Welspun to focus on pipe & plates biz; demerge other units

Welspun Corp today said it has decided to solely focus on pipe and plates business and all its other units will be demerged into a separate holding company, Welspun Enterprises Ltd.

In a statement, the company said that Welspun Corp -- the flagship company of the Welspun group -- will solely focus on pipe and plates business in India and globally. The demerged company -- Welspun Enterprises-- would focus on steel, infrastructure, oil and gas exploration and energy businesses.

The demerger will not result in any dilution of stake for any existing shareholder of Welspun Corp, it further said, adding that the new entity will also be listed on the bourses.

"Vertical demerger creates a mirror shareholding across both entities resulting in no dilution for any of the existing shareholders," the company said, adding that it expects demerger to become effective by January 31, 2014.

It further said that the company Board approved the proposal on May 20, 2013.

"We believe that the demerger will create two focused, independently run companies with enhanced value creation across each business. We are committed to all of our businesses," Welspun Corp's Chairman B K Goenka said on the reorganisation of company's businesses.

He added that "the demerger will better enable the management team to protect, grow and nurture each line of business in a more distinct manner, bring more clarity on each business to pursue its strategic objectives and enhance shareholder value."

According to the company, net debt for Welspun Corp, after the demerger, would decline to the tune of Rs 1,100 crore for the last fiscal (FY13).

"The consolidated profitability of Welspun Corp, which is negatively impacted currently by high interest, depreciation and exceptional items, will improve significantly post the demerger - FY13 profit after tax (PAT) would have been higher by Rs 2,700 crore," the company said.

Explaining the rationale of the demerger, Welspun said that its business interests spread across sector and its stakeholders have expressed concerns regarding the complexity of its corporate structure and challenges of co-mingling new businesses with well established pipes business.

It added that the company Board believes that the demerger will maximise long-term shareholder value due to various reasons including independent management focus on the two companies and providing each company a greater flexibility to pursue its strategic objectives.

Welspun Corp has a total pipe manufacturing capacity of 2.425 million tonnes per annum and is the second largest line pipe company in the world. It has 4 plants in India and one each in the US and Saudi Arabia.

Post-demerger announcement, shares of the company rose 3.94% to close at Rs 47.45 apiece on the BSE in an otherwise weak market today.