Mumbai Welspun Corp will invest $58 million to buy a majority stake in a Saudi pipe firm, a move that could help the Indian steel pipemaker grab a wider share of the Middle East market, a senior official told Reuters.
The acquisition of Aziz Pipe, which has a capacity of 270,000 tonnes per annum, will take Welspun’s total capacity to 2.3 million tonnes, director Akhil Jindal said on Tuesday.
“The promoters of Aziz were looking for someone who could run the company. As we have the expertise, we did this tie-up,” Jindal said over the telephone, adding the acquisition will show on Welspun’s books in the July-September quarter.
Welspun, formerly known as Welspun Gujarat Stahl Rohren, will start exporting to the middle east region from the Saudi facility beginning July after completing regulatory formalities, Jindal said.
The Saudi plant is operational and except for some capital expenditure maintenance, Welspun does not plan to invest any money into capacity expansion for now, he said.
Welspun, which supplies products to top oil companies such as Royal Dutch Shell, Exxon Mobil and BP Plc, will now be in a better position to expand its footprint in the middle east, analysts said.
“It looks like a good deal... it gives them more presence in the middle east market. Having a capacity in the middle east will be a big advantage for them,” analyst Niraj Mansingka of Edelweiss Securities said by phone.
Eleven of thirteen brokerages have a “buy” rating on Welspun stock, according to Thomson Reuters, as analysts are bullish over the company’s order book and project expansion plans.
“With the improving scenario for pipe manufacturers, the order inflow is expected to be strong, going forward, and revenue visibility would increase,” ICICI Direct, which has a “strong buy” rating on Welspun, said in a recent report.
Welspun is aggressively expanding presence in the oil and gas transmission segment and recently acquired MSK Projects, allowing Welspun to lay pipes apart from manufacturing them.
At 11.43 a.m. shares of Welspun were trading at Rs275.55 , up 2.3% in a flat Mumbai market. They hit a high of Rs280.90 earlier in the session.