Annual Report FY 2009-10 - Welspun

th15 Annual Report 2009-10Management Discussion and AnalysisThe Management Discussion and Analysis (MD&A) should be read in conjunction with the Audited Consolidated Financial Statement ofWelspun Corp Limited (formerly known as Welspun-Gujarat Stahl Rohren Limited) (”Welspun” or the “Company”), and the notesthereto for the year ended 31 March, 2010. This MD&A covers Welspun's financial position and operations for the year ended 31March, 2010. Amounts are stated in Indian Rupees unless otherwise indicated. Abbreviations and acronyms used in this MD&A areidentified in the Glossary of Terms in Welspun's Annual Report of 2010. The numbers used in the analysis are on a consolidated basis, thecorresponding number for the previous year has been regrouped and reclassified, wherever necessary.Forward-Looking StatementsThis report contains forward-looking 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 statements that address expectations or projectionsabout the future, including but not limited to statements about the Company's strategy for growth, product development, marketposition, expenditures, and financial results, are forward-looking statements. Forward-looking statements are based on certainassumptions and expectations of future events. The Company assumes no responsibility to publicly amend, modify or revise anyforward looking statements, on the basis of any subsequent developments, information or events.Company OverviewWe have developed unmatched expertise to manufacture pipes of varying qualities, grades and sizes that are used in long distancetransportation of oil & gas for critical purposes and in complex regions. We can produce pipes ranging from ½ inches to 100 inches inouter diameter and up to 40 mm wall thickness. The Company is among the few, having the capability to manufacturer high grade pipesof upto X 80. We had also supplied pipes for “The Independence Trail” project- world's deepest pipeline, laid below 8,000 ft of water.On account of these capabilities the Company has become approved supplier to over 50 major oil and gas companies across the world.These include not only Indian oil and gas companies like Reliance Industries Limited, GAIL, ONGC and Indian Oil Corporation, but alsointernational oil and gas companies like British Petroleum, Golden Pass Pipeline LP (Exxon Mobil), Enterprise, Peru LNG S.R.L. (HuntOil), Saudi Arabian Oil Company (Saudi Aramco), Ruby (Elpaso), Qatar Petro DOW and Gazprom (Stroytransgaz). In global pipelineindustry, approval from clients acts as a major entry barrier as this process can take up to 2-3 years. With a total production capacity of1.5 million MTPA, we are one of the largest pipe producers in the world and has supplied high quality pipes for critical projects fromdeep oceans to tough mountainous terrain. We are currently involved in supplying pipes for many of the ongoing projects in the U.S.This gives us an edge over a number of our peer companies, as approvals are the pre-requisite for getting short-listed for more ordersfrom customers and our oil and gas customers prefer to deal with larger entities. Today, we are one of the very few suppliers in theworld who are qualified for many of the significant pipe contracts across the globe.The state-of-the-art Plate cum Coil mill in India (Anjar) with a capacity of 1.5 million MT can produce API grade of Plates and Coils. Thisbackward integration assures high grade plate and coil availability for pipe manufacturing.In the last 12 years, we have expanded our operations to more than 30 countries, covering most of the locations where oil and gasassets are located across the World.Global EconomyGlobal Steel Pipes Industry and DemandGlobally pipeline demand is closely linked with the growth in the energy consumption and investments in the sector which in turndepends on level of economic activities in oil and gas upstream. Energy investment worldwide has plunged over past year in the face ofa tougher financing environment, weakening final demand for energy and lower cash flow. All these factors stem from the financial andeconomic crisis. Energy companies are drilling fewer oil and gas wells and cutting back spending on refineries, pipelines and powerstations. Many ongoing projects have been slowed and a number of planned projects have been either postponed or cancelled. In theoil and gas sector, most companies have announced cutbacks in capital spending, as well as project delays and cancellations, mainly asa result of lower cash flow. International Energy Agency (IEA) in its World Energy Outlook 2009 estimated that global upstream oil andgas investment budgets for 2009 have been cut by around 19% compared with 2008- a reduction of over US$ 90 billion.World primary energy demand to grow @1.5% per year between 2007 and 2030The IEA’s recent report estimates that for the first time since 1981, energy use is set to fall in 2009 as a result of the financial and28