Buy Welspun India; target of Rs 110: Angel

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Angel Broking is bullish on Welspun India and has maintained buy rating on the stock with a target price of Rs 110.

 

Angel broking report on Welspun India:

 

Topline grows 49% yoy:

 

Welspun India, the leading home textile player in Asia, reported a strong set of numbers for Q4FY2007, much in line with our expectations. Net Sales, for the quarter, moved up 21.1% to Rs 248.5 crore (Rs 205.1 crore) while annual turnover jumped 49% yoy to Rs 973.6 crore (Rs 653.7 crore). Other Income for FY2007 increased a significant 71.6% to Rs 37.9 crore (Rs 22.1 crore) but this includes Rs20.5cr concerning fiscal benefits from the manufacturing activities in Anjar, Gujarat.

 

EBIDTA up 12% despite high capitalisation and lower utilisation:

 

Total expenditure for Q4FY2007 increased 22.8% to Rs 213.3 crore (Rs 173.7 crore). This was mainly due to greater capacities being added while utilisation level for towels and sheets were at 92.3% and 50.1%, respectively. Raw material cost surged 42.6% yoy to Rs 100.4 crore (Rs 70.4 crore) while staff costs went up 23.5% yoy to Rs 20.5 crore (Rs 16.6 crore). EBIDTA margin of towels was above23% and for bed linen it was marginally below 10%. Overall operating margin dipped by 110bp to 14.2%. EBIDTA for Q4FY2007 rose by 11.9% to Rs 35.2 crore (Rs 31.4 crore) and on an annual basis it jumped by 26.8% to Rs 157.5 crore (Rs 124.1 crore).

 

Annual profit surges 25.4%, slips 4% quarterly:

 

The company's Net Profit for the quarter dipped by 4% to Rs 10.3 crore (Rs 10.7 crore) mainly due to higher provision for taxes on account of increased deferred tax. On a standalone basis, annualised PAT increased by 25.4% to Rs 52.1 crore (Rs 41.6 crore). Net margins however fell by 100bp to 5.4%.

 

Outlook:

 

Appreciation of the Rupee is likely to hit the company's bottomline. The company is taking strong measures to mitigate this risk and around 25% of Q1FY2008 sales are hedged at close to Rs 45. As per management, close to a quarter of annual sales for FY2008E are hedged at Rs 45. We believe partial impact of the strengthening Rupee has already been controlled and partly it would also be subdued with the cost containment initiatives undertaken by the company. Given the company's strong capacity expansion plans and increased stability in the business, we expect full impact of the capacity additions to reflect in FY2008. However, considering that the company's profitability would still be under pressure, we have downgraded our earning estimates.

 

Valuation:

 

At the CMP, valuations are attractive at 6.6x FY2008E and 5.3x FY2009E earnings of Rs10.1 andRs12.6, respectively. We maintain a Buy on the stock with a revised target price of Rs 110.