Buy Welspun Corp; target of Rs 225: Unicon Investment

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Buy Welspun Corp; target of Rs 225: Unicon Investment

Unicon Investment is bullish on Welspun Corp and has recommended buy rating on the stock with a target of Rs 225 in its May 27, 2011 research report.

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Unicon Investment is bullish on Welspun Corp and has recommended buy rating on the stock with a target of Rs 225 in its May 27, 2011 research report.

"Welspun Corp Ltd (WCL) registered a strong in revenue, higher than Unicon estimates. EBITDA and PAT however came lower due to a higher than expected rise in raw material prices and a provision for an out of court settlement with a foreign customer. Sales volume of pipes as well as plates increased 31% during the quarter resulting in a 34% growth in net income. For FY11, sales volumes of pipes increased 11.5% while plate volumes increased by 25.3%. EBITDA fell 19% during the quarter with a 754 bps reduction in EBITDA margin, while it was down 3% for FY11 with a 192bps reduction in EBITDA margin."

"WCL made a provision of INR 670 mn during the quarter and INR 2,007 mn in FY11 for an out of court settlement with a foreign customer to end a long pending litigation. Adjusting for the provision of INR 670mn, the EBITDA margin was still down 445 bps on account of a steep rise in raw material expenses. Interest costs during the quarter increased 51% on account of additional interest due to consolidation of Saudi facility and Welspun Projects borrowings. Depreciation costs increased 22% due to capitalization of Coil Mill, Mandya Plant and Saudi plants. PAT during the quarter fell 29% with a 489 bps reduction in PAT margin, while it was up 4% for FY11 with a 40bps reduction in margin. The current Pipe and Plate order book of the Company stands at INR 54 billion (~726K tonnes of Pipes and 32K tonnes of Plates)."

"WCL's expansion plan is well on track which provides strong visibility of future volume and revenue growth. The Coil mill has been commissioned this year and is in full production. The Saudi Plant was successfully commissioned in Q4FY11 while the implementation of the L-SAW plant at Anjar is on schedule, with trial production already started. The facility is likely to be commissioned by the end of Q1FY12. At the CMP of INR 174, the stock is trading at EV/EBITDA of 4x and 3.4x for FY12 and FY13 respectively. Considering the rising oil prices and strong volume growth of the company, we remain positive on WCL with a price target of INR 225," says Unicon Investment research report.  

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To read the full report click on the attachment