Q1 Review: Welspun Corp Posts Strong Earnings

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Welspun Corp's Q1 net profit rose to Rs 165 Cr backed by strong demand. MD & CEO, Vipul Mathur breaks down the company's performance in the June quarter. #BQ Live

Transcript

00:00 Thanks so much for tuning in. You're watching BQ Prime and this is an earnings conversation.

00:04 My name is Alex Mathew. We're talking about Wellspun Corp. And traditionally, you looked

00:08 at this company as a pipes manufacturer. But there's more to talk about with regard to

00:14 this company because it's added several businesses in the very recent past. And to that end,

00:20 I don't think that the numbers are strictly comparable on a year on year basis. But to

00:24 talk about the key details, I'm joined by the management, Vipul Mathur, Managing Director

00:28 and Chief Executive Officer of the company is joining it. Mr. Mathur, thank you so much

00:32 for taking the time. Very strong growth if I look at the year on year numbers. Three

00:36 times growth in the top line number and significant growth in the pack number. The margins have

00:42 grown to double digit or rather very close to double digit 9.06%. All strong. Would you

00:48 say that they're not comparable though? And how do I look at your numbers?

00:53 Alex, thank you for having me on the show. And it has been a very spectacular performance

01:01 in the quarter one. Of course, the numbers are not comparable in comparison to the last

01:05 year. But nevertheless, having said that, I think so all the segments what we are at

01:10 this point in time, which is which being the oil and gas segment, the water segment, the

01:15 DIT segment, the building segment, which is all about syntax, you know, the specialty

01:20 steel segment. I think so all these segments, you know, are doing extremely well at this

01:23 point in time, we are seeing a tremendous amount of tailwind across all the geographies.

01:28 And we being into a pole position in most of these segments, I think so we are trying

01:32 to capitalize upon it. And that is very clearly getting reflected into our earnings for the

01:36 very first quarter.

01:38 So in a conversation that you'd had with BQ Prime, after the fourth quarter, you talked

01:45 about the fact that you are very aggressive in terms of the expectations for this financial

01:51 year because of the businesses that you've added. 15,000 crore rupee of top line is the

01:56 guidance for FY24 and 1500 crore rupees of EBITDA. And you've said that 40 percent of

02:02 this is going to come from the new businesses that you've added. I would think that with

02:07 businesses like Syntex, where there is a trajectory of a build up over a period of time, it's

02:14 going to take some time for that ramp up to take place. So in the first quarter, what's

02:18 the contribution of these new business lines that you've added?

02:22 So in the first quarter, I think so the major significance of the contribution has come

02:26 from the pipe business and very expectedly so. And this plate of this dynamics will keep

02:32 on changing as we go into the subsequent quarters. But I think so the first two quarters would

02:38 be very heavily dominated on the pipes and then all the other new businesses, you know,

02:41 which are incubating at this point in time, be it the Syntex business, be it the DIP business

02:46 or be it the stainless steel businesses, you know, they will also start significantly contributing

02:51 to the top line as well as the EBITDA. But that's going to be gradual. But having said

02:56 that, you know, we will still be absolutely on track. At least we are confident that,

03:00 you know, with our quarter one performance, we seem to be on track in terms of getting

03:04 to our guidance what we release to the market.

03:07 So, Naveen, from my understanding, could you tell me the percentage of the top line that's

03:11 contributed by the traditional business? And how much is coming from the new businesses

03:16 that you've started?

03:17 So today, in the quarter one, probably 70-75% would have come from the traditional business

03:23 and the 25% would have come from all the new businesses put together. But they're all in

03:27 a ramp up mode. But this proportion will keep on changing as we get into the subsequent

03:33 quarters.

03:34 Okay. Okay. Speak to me about Syntex because I think there's a lot of expectation as to

03:39 how you're going to ramp that business up. It's a household name and it's got quite a

03:44 bit of heritage. But still, the market share has dipped to single digit from the traditional

03:50 very high levels of close to a quarter of the market, right? How is that ramp up happening?

03:56 And what are you going to do differently with Syntex?

03:59 Alex, you have to understand that this company has been into stress for the last four to

04:04 five years. Number one, we have been on this driving seat only for last 90 days, one quarter

04:09 at this point. And all what we have understood in this short span of time is that it is an

04:17 iconic brand, there's no doubt about it. The brand recall is huge. And the loyalty around

04:23 this product is significantly high, which means that the company has been able to maintain

04:29 his brand recall in the quality and the loyalty, despite facing all these challenges over the

04:34 last four to five years time. I think that this all now need to be leveraged. All this

04:38 need to be leveraged through supply chains, optimization, re-analyzing the dealers and

04:43 the distribution network. And that's the journey which we have embarked upon. You know, as

04:47 you rightly said, it has a historical market share of 24-25%. And it has dropped down to

04:53 9-10%. And we are very confident that you know, if we really push all of our, if we

04:58 put all the buttons in the right direction, put the buttons in the right direction, re-energize

05:02 the channels, work around, put our foot on the ground, and everything. I think so this

05:06 ramp up will happen. It is going to be slow, it is going to take some time, but definitely

05:09 we will be there.

05:10 So the margin expansion that has taken place and pushed it to 9% plus, what are the contributing

05:16 factors here? Is this primarily because of the addition of the new businesses or are

05:22 there other factors at play in the traditional business?

05:25 Both, it's both. See, at the end of the day, as I said, 70-75, major chunk of the business

05:31 margins came from our pipe business. The blend of the projects what we are doing at this

05:35 point in time is fairly profitable. And that is very getting clearly getting reflected

05:41 in our earnings. You know, one of the major component happens to be our US market. And

05:45 the US market is doing extremely well at this point in time. So that is getting reflected.

05:50 And this is what we will see as a reflection in the subsequent quarters as well. Because

05:54 if you look at our US market, we are booked for almost three more quarters. If you look

05:58 at the Indian market, we already have a confirmed order book of almost 300 or 1000 tons and

06:04 extremely profitable orders. If you look at our Saudi market, we almost have an order

06:09 book of close to two years at this point in time. So on the line pipe side of our business,

06:15 you know, our, you know, the growth and the margins are fairly well protected. All what

06:19 is now going to happen is that all the new businesses, which is our stainless steel businesses,

06:23 which is our Syntex business, you know, which is our DIT business, as these volumes are

06:29 ramping up, and they are getting market share, you know, the view would see the incremental

06:33 earnings coming up on account of these business, the blend of that will definitely help us

06:38 in improving our overall basket of the margin.

06:41 Okay, so would you then say that 9% plus is a given and what range should I expect it

06:47 in?

06:48 See, you know, from a guidance perspective, we have given a guidance of 10% in any case,

06:53 and our endeavor would be in any case to achieve that and if not exceed that. So that's a that's

06:59 a work in progress. That's a strategy we are putting up on the crowd on the table and executing

07:03 it. So I'm confident that you know, we should be exceeding our numbers.

07:08 I want to speak about the stainless steel business as well, because we've seen reports

07:13 of dumping by China and the government has moved to kind of protect the domestic industry.

07:18 What are the implications for you per se?

07:20 Oh, they are positive, very positive. I think so it was it is it is a very welcome move

07:25 by the government. There was a lot of cheap imports, which was coming in, still coming

07:29 in, I think so they have tried to plug in to a large extent, I think so there are still

07:33 certain policy measures which really need to be worked upon to completely close that

07:37 because this is this was sort of a round tripping and circumventing the process which was happening

07:42 and as as a industry, we have taken up very strongly and the government has been extremely

07:46 kind in terms of accepting and acknowledging this particular issue and have been taking

07:50 certain corrective action. You know, more need to be taken and we are working on that.

07:54 You know, in your line pipe business, you were talking about the strength of the US

07:59 order book, as well as the Saudi order book. Now, this is very crucial, as I understand

08:03 it from the perspective of margin contribution as well, because US is a high margin business

08:09 for you. And you've said that a third of your order book, I believe, for this financial

08:14 year is coming from the US in that in that business. What is the ramp up that you're

08:18 seeing though, in terms of order wins, etc.

08:22 So in terms of execution, I think so it's evenly spread out for over the next two or

08:26 three quarters, but from a visibility perspective, I think so we are seeing a great traction

08:30 of business still around in the US. Of course, they need to be booked, they need to be taken,

08:35 you know, they need to be executed, you know, but I think so from an overall traction perspective,

08:40 we are seeing a good traction at this point of time in the US. And we are, you know, of

08:45 course, in Saudi, I would say it is going to be record three years, which we can talk

08:50 about it. And in the Indian business is also Alex looking extremely well at this point

08:54 in time for a simple reason that all the majors oil and gas majors have started putting up

09:00 their capex plans up on the table, and they have already started implementing it. So we

09:04 are seeing a lot of traction which is happening in terms of exports. You know, in the end,

09:08 we are today we are in a very poor position in supplying pipes, line pipe for very critical

09:13 offshore applications in the market of Australia, Southeast Asia and Middle East. I mean, that

09:18 is what is another icing on the cake, which we will have.

09:24 Yeah. In terms of, you know, building materials, I think a lot is said about CPVC pipes as

09:31 well, right? And help me understand, if there is a plan at all to launch products in that

09:38 space, because I think there is going to be capability that you have.

09:44 So that space is huge. That's what we are seeing when we are evaluating at this point

09:49 in time, that space is huge. And the potential is immense. And on top of it, we have a sort

09:56 of a network which can be through which we can liberate it. Today, you know, if you look

10:00 at the syntax network, you know, it's a pan Indian network with 900 dealers and 13,000

10:05 retailers. It's a, you know, it's a lifetime achievement, you know, companies take lifetime

10:10 to create sort of a network which is already in existence. So definitely, it is on in our

10:13 consideration that what is that we can do to leverage this network further. And of course,

10:19 PVC pipes and fittings and adhesives are one of the options up on the table for our consideration.

10:25 Would it require capital expenditure at this point? If you choose to do it?

10:31 Not major. It definitely will require some capital. But these investments are not that

10:36 so capital intensive as what our basic understanding is. We are not talking in, you know, 1000s

10:41 of crores of pieces, we are talking 200 here and there. But the amount but the penetration

10:46 it can bring and the incremental profits it can bring into this network will be huge.

10:52 So that's that's what the study at this point in time we are doing undertaking.

10:55 So would you say then, Mr. Mathur that you're feeling very positive about the launch of

11:01 PVC pipes as a business?

11:04 I won't say that I feel very positive. But I would say that it is definitely under active

11:08 consideration. And of course, we'll have to see from a return on investment point of view,

11:13 what sort of a market size because see, whatever we would like to do LX has to be in size and

11:18 scale. We do not want to be a sort of a tertiary player doing something small here and there.

11:23 All what we want to do anything and everything is under size and scale. If you look at what

11:27 we are doing today in the pipe side of it, we have a size and the scale. On the DI side

11:31 of it, we have created an asset which is of size and scale. On the syntax side of it is

11:36 also something that we will like, it's only a size and scale. And we will bring in products

11:41 which will further increment that. So we are seeing it from various optic lenses at this

11:45 point in time. And then we take a call.

11:48 Mr. Mathur, thank you so much for taking the time. Pleasure speaking with you and look

11:51 forward to the next conversation.

11:52 Thank you, LX. Thank you. Wonderful. Thanks a lot.

11:55 All right, viewers, that was the management of Wellspun Corp. And we've spoken about quite

12:01 a few of their businesses. There's a lot more we should be talking about. And I'm sure that

12:05 we'll do so in the next chat. For now, though, I'll direct your attention to the website

12:10 bqprime.com because there's a lot more that you will find there. Thanks for watching.

12:14 This is BQ prime.

12:23 [BLANK_AUDIO]

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