.33
DPS 1.57 1.57 1.44 1.44 1.44
ENTERPRISE VALUE 2008 2009 2010E 2011E 2012E

Market Cap 49077.88 51490.44 56280.22 56280.22 56280.22
Enterprise Value 67051.47 68558.16 78263.34 74676.31 68320.52
Market Cap/ Sales 1.23 0.90 0.73 0.59 0.48
EV to Sales 1.68 1.19 1.02 0.78 0.59
EV to EBITDA 10.06 10.49 5.81 4.58 3.49
EV to EBIT 11.08 13.44 6.53 5.10 3.85
EV to Net Income 19.68 32.11 12.60 9.04 6.47
EV to Book Value 4.54 4.40 3.63 2.53 1.72
EV to Market Cap 1.37 1.33 1.39 1.33 1.21

A C Choksi
Valuation
DCF Analysis 2009

WACC 10%
Growth 2%

Cash 9470.34
Investments 1139.95
Debt 26538.06
no.of shares 186.49
Target Price 437.37
CMP 276.10
Valuation and Recommmendation

As per our DCF valuation, we believe the intrinsic value estimate of WGSRL is Rs. 437 which is at a premium of 58%
from the current market price. Currently, the company is trading at 9.06x our FY10 EPS estimates and at 8.59x our
FY11 EPS estimates. Hence, we recommend strong BUY on WGSRL with a price target of Rs. 437.

A C Choksi
TECHNICAL VIEW ON WELSPUN GUJARAT LTD.
The current up move started from Rs48.50 dated12 march 2009 to Rs243.70 dated 4 june 2009 was sharp V
shape recovery, now it is in consolidation phase with range bound movement between Rs250- Rs300 price
level. Technical indicators are showing sideway correction as volumes has not picked up with the rise in
price level from Rs256 to Rs281 in current rally, suggesting corrective movement.
In short term strong resistance is seen around Rs320 level.Support on declines is seen around Rs256 price
level and rock bottom at Rs230 price level. Medium term target for this scrip is Rs351 – Rs374 price level.
To sum up
BUY ON DECLINES
SHORT TERM SUPPORT : 256 – 230
SHORT TERM TARGET : 320
MEDIUM TERM TARGET : 351 - 374
Mehul Jhaveri
Technical Analyst

A C Choksi
Notes :
Equity Research Team

Amit Nisar - 02230219025
amit@acchoksi.com
Vinisha Parekh- 02230219046

vinisha@acchoksi.com
Disclaimer
The information and views presented in this report are prepared by A C Choksi Share Brokers Private Limited.The information contained herein is based on our
analysis and up on sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information
and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors
must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe
necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither A C Choksi Share Brokers Private Limited
nor any person connected with any associated companies of A C Choksi Share Brokers Private Limited accepts any liability arising from the use of this information
and views mentioned in this document.The analysts for this report certifiesthat all of the views expressed in this report accurately reflect his or her personal views
about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to
specific recommendations or views expressed in this report.
Disclosure of Interest
1. Company name JSL, PSL, WGSRL
2. Analyst ownership of the stock NO
3. Broking Relationship with the company covered NO
4. Investment Banking relationship with the company covered NO
5. Discretionary Portfolio Management Services NO

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Sector Report - Initiating Coverage

A C Choksi Sector - Pipe

Amit Nisar - Research Analyst

Research Report Indian Pipe Industry

Energy demand to grow at a healthy rate for the next 5 years

Oil to continue to be an important source of the growing energy demands

Natural gas – The most preferred fuel in the energy basket

Under-developed pipeline infrastructure to open up opportunities

A C Choksi Fundamental Research 2 research@acchoksi.com

Research Report Indian Pipe Industry

Demand for water infrastructure set for robust growth

Recommendation - Top Pick of Sector

A C Choksi Fundamental Research 3 research@acchoksi.com

Research Report Indian Pipe Industry

Domestic demand is superior over International demand………………….…………………….…...........…….7

Massive investments in oil and gas sector and Water infrastructure………………….……...…….........……14

GAIL India – Largest investor in pipeline sector…….…………………………………..……………............…...16

Raw Material: Scenario……….……………………………………………………………………………….........………17

JINDAL SAW LTD………………..……………………………………………………………………………...............22

WELSPUN GUJARAT STAHL ROHREN LTD…………………………………………….…..….….......….…53

A C Choksi Fundamental Research 4 research@acchoksi.com

Research Report Indian Pipe Industry

Source : A C Choksi Research, Company Data

A C Choksi Fundamental Research 5 research@acchoksi.com

Research Report Indian Pipe Industry

Source : Companies, A C Choksi Research.

Region wise East Asia accounts

Source : Company, A C Choksi Research.

Source : Company, A C Choksi Research.

Research Report Indian Pipe Industry

Source : Company, A C Choksi Research.

Source : Company, A C Choksi Research.

A C Choksi Fundamental Research 7 research@acchoksi.com

Research Report Indian Pipe Industry

Source : Company, A C Choksi Research

In water infrastructure side, water and sewage infrastructure of developed country is

Source : Company, A C Choksi Research

Research Report Indian Pipe Industry

Oil to continue to be an important source of the growing energy demands

Crude Oil Reserves at the end of CY2008

Source : BP Satistical Review of Energy 2009

Projected production of crude oil during the Eleventh Plan (2007-2012)

A C Choksi Fundamental Research 9 research@acchoksi.com

Research Report Indian Pipe Industry

Source : Simdex US, May 09 Update,Company

According to Douglas Westwood Report, report estimates a 16% increase in the

Source : Energy Information Administration

Research Report Indian Pipe Industry

Under-developed pipeline infrastructure to open up opportunities

Growing industrial sectors is the largest consumer of natural gas

Source : Oil and Gas Journal

A C Choksi Fundamental Research 11 research@acchoksi.com

Research Report Indian Pipe Industry

Natural Gas Reserves at the end of CY2008

Source : BP Satistical Review of Energy 2009

National Gas Grid

Phase I Length in crs Add. Cap. Execution

A C Choksi Fundamental Research 12 research@acchoksi.com

Research Report Indian Pipe Industry

Substantial replacement demand from the US and Russia

Indian pipe manufacturers – A competitive play over its global peers

Demand for water infrastructure set for robust growth

Water Requirement for various Sectors