Media reports have been indicating a 50% stake acquisition in Saudi firm Aziz Pipe Co, at INR 2.5 bn (USD 56 mn). This privately held company is a HSAW pipes manufacturer, also giving coating services with a ~240-270 KT capacity.
The stake acquisition may to be in the advanced stages and could likely be announced in the next few weeks. Company management had earlier indicated to have a local presence in key international markets. Welspun’s current pipes capacity is at ~1.5 mn MT, expected to rise organically to 2.1 mn MT by FY11/12E. Acquisition may add it capacity by ~8% (net basis).
Overall, the development (if happens) is positive, as it would give Welspun ready access to lucrative Middle East/CIS markets and also continue its growth trajectory. Further, the valuation for stake seems in line (USD 407- 440/MT), given that their new HSAW capacity in US (350 KT) had a capex of ~USD 150 mn or (USD 430/MT).
The stock continues to be our top pick in the pipes sector, with expected ongoing order accretion (given its favorable industry positioning)
