Welspun Gujarat – BUY (Target Price Rs346, Upside 38.8%)

CMP Rs249, Target Price Rs346, Upside 38.8%

After rising 5x over the last one year, WGL has been a underperformer in the last three months. We believe over the next one quarter the stock will be a strong performer as fresh orders are announced globally. Welspun Gujarat (WGL) has announced that it has received fresh orders worth Rs6bn from the end of Q3 FY10. The order book position, without excluding the orders executed during Q4 FY10, has increased to the Rs72bn, at 1.3x FY09 revenues and 1x trailing twelve months revenue. The Management has indicated that they are successful bidders for 1mn tons of international orders and GAIL’s pipe orders to be announced in 4Q FY10. With the rise in crude oil prices and a gradual revival in order inflows, we believe WGL is the best bet in the pipe sector to exploit this opportunity. This coupled with strong order book and improving visibility in its plate business, we maintain our BUY rating on the stock. On the back of strong visibility over FY12E volumes and higher operating margins, we have raised our target price from Rs315 to Rs346.