Rev recognition of US deal to come in Q1FY17: Welspun Corp

Welspun Corp has won an export order from the US market for supply of pipelines worth Rs 1,400 crore. Speaking to CNBC-TV18, BK Mishra, Managing Director, Welspun Corp, says the order execution will begin from January 2016 and will take 12-18 months for completion.

He sees revenue recognition from Q1FY17. According to him, the company will also be aided by its well-diversified regional presence.With this deal, Welspun's outstanding orderbook stands at one million tonne, Mishra adds. Below is the verbatim transcript of BK Mishra's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: Where is this order from and typically such export order bring what kind of margins with them?A: This is an order from the US market and traditionally we have been a big player in the US market for the large diameter segment. Unfortunately, I have always refrained from giving a margin on order to order basis and considering that it is a niche marker order, it is a decent margin order. However, I wouldn't like to speak specific percentage but I can tell you that its one of our niche market order. Sonia: When will you start seeing revenue recognition from this order and how much do you expect to see in the first couple of quarters?A: This would start getting executed from next year onwards and it would get produced sometime within 12 to 18 months from January 2016.Latha: What is generally the order book and the demand position. Do you think that for the current quarter, the third quarter, things are looking much better for you?A: As a matter of fact with this order, our order booking goes straight pass one million tonne. In other words we would be even operating and starting with a decent order booking position for next financial year with this one million tonne outstanding order as on today. Therefore, in this market conditions probably we are having an outstanding order book of one million tonne, we are quite pleased with our performance.Sonia: You said that the revenue recognition of this order will start next year. So you mean next calendar year or next fiscal year?A: We would start producing next year but revenue would probably start coming in the Q1 of next financial year. A small portion might even come in in the last quarter but the majority is going to come in the next financial year. Latha: I am not able to make out why there is such a wide difference between your consolidated numbers and your standalone numbers?A: Because in any case we are a diversified company and we recognised almost six-seven years back that instead of putting all eggs in one basket, where you are almost looking at few markets, instead of doing that we wanted to be a global player and therefore you see that even if one market is impacted, Welspun Corp's business does not get impacted so much because in the other market we are able to perform better as a local player. Latha: What is the kind of revenue growth for consolidated entity you are expecting in the second half and more importantly in FY17?A: I would not like to give guidance as to what kind of growth I am looking at because that has been the policy of the company but the fact that we have already done 600,000 tonne in the last two quarters and we have a healthy order book positions and a decent size growth probably is something one has to decipher.Sonia: What is your order visibility looking like from the export market for the next 6-12 months?A: We would in any case with this order book position, let's say for FY16-17, we should look at in any case opening the year at least with maybe 500,000-600,000 tonne, which is almost, if you see our current year performance or last year's performance, we would already be opening with about 50 percent of our sales and we still have probably more than four months to go in this particular year, financial year, so we would be looking pretty safe in '16-17 as well.Latha: How is the domestic order booking position? Do you see any expenditure by state government either for irrigation or for water supply purposes?A: As a matter of fact water supply in any case has been probably one of the focus areas for different state governments be it Telangana, Odisha or even Gujarat. We are seeing that business growing and from Welspun's perspective itself we use to do just about 40,000 tonne of water pipes and from that level we have gone up to almost 300,000 tonne of water pipes and oil and gas as far as domestic projects are concerned, the finance minister in the last budget did announced that India is going to build about 15,000 km of oil and gas pipelines and we have already started seeing some of those orders or some of those enquiries getting fructified. Latha: As well last quarter you reported fairly good improvement in margins by about 450 bps. Is there scope for more improvement in margins?A: There is always a constant endeavour that probably in this challenging market we still are trying to do few good things and probably trying to see opportunities in adversities. One of them being that we have tried to utilise our plate mill, which is a one step backward integration for our pipe mill - that has started contributing positive EBITDA for us. We are using that to our advantage the most.