Annual Report FY 2009-10 - Welspun

C rp LtdForex fluctuationsWith more than 80% of our revenues coming from the export market, sharp fluctuation in Rs-US$ exchange rate is a cause of concernfor the Company. But, as significant portion of current raw material requirement is fulfilled through imports, it provides a naturalhedge. Besides the company follows prudent hedging policies to substantially mitigate the risk of forex volatility in respect of openexposure. As a risk mitigation strategy, the company enters into back to back raw material supply agreements on receipt of sales orderto eliminate the impact of steel price volatility.Entry of new overseas players.The new players may impact the competitive advantage of the Indian pipe manufacturers and reduce their chances of clinching exportorders, the global markets for line pipes is sizeable enough to accommodate competition. Foreign pipe manufacturers setting up localoperations in India would also need to go through the mandatory accreditation procedures and obtain customer's approvals. Theaccreditations and approvals are likely to take around 2-3 years.Volatile raw material pricesSteel is the primary raw material used in the production of pipes. We are exposed to volatility in the price of steel, which represents thelargest component of the cost of our products. Steel prices are highly volatile and cyclical in nature. Numerous factors drive the cyclesof the steel industry and influence steel prices. Some of these factors include general economic conditions, worldwide productioncapacity, capacity-utilization rates, downturns in purchase by traditional bulk steel end users or their customers, a slowdown in basicmanufacturing industries, import duties and other trade restrictions and currency exchange rates.Welspun's StrategyConsolidate our existing market shareWe intend to continue our focus on delivering quality products and services to our customers. We strive to obtain repeat orders fromour customers by continuing to satisfy them with consistent high-quality products and services. We currently have a significant shareof the production capacity of high-grade submerged and welded pipes in India and seek to gain a larger share of the domestic andglobal market. We believe our reputation for high quality products will enable us to grow our market share in the developing globalmarkets, and to attain a leadership position in each of our product segment. In February 2009, as part of our long-standingcommitment to the North American market, which is one of our key markets, we commenced commercial production in our spiral pipeproduction facility in Little Rock, Arkansas. This facility has the capacity to produce up to approximately 350,000 MTPA of HSAW pipesand also has coating and double joining capabilities. By increasing our presence in North America and providing our customers there a'one stop purchase' facility, we will strengthen our relationship with the local customers in the US and thereby increase our marketshare. The plate cum coil mill adds to our ability to source raw material for delivery of all type of pipes.Leverage our approach and accreditations with international majorsOur technical qualifications are demonstrated by approvals from almost all the major oil and gas giants. Obtaining approvals typicallytakes 2-3 years and therefore the pre-qualification status provide us with a significant advantage over our global peers. This gives uscapability to handle projects expected to commence in the medium term and provides an edge to participate in such projects.The research and development initiatives on high grade pipes will further improve our ability to participate in the highest valuesegments of our markets. We seek to enhance its position as a leading pipe manufacturing company by:• further developing and improving its products for oil, gas and other applications with a special emphasis on LSAW and HSAW pipesand pipe coating;• providing quality support to all the existing and potential customers and offering the right solutions to them.Explore inorganic growth opportunities to increase market reachWe intend to seek opportunities across the product segments and geographies to supplement our comprehensive product portfolioand international footprint. To enhance our existing business, we intend to seek opportunities to acquire, or partner with other pipemanufacturing companies to access new markets or distribution zones that have growth potential. Pursuing selective acquisitions,partnerships, or alliances would improve our competitiveness, further broaden offerings and strengthen our market position globally.The company has taken steps to invest in Middle East pipe manufacturing facility having a capacity of 270 K MTPA for HSAW pipes.37