Welspun Corp. is among the largest welded line pipe manufacturing companies in the world. (Photographer: Vivek Prakash/Bloomberg)

Auditor Flags Potential Write-Off In Welspun’s Investment In Saudi Joint Venture

PricewaterhouseCoopers, the independent auditor of Welspun Corp Ltd., has flagged concerns over the pipemaker’s investments in its Saudi Arabian joint venture.

The deteriorating financial position at two joint ventures—Welspun Middle East Pipes LLC and Welspun Wasco Coatings Pvt. Ltd.—indicated that investments, loans and receivables worth Rs 292 crore could be a “potential impairment”, the auditor said in its note. That’s nearly 10 percent of the company’s overall net worth of Rs 2,797.3 crore.

The auditor, going by the management’s assessment of improving future cash flows from the Saudi business, called these investments as “reasonable”. PwC, however, highlighted that no provisions were made by the company against these investments and loans.

Akhil Jindal, chief financial officer and head of strategy at Welspun Group, however, said the company expects the investments to yield “fair returns” and loans to be returned in the next two years due to “improving conditions” at the Saudi unit. The group, he said, doesn’t expect any bad loans from the joint ventures and has not made any provisions against it.

As of March, the group had:

  • Investment worth Rs 59.6 crore in equity shares of joint ventures Welspun Middle East Pipes LLC and Welspun Wasco Coatings Pvt. Ltd.
  • Loans worth Rs 229.6 crore to WMEP, WWCPL and Welspun Middle East Pipe Coatings LLC.
  • Other receivables aggregating to Rs 3.5 crore from the units.

The Saudi business, which turned Ebitda positive this quarter, has a confirmed order book for more than two years. The management expects profitability to improve in the coming quarters due to a strong outlook of the Saudi market.

Jump In Other Expenditure

The company’s other expenses also jumped 188 percent to Rs 546.6 crore in the March-ended quarter. That was because of 100 percent provisions made on its bond investments in Infrastructure Leasing & Financial Services and Reliance Capital Ltd.

Provisions

The company’s management, in a conference call, suggested that it wasn’t looking to book any further provisions in its corporate treasury book but expected recovery due to improvement in the business conditions.

The company said it has been able to liquidate bonds worth Rs 345 crore since the IL&FS crisis and even managed to earn a yield of 4 percent on its investment.