Akhil Jindal, Director of Welspun Group denies the ban to raise money from the capital market. The net debt is currently at Rs 2,500 crore against their networth of Rs 5,000 crore. They aim to bring it down to below Rs 1,000 crore in 3 years which is at .23 of debt equity levels and that is quite comfortable.
As per him the Rajiv Gandhi equity scheme is structurally a very good move and can bring in close to Rs 150,000 crore annually into the market. Welspun as a group with leadership and global positioning is confident of continuing to do well in Q 4 too despite competition from Indian players.
Below is the edited transcript of his interview on CNBC-TV18. Also watch the accompanying video.
Q: With this ban getting revoked and your ability to access capital markets, will you be accessing capital markets? You have quite a bit of debt of 2,700 crore. Are there any thoughts at all in terms of raising equity?
A: There was never a ban on the company to raise the money from the capital market. In fact, we have recently done equity participation from Apollo. There was a ban on some of the promoters of the company where they could not buy or sell the stake or do any market activity for the last two years. So I am happy to say that this ban is over and it has established the corporate governance and ethics of the Welspun Group. I am happy with this news.
Q: Give us a sense of what your current debt is. How much do you want to pull it down to and what would be the method to pull it down?
A: As far as Welspun Corp is concerned our net debt is in the range of 2,500 crore against our net worth of almost 5,000 crore. The gearing is just 0.5 so I donít see a necessity or a reason for us to bring down the debt beyond what is going to happen in a natural cause. As we go along there would be lot of repayment falling due in the next two-three years. In three years time our net debt is going to fall below 1,000 crore, which is .23 of the debt equity levels which is quite comfortable.
Q: You were trying to buy up some of your FCCB bonds because they were quoting at a discount. What is the update? Could you buy any bonds, will you be buying some?
A: Yes, we tried the buyback in the month of December when the discount was significant. However the discount has come down over a period of time and today itís trading at around 87-88 levels. So it doesnít make any commercial sense at this level but we are keeping an eye on the market. So should there be a correction in the bond market then we will certainly as a company be keen to buy some of the bonds because it not only helps us in reducing our debt it also improves gearing ratios. If we are getting a discount then there is a mark to market gain also which comes in our books. So there are number of advantages because of which we would be keen to do that but at a price level that is comfortable and convenient. Today price level is much higher so I think we will have to wait for some more time.
Q: Just wanted to get your thoughts on this Rajeev Gandhi Equity Scheme. We donít have any idea as to who would be the fund manager for such a scheme but still there is a tax benefit involved. Itís available only to a bracket of people below Rs 10 lakh earnings. What have you made? Is it just something you will shrug your shoulders or can it make a difference?
A: I think it can make a difference. I donít know how exactly it will be sort of played out in terms of implementation. There are about between 2.5 to 2.8 crore tax payers below Rs 10 lakh income. If you were to just let us say do some amount of extrapolation that Rs 54,000 per person would come in the market, potentially you are sitting on anywhere between Rs 100,000-150,000 crore kind of money coming in annually in the market. Now you can say that first year it will be just switch from the normal investment to this but I think this is with three year lock in. So at least I think it can structurally draw more money towards the equity market. In my opinion it is a very good move to increase the retail participation or wide equity participation in the markets. So it is structurally a very good move according to me.
Q: How is business doing this quarter because if you look at your EBITDA margins in Q4 net sales were up quite significantly but your EBITDA was down 70% and your margins came down to 4% versus 20% on year on year basis. What happen in terms of retrospective basis and how is this quarter looking for you?
A: The numbers that you are mentioning to me I donít know whether they are on standalone basis or a consolidated basis. The second thing is of course there is a big reason on the mark to market impact that we saw the last quarter, which are notional and which are not cash loss. As we see in this quarter as currency has come down. The dollar has come down versus rupee. Most of the M2M losses are anyway going to get squared off. The operational numbers for the company had always been good and even the last quarter we did significantly good in the pipe business. Our pipe EBITDA was roughly in the range of Rs 13,000 per metric tonne which is quite significant. So I think business as such has always done better and all this short-term impact that you might have seen are all on the foreign exchange mark to market which have no meaning.
Q: How do you expect your Q4 margins and any visibility for Q1 margins for next year to pan out and would you say that there will be nil effects impact in the Q4?
A: I think we will continue to do well in Q4. We have got good order book and everything positive for the company. We are among the key suppliers globally and from that angle there could be short-term impact on the business because of the slowdown in the market but all and all we are getting new orders. Yes, the margins are under pressure going forward because of extra competition, extra capacity that has come up but that is where the leadership position of Welspun will come into play. We will be competing against the global giants and we will be getting new orders at good decent margins. The Indian market is certainly very competitive and as a result most of the Indian companies will have margins lower than what they have shown in the past. However, from Welspun global positioning, from both international market like US and Saudi and of course in India things should be much more stable for Welspun going forward.
Q: Year on year basis how much will you do by way of sales growth because while Q3 was good the first two quarters at least Q2 was not outstanding in terms of sales numbers? So year on year what is likely to be your sales growth in FY12 and FY13 if you have any visibility?
A: The sales number in our business is a very notional number or itís not a right indicator of business because our sales numbers are largely a reflection of the raw material prices. If the raw material prices are up the sales number will look up.
Q: Give me an idea of the bottom line if that is what you would prefer as an indicator?
A: I think EBITDA per ton is what we closely track. To that extent our Q3 EBITDA on the pipes was pretty good and there would be a continuity of decent margins on the business. Going forward this EBITDA per ton may see some slide because of the orders that are coming in the market. There is too much of capacity, too much of competition but from a leadership & global position we would certainly try and maintain as much margin as possible.
Welspun Corp stock price
On November 27, 2015, Welspun Corp closed at Rs 107.80, up Rs 10.20, or 10.45 percent. The 52-week high of the share was Rs 153.60 and the 52-week low was Rs 51.90.
The company's trailing 12-month (TTM) EPS was at Rs 2.24 per share as per the quarter ended September 2015. The stock's price-to-earnings (P/E) ratio was 48.12. The latest book value of the company is Rs 71.03 per share. At current value, the price-to-book value of the company is 1.52.
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