Welspun Corp Ltd Management Discussions.

Management Discussion and Analysis

"FY2019-20 was an exemplary year for the Company both operationally and financially with breaking all of our own previous records with respect to production, sales and profitability. Our performance is a testimony to Welspuns global leadership position. While the near-term macro-outlook remains challenging due to COVID-19 as well as Oil meltdown, the Company is well prepared to weather the storm through a range of measures including cost optimisation, minimal capex spending and :^r customer relationships."

Vipul Mathur


The Management Discussion and Analysis (MD&A) should be read in conjunction with the Audited Consolidated Financial Statements of Welspun Corp Limited ("Welspun" or "WCL" or the "Company"), and the notes thereto for the year ended 31 March 2020. This MD&A covers Welspuns financial position and operations for FY20. Legal tender is stated in Indian Rupees unless indicated otherwise. The numbers used in the analysis are on a consolidated basis, the corresponding number for the previous year have been regrouped and reclassified wherever necessary.


This analysis contains forwardlooking statements, which may be identified by their use of words like ‘plans, ‘expects, ‘will, ‘anticipates, ‘believes, ‘intends, ‘projects, ‘estimates or other words of similar meaning. All sta teme n ts th a t a dd ress expectations or projections about the future, including but not limited to statements about the Companys strategy for growth, product development, market position, expenditures, and financial results, are forwardlooking statements. Forwardlooking statements are based on certain assumptions and expectations of future events. The Company assumes no responsibility to publicly amend, modify or revise any forwardlooking statements, on the basis of any subsequent developments, information or events.


Welspun Corp Ltd. is a leading manufacturer of large diameter pipes globally, offering a one-stop solution for all line pipe related requirements with its wide range of high grade line pipes. The pipes, produced at advanced state-of-the-art global manufacturing facilities in India, USA and Saudi Arabia for Longitudinal (LSAW), Spiral (HSAW) and ERW / HFIW, meet stringent specifications.

The Companys eminent clients (Fortune 100 companies) comprise leaders of the oil and gas sector (Shell, Saudi Aramco, TOTAL, Chevron, Energy Transfer, South Oil Company, Exxon Mobile, Kinder Morgan, TransCanada, Enbridge to name a few). The Company is approved by 50+ major oil and gas companies, enhancing its ability to participate and bid in key projects globally. The Companys local presence in major markets and ability to quickly respond to customer requirements across many markets has made the Company a supplier of choice for most customers.


Global growth in CY2019 recorded its weakest pace since the global financial crisis a decade ago, reflecting common influences across countries and country-specific factors. Worsening macroeconomic stress related to tighter financial conditions, geopolitical tensions, and social unrest rounded out the difficult picture. Increasing trade barriers as well as trade uncertainty stemming from rising trade tensions, especially between US and China, also resulted in declining business confidence and further limited trade. Amidst a weak environment for global manufacturing & trade and challenges in the domestic financial sector, the Indian economy slowed down with GDP growth moderating to 5.0 percent in FY2020 as compared to 6.8 percent in FY2019.

Among the developed economies, growth momentum weakened considerably since mid-2018. For the United States of America, trade related policy uncertainty weighed on business confidence and investment, but employment and consumption continued to be robust, supported by cuts in the Federal Funds rate. In Europe, the economy grew at a modest rate, as the manufacturing sector was negatively affected by international trade tensions

and the impact of Brexit remained uncertain.

Due to the impact of COVID-19, the outlook for CY2020 looks bleak for the global economy. According to IMF, the global economy is expected to plunge into the worst recession in 2020, far worse than the Global Financial Crisis. The cumulative loss to global GDP over 2020 and 2021 is estimated at around 9 trillion US dollars - greater than the economies of Japan and Germany, combined. Within this downturn, the projections are replete with even sharper declines in output in various countries. India is among the handful of countries that is projected to cling on tenuously to positive growth.

Emerging Asia is projected to be the only region with a positive growth rate in 2020 (+1.0 percent), albeit more than 5 percentage points below its average in the previous decade. In China, indicators such as industrial production, retail sales, and fixed asset investment suggest contraction in economic activity. Several economies in the region are forecast to grow at modest rates, including India (+1.9 percent).


During FY2020, US Dollar appreciated against developed market currencies including Euro (EUR), and Canadian Dollar (CAD) but against Japanese Yen (JPY) US Dollar depreciated. Highest USD appreciation was seen against the CAD. All the currencies remained very volatile in the months of March 2020 because economies are grappling to fight against COVID-19.

During FY20, all emerging market currencies depreciated against the US dollar enhancing the competitive edge of suppliers from these markets. Indias currency (INR) depreciated by 9% vis-a-vis the US dollar with large swing in the second half of the financial year by falling nearly 7% during the period from October 2019 to March 2020. It crossed 76 levels and touched low of 76.4 in last week of financial year. Among all these mentioned currencies, Brazilian Real (BRL) saw the maximum depreciation benefiting the Brazilian exporters.


The sharp contraction in GDP and deep reductions in travel resulting from the COVID-19 pandemic has reduced global energy demand dramatically in the near term. The drop in global economic activity cut demand for some energy sources much more than for others, with impact on demand in Q1CY20 much more than declines in GDP.

The evolution of energy demand through the remainder of 2020 will depend most notably on the duration, stringency and geographical spread of lockdowns, and the speed of recoveries. Initial IEA evaluations indicate that full-year energy demand could decline by around 6%, equivalent to the combined energy demand of France, Germany, Italy and the United Kingdom in 2019. The projected 6% decline would be more than seven times the impact of the 2008 financial crisis on global energy demand, reversing the growth of global energy demand over the last five years. The absolute decline in global energy demand in 2020 is without precedent, and relative declines of this order are without precedent for the last 70 years

All fuels except renewables are set to experience their greatest contractions in demand for decades. In some cases, annual declines is estimated be stronger than those in the first quarter.

Oil demand could drop by 9%, or 9 mb/d on average across the year, returning oil consumption to 2012 levels.

Coal demand could decline by 8%, in large part due to a fall in electricity demand of nearly 5% over the course of the year, pushing down output from coal-fired generators by more than 10%. The recovery of coal demand for industry and electricity generation in China limits the global decline in coal demand.

Gas demand across the full year could fall much further than in Q1 2020, because of reduced demand in power and industry applications.

Nuclear power demand would also fall in response to lower electricity demand.

• Renewables demand is expected to increase because of low operating costs and preferential access to many power systems. Recent growth in capacity, with some new projects coming online in 2020, is estimated to boost output. Biofuels however, are likely to see demand decline, directly impacted by lower transport activity.


For the first time in history, the US exported more petroleum products than it imported in Q4 of CY2019. With increased production and exports, the United States was less reliant on other countries to meet the energy needs. After lifting the 40-year crude oil export ban at the end of 2015, America became the world leader in exporting energy to other countries - even occasionally overtaking Saudi Arabia as the worlds largest oil exporter. The abundance of shale oil helped US to stabilize global markets, minimize imports, and bolster national security.

As of the beginning of 2020, global oil markets experienced significant shocks from both supply and demand sides. In early January, the benchmark Brent crude oil price stood close to $70 per barrel, amid acute geopolitical tensions between the United States and the Islamic Republic of Iran. Soon after, the novel coronavirus (COVID-19) outbreak triggered a sudden and unanticipated decline in oil demand, pushing down prices. The failure of OPEC- plus, an alliance between OPEC and non-OPEC oil producers, to reach a deal on a production cut in early March sparked a plunge in oil prices to almost $30 per barrel; a decline of more than 30 per cent within two trading days in March 2020.

Currently, the volatility surrounding the oil markets is substantial. However, the resulting developments and their effects on oil prices over the remainder of the year now depend on how quickly demand improves and supply stabilizes. Reduced economic activity has caused changes in energy supply and demand patterns in 2020, particularly for petroleum and other liquid fuels. In view of the current fundamentals, OPEC, Russia and allies have agreed to continue production cuts by 9.7 million barrels a day - or about 10 percent of global output in normal times.

As per EIA estimates, the consumption of petroleum and liquid fuels globally is expected to average 92.5 million b/d for all of CY2020 vs 100.8 million b/d in CY2019 a decline of 8.3 million b/d YoY. Demand for global petroleum and a liquid fuel is expected to average 83.8 million barrels per day (b/d) in the Q2 CY2020 and average 94.9 million b/d in Q3 (down 6.7 million b/d YoY). The consumption is expected to increase by 7.2 million b/d to almost reach pre- COVID-19 levels of 100 million b/d by CY2021.


Even before the COVID-19 pandemic, the LNG industry was managing the impact of oversupply. Since 2015, the annual growth in global liquefaction capacity has averaged more than 30 MTPA, increasing LNG supply by around 10% per year. Markets were able to absorb this additional supply until the first quarter of 2019, when slower growth in the Chinese gas market, and a contraction in northeast Asian demand, pushed spot prices from a range of $7 to $11 per million British thermal units (mmbtu) to less than $5 per mmbtu in Europe and Asia. With 24 MTPA of new liquefaction capacity set to come online in 2020, the global LNG market is likely to continue to be oversupplied.

Global natural gas demand could decrease by 5% in CY2020 as per BCG assumptions. Slowing economic activity has curtailed natural-gas demand in China, which was, up to now, the second largest LNG importer and the fastest-growing market for LNG. Even as economic activity in China shows signs of recovery, the annualized rate of growth in the demand for Chinese natural gas is set to halve from previous projections. While low LNG prices is expected to enable some fuel-switching opportunities in the near term, the structural and seasonal nature of natural-gas demand in many markets, combined with rapidly falling overall energy demand, is likely to limit any upside potential. Faster post-lockdown recovery in Europe and North America and shorter lockdowns in other regions would reduce the negative impacts on Asian manufacturing economies and gas exporting regions.


In the last decade, the North American shale boom unlocked previously untenable unconventional shale gas and oil reserves. It boosted the United States to become the leading oil and gas producer in the world. The rise of shale made it more challenging for OPEC to maintain market share and price discipline. While OPEC cut oil and natural gas liquids production by 5.2 million barrels per day (bpd) since 2016, Shale added on an average 7.7 million bpd over this timeframe, taking share and limiting price increases.

Shale gas being the by-product requires infrastructure (including Pipeline) for evacuation. This Shale gas has unlocked abundant gas resources at breakeven costs of less than $2.5/MMBtu to $3.0/MMBtu. The pandemic has had an immediate impact, lowering gas demand by 5 to 10 percent versus pre-crisis growth projections. North America is becoming one of the largest LNG exporters by the early 2020s, and a sharply oversupplied LNG market. As per McKinsey, regional gas prices in Europe and Asia are also expected to be driven by prices at Henry Hub, plus cash costs for transportation and liquefaction (a premium of about $1/MMBtu to $2/MMBtu).

Other geographies like Middle East are also exploring to increase their share in Shale Gas.


Crude oil is an important energy resource which underpins the energy needs of a global economy. India is the 3rd largest importer and consumer of crude and has limited crude oil reserves in the country. Changes in crude oil price and global demand-supply directly affects the Indian economy. Fields operated by National Oil Companies (NOCs) have contributed around 74% of the total domestic crude oil production whilst the remaining 26% production has been undertaken by private companies during Fy20.

Crude oil

Production has declined over the years and has fallen by 3.4% during FY16-20. The reduction in crude oil production may be attributed to natural decline in ageing and matured fields and no major discoveries. Imports have grown at a CAGR of 2.9% during FY16-20.

Consumption: According to CARE Ratings, India has consumed almost 5.09 mb/d of crude oil during FY20, compared with the 5.17 mb/d consumed during FY19. Weak fuel demand which led to an inventory build-up of refined petro- products, extended monsoons and planned shutdowns of refineries for up-gradation and maintenance has led to the fall in crude processing activities of refineries.

Natural gas

Production (gross) has fallen at a CAGR of 0.8% during FY16-20. Net production was 32.7 BCM during FY16 whereas it has declined to 31.2 BCM during FY20. Reason for the decline in production over the years is due to the natural decline in output from the ageing fields coupled with lower than expected natural gas production from the Krishna Godavari Basin as well. Imports have increased at a CAGR of 12% during FY16-20 signifying the growing need for natural gas in the Indian economy.

Consumption has grown at a CAGR of 5% during FY16-20 with consumption increasing by 5.2% during FY20. The government has been encouraging the use of natural gas given its clean burning activities and aims to convert India into a "Gas Based Economy" by 2030.


• Crude oil infrastructure mainly consists of refineries used to produce petroleum products & crude oil and product pipelines.

• Natural gas infrastructure mainly consists of R-LNG terminals, Gas Pipelines and City Gas Distribution (CGD) networks.

Pipeline transportation offers a safe, economic and environmentally sound alternative to most other modes of energy transport.

Major crude oil, natural gas and product pipeline network as on 1st April 2020.

Length (KM) 1,283 1,193 688 1,017 5,301 937 10,419
ciuue on Capacity (MMTPA) 60.6 9 10.7 11.3 48.6 7.8 147.9
Length (KM) 12,160 1,774 2,692 215 140 - 16,981
Capacity (MMSCMD) 246 84 43 5 10 - 388
Length (KM) 654 9,206 2,241 3,775 2,395 18,271
Capacity (MMTPA) 1.7 46 19.5 34.7 9.4 111.3

Source: PPAC, CARE Ratings

As per the above table, Indias crude oil pipelines have an estimated combined capacity of 148 Mt per year along with 10,419 kilometres of pipelines, including 488 km of offshore pipeline. IOCL owns the three longest crude oil pipelines, of which two - Mathura and Panipat - serve refineries close to Delhi from the western coast. India also has an extensive oil product pipeline network.

To meet the rising LPG demand, India is planning to develop additional infrastructure for LPG distribution. IOCL is laying an LPG pipeline from the west coast in Gujarat to Gorakhpur in eastern Uttar Pradesh. This pipeline, with an estimated capacity of 3.75 Mt per year (76 kb/d) could become the longest

LPG pipeline in the world. IOCL is also building additional import capacity at Paradeep (east), Kochi (south) and Kandla (west) to meet the increasing requirement for LPG imports.

Residential gas consumption is small, but India is expanding its gas distribution networks rapidly, an area where major growth is expected. Some states and cities also promote gas vehicles to reduce emissions from the transport sector.

Under National Infrastructure Pipeline, an overall total capital expenditure of Rs 194,572 crore by both the Centre and states would be made over fiscals 2020 to 2025. About 163 projects have been identified to be implemented in 2020-25.

Capital expenditure over FY20 to FY25

Crs FY20 FY21 FY22 FY23 FY24 FY25 Total
Centie 27,006 43,056 48,147 41,524 22,858 10,535 193,126
State 326 454 167 1446
Overall Total 27,332 43,510 48,314 41,523 22,858 10,535 194,572

Source: NIP

Breakup of Capital Expenditure by Centre:

Category No of Projects Capex over FY20-FY25 (Rs. Crs)
Gas Pipelines 17 51,860
Oil Pipelines 35 52,278
Oil / Gas / LNG 42 30,443
Storage Facilities
Others 69 58,545
Total 163 193,126

Source: NIP

Under National Gas Grid project, there exists a need to add an additional ~14,700 km to link each state to gas pipeline to ensure access to clean and green energy for all households and industries. India aims to increase the share of natural gas to 15% of the energy mix by 2030 which suggests a doubling of current demand and infrastructure needs, as part of a gas trading hub. This will require the availability of transport capacity across India, which will enable all market players to access LNG supplies. Under the Petroleum and Natural Gas Regulatory Board (PNGRB) Act 2006, gas pipelines were declared common carriers/contract, and non-discriminatory third-party access is mandatory. In an effort towards enabling gas market and fostering gas trading in the country, the government has launched Indias own natural gas trading platform.

Presently, most of the gas pipelines are concentrated in the western and northern part of the country with a few lines in the east and south. Giving a major boost to development of natural gas grid in North East India, the Cabinet Committee on Economic Affairs (CCEA) approved Capital Grant of 60% of the estimated cost of 9,265 crore for the project to Indradhanush Gas Grid Limited (IGGL). The North East Gas Grid project is being implemented by IGGL, a Joint Venture company of five CPSEs (GAIL, IOCL, ONGC, OIL and NRL). The total length of the pipeline is planned to be 1,656 km and it is estimated to build at cost of Rs. 9,265 crore. It will cover eight states of the North-Eastern region i.e., Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura.

In South, GAIL has planned an investment to build Srikakulam-Angul Natural Gas Pipeline of approximately 600 KM length. This pipeline is expected to connect to another pipeline - Mumbai Nagpur Jharsuguda Gas Pipeline (being envisaged by GAIL) which is of approximately 1400 KM. These pipelines will form a grid to supply Gas to consumers and industrial units in South, West and Central India. Additionally, BPCL is in the process of constructing a pipeline of approximately 300 KM from Irugur in Coimbatore to Devangonthi in the state of Karnataka. Numaligargh Refinery Limited (NRL) is

building approximately 1400 KM pipeline to transport imported crude oil from Paradip Port to Numligarh in Assam via West Bengal. This will be further coupled with approximately 650 KM a pipeline to transport products like HSD, MS, SKO from refinery at Numaligarh, Assam to marketing terminal at Siliguri, West Bengal. With a total length of approximately 2000 Km, these pipelines are part of expansion plan of NRL from 3 MMTPA to 9 MMTPA at a project cost of INR 22,000 Cr.

In order to make natural gas available to public at large, the government has emphasized on expansion of City gas distribution (CGD) network coverage across the country. CGD network ensures the supply of cleaner fuel to households, industrial and commercial units as well as transportation fuel to vehicles. Till 2017, only 19% of the countrys population spread over 11% of its area was covered by CGD in 96 geographical areas. To boost the CGD sector, 9th CGD bidding round was launched in April 2018 for 86 GAs covering 174 districts in 22 states / union territories of the country. 38 entities have participated in this round and submitted total 406 bids. In the 10th round of bidding, 50 GAs covering 124 districts in 14 states and union territories were awarded in 2019. Post implementation of this, ~ 70% of Indias population and ~ 53% of its geographical area would get covered through CGD network.

ONGC will continue to invest progressively in its offshore pipeline replacement projects with approximately 360 KM expected to be replaced over next 5 years.


North America:

A decade of shale drilling has transformed US energy as the countrys oil output has more than doubled, cutting its dependence on foreign supplies, while an abundant supply of cheap natural gas has enticed power plants to switch from dirtier coal and helped lower US carbon emissions. Because of emergence of shale, the USA transformed from one of the worlds leading oil importers into the worlds largest producer and net exporter of oil and gas.

The American shale industry shocked the world with its rebound after the 2014-2016 bust, setting records for output that pushed the U.S. to the top spot among oil-producing countries. US oil production, just 5.5m barrels a day in 2011, is now a world-leading producer. Pipelines and other infrastructure have sprouted across the coast of the Gulf of Mexico to support a surging oil export trade. In 2019, the Permian regions oil and gas industry continued to provide unmatched economic support. Since 2009, oil production in the region has increased from less than 1 million barrels per day (MMBbl/d) to more than 4 MMBbl/d in 2019 and it is estimated that oil production to nearly double in coming years. In 2019, the United States also officially became the largest producer of oil and natural gas in the world, with the Permian Basin surpassing Saudi Arabias Ghawar field to become the top producing oilfield. Increases in drilling efficiency pushed U.S. crude oil and natural gas production to establish new records of 12.2 million barrels per day (b/d) and 111.5 billion cubic feet per day (Bcf/d), respectively, in 2019.

However, due to the recent developments in the Oil market, United States crude oil production has fallen from a record 12.9 million b/d in November 2019 to 11.4 million b/d in May 2020. Baker Hughes has reported the fewest active drilling wells in their records which go back to 1987. As per estimates, crude oil production is estimated to continue to decline, to 10.6 million b/d in March 2021. This CY2020E production decline would mark the first annual decline since 2016.

As per EIA, 14 crude oil pipeline projects were completed in 2019, compared with 11 in 2018. An additional three projects were completed as of the end of April in 2020. Nine of the crude oil projects completed in 2019 and all three of the 2020 projects were new pipeline projects. By comparison, only 4 of the 11 crude oil projects completed in 2018 were new pipelines; the rest were expansions of existing pipelines or conversions of existing pipelines to carry crude oil. Not all new pipelines are independent projects; some projects are connected to each other and carry the same liquid to its final destination.

U.S. natural gas production grew by 9.8 billion cubic feet per day (Bcf/d) in 2019, a 10% increase from 2018. The increase was slightly less than the 2018 annual increase of 10.5 Bcf/d. U.S. natural gas production measured as gross withdrawals (the most comprehensive measure of natural gas production) averaged 111.5 Bcf/d in 2019, the highest volume on record, according to the EIA. U.S. natural gas gross withdrawals recorded a monthly high of 116.8 Bcf/d in November 2019. Marketed natural gas production and dry natural gas production also reached monthly record highs of 103.6 Bcf/d and 96.4 Bcf/d, respectively, in November 2019. The United States continued to export more natural gas than it imported in 2019, and net natural gas exports averaged 5.2 Bcf/d. In 2019, the United States also exported more natural gas by pipeline than it imported for the first time since at least 1985, mainly because of increased pipeline capacity to send natural gas to Canada and Mexico.

As per EIA estimates, the United States is expected to have added between 16 billion cubic feet per day (Bcf/d) and 17 Bcf/d of natural gas pipeline capacity in CY2019, most of which was built to provide additional takeaway capacity out of supply basins. Out of 134 active natural gas pipeline projects, the EIA tracks, 46 have entered or are expected to enter service in 2019. These projects are expected to increase deliveries by pipeline to Mexico or to Liquefied Natural Gas (LNG) export facilities in the Gulf Coast region. Many of these pipeline projects is expected to provide additional takeaway capacity out of the Permian Basin in western Texas or enable additional Permian natural gas production to reach the interstate pipeline system. Some of these pipelines include:

• Kinder Morgans 2.0 Bcf/d Gulf Coast Express Pipeline, which provides takeaway capacity from the Waha Hub in the Permian Basin (near the Texas-New Mexico border) to demand markets on the Gulf Coast at the Agua Dulce Hub

• ONEOKS Roadrunner Eastbound Expansion, which added about 1.0 Bcf/d of bidirectional capacity on the pipeline, and the 300 million cubic feet per day (MMcf/d) WesTex Expansion, which added northbound takeaway capacity out of the Permian Basin

• El Paso Natural Gas Pipelines 320 MMcf/d Northern Delaware Basin Expansion Project, which is still under construction and will add additional capacity to the El Paso system in western Texas, allowing additional volumes to flow westward on the system.

As US drillers are being pushed into the front line of a new price war declared in early March, pandemic arrived to cripple global oil demand at the same time. Lately, oil fields from Texas and New Mexico to Oklahoma and North Dakota are going quiet as drilling halts because of the recent turmoil. Fuel demand has decreased as efforts to fight the coronavirus pandemic have grounded aircraft, reduced vehicle usage and pushed economies worldwide toward recession. The U.S. oil boom came to a halt in first week of March, the day Saudi Arabia and Russia ended a four-year pact that curbed output and gave shale a price umbrella. Shale firms have accrued hefty debt during the years of expansion, leaving them exposed to the oil price crash that followed.

Middle East

Middle East is one of the largest market in the world for large-diameter line pipe. The region has the highest concentration of energy supplies in the world and has one of the largest oil fields in the world in Ghawar in Saudi Arabia.

Saudi Arabias oil and gas pipeline network has been largely concentrated in the east of the country around oil and gas fields. There are three pipelines traversing across to the West of the country (East- West Pipeline, Abqaiq-Yanbu LNG pipeline and the IPSA natural gas pipeline). The National Oil Company (NOC), Saudi Aramco, is responsible for the construction of all oil and gas pipelines in the country. In total the country has more than 90 pipelines and 12,000 miles of crude oil and petroleum product pipelines through the country. It is expected to contribute 17% of global new-build trunk/transmission petroleum products pipeline length additions by 2023.

Saudi Arabia is now working to rapidly expand its gas reserves in order to increase the growth of the petrochemical industry and provide fuel for power generation and desalination in the region. Saudi Aramco has launched largest shale gas development outside US to boost domestic gas supply. With this development, Saudi Arabia would become the worlds third largest gas producer by 2030. The worlds top two gas producers are the United States and Russia. Aramco has drilled 150 wells since 2013 in the Jafurah shale gas field to prepare the development plan.

Additionally, Saudi Aramco has awarded 34 contracts with a total value of $18 billion for the engineering, procurement and construction of the Marjan and Berri increment programs. The company plans to boost the Marjan and Berri fields production capacity by 550,000 barrels per day of Arabian Crude Oil and 2.5 billion standard cubic feet a day (BSCFD) of gas. Contractors working on these projects are required to maximize the procurement of material and equipment from local suppliers and manufacturers to help achieve Saudi Aramcos InKingdom Total Value Add Program (IKTVA) goals, which aim to increase the companys locally-sourced goods and services to 70 percent by 2021.

Marjan increment program is an integrated development project for oil, associated gas, nonassociated gas and cap gas from the Marjan offshore field. This development program includes a new offshore gas oil separation plant, and 24 offshore oil, gas and water injection platforms. Saudi Aramco is also planning to expand its Tanajib onshore oil facilities and construct a new gas plant, to include gas treatment and processing, NGL recovery and fractionation, and gas compression facilities. A cogeneration facility will be developed, in addition to a water desalination facility and new transfer pipelines. The offshore oilfield development project aims to increase the Marjan Field production by 300 MBCD of Arabian Medium Crude Oil, process 2.5 BSCFD of gas, and produce an additional 360 MBCD of C2+NGL.

Through the Berri increment program, Saudi Aramco is planning to add around 250,000 barrels of Arabian Light Crude per day from the offshore oilfield. The planned facilities will, upon completion, include a new gas oil separation plant in Abu Ali Island to process 500,000 barrels of Arabian Light Crude Oil per day, and additional gas processing facilities at the Khursaniyah gas plant to process 40,000 barrels of associated hydrocarbon condensate. The program includes a new water injection facility, two drilling islands, 11 oil and water offshore platforms and 9 onshore oil production and water supply drill sites.

As far as Qatar is concerned, Qatar Petroleums North Field Expansion project is expected to raise Qatars LNG production capacity by 2025 to 110 million tonnes/year from 77 million tonnes/year and boost it again to 126 million tpy by 2027. A number of milestones in the project have begun, including the start of a drilling campaign for 80 development wells, installation of offshore well head jackets, and the reservation of capacity to build LNG ships that would ensure meeting Qatars future LNG fleet requirements.

Africa Region

The Moroccan-Nigerian gas pipeline initiative is expected to link these two countries and serve several others in West Africa. Commission of the Economic Community of West African States (ECOWAS) is ready to work with Nigeria and Morocco for carrying off this structuring project. ECOWAS believes that the pipeline is a unifying trans-regional project, which will contribute to achieving the objectives of the organization. The project, set to be 5,660 kilometers of pipeline aims to supply 15 countries in West Africa.

Mozambique is bang in the middle of the map, thats ideal for Asia or Europe & interestingly the country is on its way to becoming a top ten liquefied natural gas (LNG) supplier. The southern African nation - which has more than 125 trillion cubic feet (tcf) of natural gas reserves - has been touted as the next great LNG player and is making full use of its potential as it looks at rivaling top African LNG producers. In years to come, Mozambique is likely to be producing 31 million tonnes per year from three projects, Coral Sul floating LNG (FLNG), Mozambique LNG and Rovuma LNG. The discoveries in Mozambique are high quality, non-associated gas reserves and mostly free of pollutants such as CO2 and H2S, making advances from a scientific point of view fairly straightforward.

In 2006, commercial quantities of oil were confirmed to exist in the Lake Albert basin in Uganda. The Oil companies in Uganda; CNOOC LTD, TOTAL and TULLOW PLC completed the exploration phase and are now headed into development, which will consequently lead to the production of Ugandas oil resources. Once produced, the crude oil will be partly refined in Uganda to supply the local market and partly exported to the international market. The export to the international market will be through an export crude oil pipeline; The East Africa Crude Oil Export Pipeline (EACOP). The EACOP is a 1,443km crude oil export pipeline that will transport Ugandas crude oil from Kabaale - Hoima in Uganda to the Chongoleani peninsula near Tanga port in Tanzania.


Australias oil and gas industry has held a critical place in the development of the world oil and gas sector. With the production of liquefied natural gas (LNG), crude oil and condensate, Australia makes a small but significant contribution to the worlds global oil and gas supply. The exploration and production of products in the petroleum sector is predominately based in Western Australia. The Carnarvon and Perth Basins in this region produced over 10.8 thousand megaliters of crude oil in 2018. In terms of natural gas, about 130 billion cubic meters were produced across the entire country in the same year. Australia recently overtook Qatar as the worlds biggest LNG exporter. With increasing global demand, the export volume of LNG has tripled since 2008 and is expected to further keep its growth momentum with a string of new projects planned.

The Barossa Project is an offshore gas and condensate project that proposes to provide a new source of natural gas to the existing Darwin LNG (DLNG) facility in the Northern Territory. The project involves an over 260km pipeline to the Tie-in point of the existing Bayu-undan pipeline to Darwin LNG plant.

Woodside is proposing to develop the Scarborough gas resource through new offshore facilities connected by an approximately 430 km pipeline to a proposed expansion of the existing Pluto LNG onshore facility (Pluto Train 2). Woodside, as Operator for and on behalf of the Browse Joint Venture, is proposing to develop the Brecknock, Calliance and Torosa fields located approximately 425 km north of Broome in the offshore Browse Basin. The project involves an over 900 km pipeline to Broome in Western Australia.

Shell Australia, is progressing plans for the development of the Crux gas field. The development plans involve connecting the export pipeline system between the Crux Not Normally Manned Platform and the Prelude FLNG facility. The proposed export pipeline runs over 160km length.


Global water use has increased by a factor of six over the past 100 years and continues to grow steadily at a rate of about 1% per year as a result of increasing population, economic development and shifting consumption patterns. The growing demand for water, resulting from population growth and the need to produce more food, puts increasing pressure on the limited available water resources, particularly in areas of physical water scarcity.

As per the G20 Global Infrastructure Outlook, water infrastructure is estimated to require a total of USD 6.4 trillion in order to provide adequate infrastructure to the increasing water demand. A part of water infrastructure will require setup of pipelines to transport water from surplus to deficit areas. It is estimated that the global water and wastewater pipe market is estimated to grow at a CAGR of ~5% over the next five years. Asia-Pacific is anticipated to remain the largest market over the period due to high growth in construction and infrastructure development, especially in China and India. North America on the other hand is expected to witness good growth because of growing infrastructural development activities and replacement of aging pipelines.


India has about 4% of worlds freshwater resources ranking it among the top ten water rich countries. Despite this, according to the Working Group II report of the Fourth Assessment of the Intergovernmental Panel on Climate Change, India is designated a water stressed region with current utilisable freshwater standing at 1122 cubic meter (cu m) per year and per capita compared to international limiting standards of 1700 cu m. In future, at the current rate it is expected that India with high demands will be termed a water scarce region as utilizable freshwater falls below the international standard of 1000 cu m per year and per capita. Water demand is on a high due to rapid urbanization and industrialization along with the traditional demand for agriculture. Overall, every year, precipitation in the form of rain and snowfall provide over 4000 cu km of freshwater to India, of which 2047 cu km return to oceans or is precipitated. A small percentage is stored in inland water bodies and groundwater aquifers.

During the year Union finance minister unveiled Rs. 111 lakh crore of infrastructure projects, under National Infrastructure Pipeline, that will be implemented in the next five years as part of the governments spending push in the infrastructure sector. It is estimated that India would need to spend $4.5 trillion on infrastructure by 2030 to sustain its growth rate.

Water Related sector-wise annual capital expenditure in infrastructure

(Rs. crore)
Department FY20 FY21 FY22 FY23 FY24 FY25 Total
Urban Infra 298,174 462,208 404,134 234,858 217,164 159,862 1,919,267
Irrigation 114,463 200,615 175,669 137,358 115,281 70,474 894,473
Rural Infra 140,313 176,803 210,811 111,877 107,057 27,055 773,915

Urban & Rural Infra Sector Vision 2025

• ~100% of urban and rural households connected to piped-water supply

• Significant improvement and use of advanced techniques in maintaining the quality of water

• Most waste water to be treated and re-used in urban and rural areas

• National standards on urban infrastructure adopted by all cities

Irrigation Sector Vision 2025

• Higher irrigation coverage: Total irrigated land is

~85 million hectare (~61% of total).

• Reduced dependence on rains to improve farmers incomes and consumption levels

• Emphasis on efficient methods of irrigation

- Micro irrigation to cover 28% of total NIA, leading to efficient use of scarce water

- Switchover from traditional methods of tank and canal irrigation to efficient methods: drip and sprinkler irrigation

• Judicious use of water for irrigation

• Pricing method based on water quantity-based fees

Few government initiatives already announced which will provide significant potential demand for the water pipe:

List of Government Projects What it is about
Jal Jeevan Mission - Rural To provide functional household tap connection to every rural household i.e. Har Ghar Nal Se Jal by 2024
Atal Mission for Rejuvenation and Urban To ensure adequate water supply and sewerage network in cities.
Interlinking of Rivers (ILR Programme) To increase the overall area under irrigation, domestic and industrial water supply and hydropower generation
PMKSY To expand cultivable land under irrigation, improve water-use efficiency on farms and adopt precision irrigation

Source: NIP

With nearly 50 per cent of India grappling with drought-like conditions, the situation has been particularly grim in western and southern states that have received below average rainfall. Going forward, the largest potential states where there will be huge focus on water infrastructure are Madhya Pradesh, Karnataka, Rajasthan, Andhra Pradesh, Telangana and Maharashtra.

Water Segment in Middle East

Saudi Arabia ranks among top 5 countries in the world in terms of water scarcity. With demand growth rates in Saudi for potable water expected to remain robust at about 5 per cent a year until 2032, according to regulator Electricity Cogeneration Regulatory Authority (ECRA), there is a requirement for additional desalination capacity. Around 50% of drinking water requirements are met by desalination plants while rest is met by surface water which is generated from mountains regions, limited ground water reserves, etc.

Particulars 2017 2025 (P) 2030(P) CAGR (2016-2030)
Total Desalination Plant Capacity (m3/d) 8.3 10.2 10.8 2.4%

Taking this into consideration, Saudi Arabias water sector has undergone numerous changes in recent years, with the establishment of a new water ministry and numerous privatisation initiatives launched under Saudi Vision 2030. In line with Vision 2030, most of the capital costs involved in the kingdoms new desalination and sewage treatment capacity will be met by the private sector. Water infrastructure projects are rapidly being constructed, expanded, and upgraded across the Middle East, as the region seeks to expand its critical utilities infrastructure to meet future demand expectations.

Project Name Length 9KM)
Water transmission system of Yanbu 605
AI Khobar desalination plants 43
Water transmission system of Al Taif - Al Baha 222
Water transmission system of Ras Al Khair - Hafr Al Baten 385
Water transmission system of Ras Al Khair - Riyadh 914
Mekkah Strategic 160
Total 2,329

The opportunity for pipelines lies in the fact that most of the producing / processing plants are at quite a distance from the consuming centers. Pipelines will be required for distribution of water from desalination plants to all cities with average distance between 300 to 500 kms for each pipeline.

Welspun Corp

Welspun Corp (WCL) is a one-stop service provider offering complete pipe solutions. WCL has the capability to manufacture line pipes ranging from 1/ inch to 140 inches, along with specialized coating, double jointing and bending. With current capacity of 2.55 million MTPA spread across India (Dahej, Anjar, Mandya and Bhopal), USA (Little Rock) and Kingdom of Saudi Arabia (Dammam), Welspun takes pride in being a preferred supplier to most of the Fortune 100 Oil & Gas companies. With 360 degree abilities, Welspun Corp has undertaken some of the most challenging projects in different parts of the world.

Manufacturing Presence:

The Companys multi-locational line pipe capacity stands at 2.55 million MTPA spread across the key markets of US, Saudi Arabia and India

With the commissioning of Bhopal plant, the company has better coverage over North and Central India.

Capacity (in KMT)


USA Saudi Arabia

Products Anjar Dahej Mandya Bhopal Total Little Rock Dammam
LSAW 350 350 700 700
HSAW 380 50 150 175 755 350 375 1,480
ERW/HFIW 200 200 175 375
Total 930 400 150 175 1,655 525 375 2,555

FY20 Performance Highlights Highest Ever Production & Sales Volume:

FY2020 is another milestone and an exemplary year as we have crossed last year benchmark and achieved highest ever yearly production & sales in volume terms by producing 1,629 KMT and selling 1,502 KMT of pipes through its plants in USA, Saudi Arabia and India. The company has been achieving an average of 1.1 million+ average sales and production in last 5 years.

Diversified Order Book:

The Company has a healthy current order book of 706 KMT ( 57 Billion). We have a well-diversified order book from oil and gas sector and water sector across three regions we operate in.

Pre-payment of debt:

The Company is constantly trying to reduce its gross debt levels by pre-paying debt wherever permitted. In line with this endeavor, the Company has pre-paid US$ 50 mn of loans in the US subsidiary during the year. Subsequent to the Balance Sheet date, the Company has further reduced the Gross Debt by prepaying a part of its long term NCDs by Rs. 250 cr, before the due date.

Dividend & Buy-Back:

For FY 2020, based on the Companys performance, the Directors had declared interim dividend in February 2020 of Rs. 10 per equity share. The Directors have also recommended a final dividend of Rs. 50 paisa per equity share, taking the total dividend to Rs. 10.50 per equity share.

In addition, during the year the Company launched a share buy-back programme to repurchase up to 28,888,888 fully paid up equity shares of face value of Rs. 5/- each at a price of Rs. 135 per fully paid up equity share on a proportionate basis which was approved by shareholders on 22nd June 2019. Against this, 4,356,714 mn shares aggregating to ~ Rs. 588 mn were tendered by shareholders, which were bought back by the Company in November 2019.

COVID-19: Welspun Group Response:

Towards the end of Q4FY20, the operations of the Company and its subsidiaries were impacted due to the shutdown of all plants and offices following lockdown imposed by government authorities to contain spread of COVID-19 pandemic. The Company and its subsidiaries have resumed operations in a phased manner as per the directives from the respective government authorities.

We have adopted several measures across our offices and sites to ensure that our commitment to our customers is not compromised. In order to curb the spread of COVID-19, we have issued stringent travel advisories to avoid any business-related travel within the country or in international markets. We have implemented Work from Home for our employees for their safety and well-being. A robust IT infrastructure has been put in place for remote working to ensure business functions seamlessly from any location.

Extreme caution and highest standard of hygiene and safety is being practiced by our staff across all our locations. In order to create awareness and protect our employees, additional efforts have been implemented, as explained below:

• Thermal screening of all employees at entry of all offices and plants

• Following of social distancing norms i.e. minimum 6 ft distance to be followed.

• Compulsory hand sanitization for all at frequent intervals

• Daily periodic sanitization of offices, work-area, company transport, etc.

• Tie-ups with hospitals and medical centers

• Ensuring availability of medical staff round the clock

• Provision of hand sanitizers, N95 masks and medical equipment

• Multiple awareness drives for all employees

• Posters and banners educating on COVID-19 and hygiene


The Companys key risks are:

Economic Risks: The macroeconomic outlook has been volatile in India as well as in other key markets where the Company operates. Economic slowdown could affect the Companys order book position, affecting capacity utilisation, sales and profitability. Increasing global trade protectionism has resulted in an advantage to the Company in the markets in which it has manufacturing facilities, but has made it tougher to export to other geographies. Due to its impeccable track record and superior performance on quality and timely delivery, the Company has been able to build a record high order book position at the end of FY20. The order book gives significant visibility for FY21, thus reducing risks due to an economic downturn.

Volatile crude oil and gas prices:

Volatility in crude oil and very low gas prices create uncertainty for oil & gas producers, regarding the viability of new exploration. This, in turn, could create an uncertain future demand for line pipes in the oil & gas segment.

Steel prices: The Company face risk on steel pricing (the basic raw material) which it considers in bidding for any project or tender; and more so as the business is a long gestation one with minimum time taken from bid submission to award, varying from 4/6 months to even a year or two. The Company tries to mitigate this risk by way of arranging back-to- back pre-tender tie-ups with its selected group of pre-approved steel mills (directly or through their nominated trading channel) at the time of bidding for a project or tender - on Price as well as quantity allocation, with the tacit understanding that in case the Company happens to be the successful bidder, the Company will immediately confirm its order of steel. The Company undertakes channel sales where it is exposed to steel price fluctuations; however, the contribution of such business to overall revenue is not significant. The increase or decrease in the steel prices has direct relation to the increase or decrease in pipe pricing.

Competition: Increased competition in all segments may have an impact on business and profitability. While the potential demand for new oil and gas pipelines remains high in most of the Companys markets, there have been considerable delays in decisions in many projects owing to policy uncertainty and environmental concerns, among others. This had led to fewer than expected projects coming to the market in certain years, leading to high level of competition. However, the current demand scenario for large diameter pipes is encouraging across all the three key geographies. Moreover, the Company has significant visibility of capacity utilisation for FY21, due to its strong order book.

Currency Risks: The Companys foreign currency exposures are largely denominated in US dollars, Saudi Riyal, or Euro. Volatility in the rupee exchange rate against major currencies will have an adverse impact. Although the Company has implemented a well-defined hedging policy, foreign exchange fluctuations could affect reported results.

Quality Risks: The Company is required to produce high-quality products in line with stringent requirements of clients. Despite best efforts, even a small deviation and resultant rejection of some products may have a larger impact as the cost of raw materials and other overheads may impose an additional cost.

Interest Rate Risk: Interest expenses are part of the finance costs. Therefore, any major upward fluctuation in interest rates leads to an increase in the cost of debt for the Company. The interest rate risks are mitigated to an extent through fixed interest rates on its rupee borrowings. The Company over the last year has reduced its high cost debt and is the process of further reducing its debt.

Legal Risks related to tax structure: The Company is liable to pay tax on profits, GST, sales tax, excise duty, service tax, custom duty and other applicable taxes. Any changes in tax legislation could lead to an increase in tax payments and, as a result, to a lowering of financial results.


• Established Brand Equity in the global large dia. pipe market

• Global reach, cleintele and supply chian base

• Technical capcbility (Deep water and Sour service capability) and strong execution track record

• Technological leadership

• Local presence in major markets

• Diversified order book

• Strong balance sheet with negligible net debt

• Diversified product portfolio

• Experienced management team


• Low capacity utilization and ROCE in PCMD (which is held for sale)

• Relatively Low capacity utilization in the Indian mills

• Low order book for the US plant


• New products/applications

• New markets in Latin America, Africa, Australia

• Ability to deliver on technologically challenging specifications

• Replacement pipe demand potential


• Volatile commodity Prices (Oil and Gas, Steel)

• Excess Capacity and aggressive competition in India

• Preference for local producers and tariff / non tariff barriers in many export markets

• Potential Delays in large projects

Human Resource:

WCLs Human Resource Strategy continues to evolve around the Group Philosophy of Welspun 2.0. The Company strives to further reinforce the core values of Customer Centricity, Collaboration, Technology and Inclusive Growth.

At WCL, people practices and processes aim to deliver both Strategic and Operational Excellence to the Company by building organizational capability. Mechanisms have been put in place to leverage inhouse expertise and people capabilities to create and execute the business strategy.

During FY19-20, WCL has made significant progress in enhancing its HR delivery by adopting the latest best practices for people development and technology oriented HR.

1. Revamp of performance management system for Associates: A new initiative, ‘Worker Skill Assessment, launched during year. The entire assessment was conducted for 1000+ Associates across locations and it was based on 2 parts; i.e. Skill and Will assessment. Based on assessment score they were categorized in groups which formed the basis for rolling out increments. It enabled us to define the 9 box skill will matrix for the associates to identify training needs.

2. Technical Centre of Excellence was launched during the year 2018-19 which is committed to provide specific technical training to GETs, Staff, Associates, those deployed through NEEM and Apprentices scheme. The Training includes Classroom sessions followed by On the Job trainings at the designated workstations for an overall learning experience resulting in skill development of its participants. This year, we have NEEM training across all locations is being consolidated with additional initiatives like mentor - mentee feedback, periodical evaluation and refresher training of apprentices ,GETs and NEEM trainees.

3. Equitable future for women: our focus to hire women at production work force. We have hired women (both staff and associates ) in Bhopal plant for technical and management roles referring to our vision and policy to hire, train, develop and retain the careers of women having technical and leadership credentials, on par with the male work force in every aspect.

• At WCL-Bhopal, women on manufacturing shop floor manage most critical operations like welding. It shows that it is possible for the glass ceiling to be breached. Today, we count ourselves among the most progressive companies in the country making significant strides in gender diversity and inclusivity, from the manufacturing floor to the management office.

4. Rising SheMaker Award 2020:

Breaking all barriers, Neha and Rampyari from our Bhopal facility are true inspiration for all of us. They have not just won the Rising SheMaker Award 2020 but have also set an example for many of us to embrace the will to bring about a meaningful change. At WCL, we constantly strive to create inclusion and diversity in our workforce and we provide a platform for all women who dare to dream which inspires all aspiring women to advance their careers and build a future in the field of manufacturing where women have equal power & voice as makers & leaders.

5. Employee Engagement forums through Townhalls, New Joiners meet was facilitated.

6. Annual day programs celebrated in all locations with employees awarded in various categories which included awards to Best Manufacturing Facility - Welspun Corp Limited, Dahej, Young Achiever, Best Managers, Value Champions - Customer Centricity and Inclusive Growth and Best Emerging Leader. Welspun Corp Ltd. won the Best Company Award during this year.

7. Welspun is committed to Cleanliness and its Swach Welspun Abhiyann is testimony to it. Weekly SWA awareness, audit and drives are part of its responsibility which is carried out in every location. Also, secured Best SWA Initiative Award (Babuji Swacchta Puraskar).

Employee Count for FY 19-20 as of 31st Mar20:

Category Headcount (Nos.)
Staff + Associates 3580
Contract Labour 1184

Internal control & Adequacy

Management of the Company ensures that the internal control system is adequate and commensurate with the size and scale of the Companys operations and designed to provide reasonable assurance that assets are safeguarded and transactions are rightly executed and recorded in accordance with management authorization and accounting policies. The existing policies are subject to periodic reviews to align with the changing business needs, improve governance and to enhance compliance with evolving regulation.

All the records are adequately maintained for preparation of financial statements and other financial information. Apart from internal controls, the Company also audits the efficiency and security of its operations, its information technologies and data, in accordance with the global standards. The Audit Committee of the Company met seventeen times during this year to review, among others, the internal audit reports as well as the internal control systems and financial disclosures.


This discussion on Financial Analysis is for consolidated financials of the Company during 2019-20. The Company, together with its subsidiaries, is engaged in the business of

Production and Coating of High Grade Submerged Arc Welded Pipes. The FY19 numbers are shown on comparable basis for all statement of Profit and Loss and Balance Sheet items discussed below.

All P&L figures including prior period figures refer to the continuing pipes operations unless stated otherwise. PCMD and 43 MW have been treated as discontinued operations in the March-19 financials as well as in the prior periods:

Highlights of the financial year:

• Highest Ever Annual Production, Sales and Profitability by the Company in its history

• Net Debt reduced by Rs. 2,534 mn during the year

• FY20 revenue was at Rs. 99,568 mn

• FY20 EBITDA was at Rs. 12,759 mn


Production and Sales in KMT - Pipes (including Saudi Arabian JV)

• Pipe production volume for FY20 (including Saudi Arabian JV) stood at 1,629 KMT, up 30% YoY. Ex-Saudi production volume was 1,144 K tones, up 16% YoY

• Pipe Sales volume (including Saudi Arabian JV) for FY19 stood at 1,502 KMT up 17% YoY. ExSaudi sales volume was 1,001 KMT

• Including Saudi Arabian JV, the capacity utilization was over 85% against 50% (Fy19). The overall installed capacity of pipes is 2.55 million MTPA, making the Company one of the largest line pipe companies in the world.

Production and Sales in KMT - Pipes (including Saudi Arabian JV)

Consolidated Revenues Revenue

Total sales stood at Rs. 99,568 million in FY20 as compared to Rs. 89,535 million in FY19, an increase of 11%, on account of higher volumes and better realisations, especially at the US plant.

Breakup of various cost items as a %age of Sales (Consolidated)



Rs. (million) (%) Rs. (million) (%)
Sales 99,568 89,535 100.00%
Cost of goods sold 65,348 65.63% 62,768 70.10%
Employee Benefit Expenses 6,365 6.39% 5,720 6.39%
Manufacturing & Other Expenses
- Store & spares consumed 2,214 2.22% 1,886 2.11%
- Coating & other Job charges 223 0.22% 201 0.22%
- Power, fuel & water charges 1,223 1.23% 1,133 1.27%
- Freight material handling charges 7,960 7.99% 5,866 6.55%
- Other expenses 4,635 4.66% 6,230 6.96%
Total Manufacturing & Other Expenses 16,255 16.33% 15,317 17.11%
Total Expenses 87,968 88.35% 83,804 93.60%
Other Income 1,159 1.16% 1,347 1.50%
EBITDA 12,759 12.81% 7,077 7.90%
Finance Costs 1,440 1.45% 1,774 1.98%
Depreciation 2,333 2.34% 2,597 2.90%
PBT (Profit before Tax) 8,985 9.02% 2,706 3.02%
Tax Expenses 4,124 4.14% 1,223 1.37%
Net (Loss) / Gain of Joint Venture 2,060 -2.07% (885) 0.99%
Non Controlling Interest 186 0.19% (84) -0.09%
PAT after Minorities, Associates & JVs (Continuing Operations) 6,735 6.76% 682 0.76%
Profit After Tax (Discontinued Operations) (381) -0.38% (815) -0.91%
Profit for the Year 6,354 6.38% (133) -0.15%

a. Cost of goods sold

In line with the Revenue increase, the Cost of goods sold increased by 4% to Rs. 65,348 million in FY20. Cost of material consumed as a percentage to Net Sales has decreased from 70.10% in FY19 to 65.63% in FY20, mainly due to the decrease in the steel price.

b. Manufacturing and other expenses

Manufacturing and other expenses increased by 6% which stood at Rs. 16,255 million in FY20. The increase is mainly on account of higher production volume during the year.

c. Employee Benefit Expenses was at Rs. 6,365 million in FY20, 11% up YoY, mainly on account of increase in operations in the USA.

d. Finance Costs

Finance costs decreased by 19% to Rs. 1,440 million in FY20, mainly on account of debt repayment during the year.

e. Depreciation/Amortization charge

Depreciation/amortization decreased by 10% to Rs. 2,333 million in FY20.


EBITDA for FY20 is Rs. 12,759 million, as compared to Rs. 7,077 million for FY19. EBITDA margin increased to 12.8% in FY20 from 7.8% in FY19.

FY20 Operating EBITDA (after adjusting EBITDA for Treasury income and one-offs) stands at Rs. 12,839 million vs. 8,968 mn in FY19, up 43% YoY Operating EBITDA margin stood at 12.9% vs. 10.0% in FY19

g. Net profit PContinuing Operations:

PAT after Minorities, Associates & JVs (Continuing Operations) was at Rs. 6,735 mn in FY20 as compared to Rs. 682 mn in FY19. Performance from Saudi business has significantly turned around and contributed towards the company profitability.

Including Discontinued Operations:

PAT after Minorities, Associates & JVs (Incl. Discontinued Operations) was Rs. 6,354 mn in FY20 as compared to Rs. (133) mn in FY19. Significant improvement in profitability due to potential sale of PCMD.

Net profit margin stood at 6.38% in FY19 vs. -0.24% in FY19.

2. Table: Balance Sheet (Consolidated)

(Rs. million)
Particulars As at March 31, 2020 As at March 31, 2019
Net Worth 32,152 27,976
Short Term Loans 2,693 1,750
Long Term Loans 7,260 11,297
Gross Debt 9,953 13,047
Cash & Cash Equivalents 9,631 10,191
Net Debt 322 2,856
Net Fixed Assets (incl CWIP) 16,199 16,144
Net Current Assets 11,954 10,656
Net Assets Held for Sale 8,293 11,642
Total Assets 79,432 82,000

3. Networth:

Networth at the end of FY20 was at Rs. 32,152 million vs. Rs. 27,976 million at the end of FY19.

The details of Net worth are as under:

a. Share Capital

The number of shares as at 31st March 2020 is 260,884,395 (face value of Rs. 5 each) vs 265,226,109 (face value of Rs. 5 each) as at 31st March 2019. This reduction in share capital of 4,341,714 shares is because of:

• Buy back of 4,356,714 equity shares

• 15,000 shares issued on exercise of employee stock options

b. Reserves and Surplus

Reserves and Surplus increased by Rs. 3,044 mn to Rs. 29,110 as at 31st March 2020 vs 26, 066 mn as at 31st March 2019. The increase is an account of higher retained earnings.

4. Loan funds:

The Gross Debt at the end of FY20 stands at Rs. 9,953 million. The components included in Gross Debt are long term borrowings of Rs. 5,108 million, current portion of long term borrowings of Rs. 2,151 million, and short term borrowings of Rs. 2,693 million at the end of FY20.

Major movements during the year are:

i) The overall long term borrowings and current portion of long term debt has gone down by Rs. 4,038 million, primarily due to repayment of loans.

ii) The short term borrowings have increased by Rs. 943 million mainly due to increase in working capital requirement.

Cash & Bank Balances and liquid/current investments at FY20-end stood at Rs. 9,631 million.

Net debt decreased by Rs. 2,534 million and stands at Rs. 322 million as of 31st March 2020 after accounting for cash & bank balances and liquid investments.

5. Debt Equity Ratio

Gross debt to equity improved slightly to 0.31x at FY20-end from 0.47x at FY19-end.

Net Debt to Equity ratio improved to 0.01x at FY20-end vs. 0.10x at FY19-end.

6. Property, Plant and Equipment (including CWIP and intangibles):

Net block of fixed assets (including CWIP) excluding asset held for sale was at Rs. 16,191 million in FY20.

7. Inventory:

The overall inventory increased by Rs. 454 mn to Rs. 22,682 mn. However, Inventory turnover days have decreased from 91 days of Net Sales in FY19 to 83 days of Net Sales in FY20.

8. Trade Receivables:

Trade Receivables was at Rs. 11,439 million in FY20 resulting in receivable days of 42 days. In FY19, trade receivables (including the discontinuing operations) were at Rs. 11,807 mn (48 days).

Other Financial Assets:

Total financial assets (current and non-current) decreased by Rs. 597 mn to Rs. 225 mn in FY20 from Rs 822 Mn in Fy19

9. Other Current Assets:

Other current assets increased by Rs. 982 mn to Rs. 2,844 mn in FY20. The change was largely due to increase in contract assets.

10. Trade Payables:

Trade payables have reduced by Rs. 1,376 million to Rs. 14,421 million in FY20 from Rs.15,797 million in FY19.

Trade payables are at 53 days (64 days in FY19) of Sales.

11. Trade advances

Trade advances have decreased by Rs. 3,658 mn to 10,268 mn in FY20 from Rs. 13,926 mn in FY19.

Trade advances are at 38 days (vs. 57 days in FY19) of Sales.

12. Cash Conversion Cycle:

Cash conversion cycle (after accounting for Trade Advances) for the current year increased to 35 days compared to 18 days for FY19 due to decrease in trade advances days.

13. Current Ratio:

Current ratio improved to 1.55 x at FY20 end vs. 1.56 x at FY19-end.

14. Interest Coverage Ratio:

Interest coverage ratio was at 7.24x in FY20 as compared to 2.53x in FY19. The increase is on account of increased EBIT due to higher volumes.

15. Liquidity:

We broadly define liquidity as our ability to generate sufficient funds from both internal and external sources to meet our obligations and commitments. Ou r primary l iquidity requirements have been to finance our working capital requirements for our operations and for capital expenditures and investments. We have financed our capital requirements primarily through funds generated from our operations, equity/equity related issuance and borrowings.

16. Cash Flows:

The table below summarizes our cash flow for the periods indicated:

FY20 FY19
Net cash generated from operating activities 6,481 6,233
Net cash generated from investing activities (774) (2,822)
Net cash used in financing activities (7,431) (3,353)
Net change in Cash and cash equivalents (1,724) 59

17. Return on Net Worth:

Return on net worth was 20% in FY20 vs. -0.5% on FY19. The increase was on account of higher sales volumes resulting in higher profits during the year.


Ratios 31st March 2020 31st March 2019 Remarks / Response
Debtors Turnover 8.53x 7.35x No Significant change
Inventory Turnover 4.30x 3.90x No Significant change
Interest Coverage Ratio 7.24x 2.53x Lower Finance cost and increase is Profitability led to a considerable improvement in ratio
Current Ratio 1.55x 1.56x No Significant change
Debt Equity Ratio 0.31x 0.47x During the year company re-payed loans, which resulted in improving this ratio further
Operating Profit Margin (%) 12.9% 10.0% Better Operating Efficiency has led to higher margins.
Net Profit Margin (%) 6.38% -0.24% Higher profitability leading to higher margins
Return on Equity (ROE) % 20% -0.5% Increase in Sales volume led to increase in profitability which led to higher ROE