Loss in Saudi Arabia unit is owing to an order for which the company had bid aggressively
Welspun Corp, the second largest maker of large diameter pipes in the world, hopes to get over the "pains" in its Saudi Arabian unit by the end of this financial year. This will help the company get back to the growth path after a fall in profit growth in the third quarter.
The unit in Saudi Arabia had posted net loss of Rs 45 crore in the third quarter ending December 31, 2018. Welspun Corp's net profit was down 56.46 percent in the quarter, from Rs 69.09 crore a year earlier. Net Sales at Rs 2,657.86 crore in December 2018, were up 15.35 percent from Rs 2,304.16 crore scored in December 2017 quarter.
"The losses have come down from the second quarter. The trend will change in the fourth quarter, and from the first quarter of the new financial year, the new orders will come into play," MD and CEO Vipul Mathur, told Moneycontrol.
The Saudi unit has orders of 8,00,00 tons, enough to engage the capacity for two years.
The pain point for the unit comes from its very first order, for which the company had bid aggressively. "It was also caught on the wrong side of the steel cycle," added Mathur.
From the first quarter of the next financial year, said Mathur, the other two orders will come into play. "There will be significant improvement," he said.
The unit in the Middle-East has a dominant share of the order book, which overall stands at 1.6 million tons, valued at about $2 billion.
The third quarter numbers were also impacted by transactional net forex loss of Rs 18 crore.
"There was also the translation impact," said Mathur. "As the inventory in the US unit is held in Dollars, when it is translated in the consolidated books, there is a translation impact. It is something we can do little about," he added.
On the company's order book, the MD & CEO said that the marginal dip from the second quarter (1.7 million tons) of the year was temporary. "We have a bid book of 2.3 million tons, and there are prospective bids worth 18 million tons," he said.
Apart from India and Saudi Arabia, Welspun Corp's other major market is in the US."While US has become the world’s largest oil producer, there are infrastructure bottlenecks in terms of evacuation of both oil and gas, which is driving pipeline demand. With recent rebound in oil prices and expectation of higher oil production, as well as restrictions placed on pipe imports, local US players are expected to benefit substantially," Welspun said in a statement on Thursday.