Broking house, Angel Broking is bullish on Welspun India and has maintained buy rating on the stock with a target of Rs 130.

Angel Broking report on Welspun India:

Performance Highlights  

Robust Sales Growth:

"Welspun India Limited (WIL), the flagship company of the $1bn Welspun Group, reported a robust growth in the topline of 65.4% YoY for Q3FY2007 at Rs 255.4cr (Rs 154.4cr). Other Income witnessed a huge jump of 274.8% YoY at Rs 7.5cr. Total Income for the quarter stood at Rs 262.9cr, a significant jump of 75.2% YoY."  

16.7% YoY growth in EBIDTA, however OPM under pressure:

 "WIL’s raw material consumption for Q3FY2007 saw a sharp jump of 104.2% YoY at Rs 98.7cr as compared to Rs 48.3cr in Q2FY2007. Besides this other expenses for the quarter, mainly power & fuel, consumption of dyes & chemicals and staff cost also went up by 27.5%, 84.7% and 33.5% respectively on a YoY basis. This was mainly on the back of additional capacities coming up which were not fully utilized, and the effect of which should reflect in the forthcoming quarters. Despite the huge increase in expenses, the company could achieve an EBIDTA growth of 16.7% YoY at Rs 44.4cr (Rs 38cr). This excludes Other Income of Rs 5cr which as per management is from operational sources. However, the jump in the cost structure took a toll at the margin front, declining the operating margin by a good 720bps YoY at 17.4%." 

Strong jump of 115.4% in Net Profit:

"The financial cost and depreciation of the company went up by 50.6% and 38.2% YoY at Rs 12.9cr and 16.6cr respectively for the quarter. This was due to increased debt and additional capacities as per the proposed expansion plans. However, this did not constrain the bottomline from growing at a stupendous 115.4% YoY at Rs 15.9cr for Q3FY2007 (Rs 7.4cr). The net margin also improved by 140bps at 6.2%."

Outlook & Valuation

"At the CMP, the stock is trading at 7.2xFY2008E Earnings and 5.4xFY2009E Earnings and a P/BV of 0.8xFY2009E. Taking into consideration the huge capacity additions, diversified product range, cost cutting initiatives and the synergies from Christy, coupled with opportunities in the retail and branded business, we expect robust growth for the company going forward. We maintain a BUY on the stock with a target price of Rs 130."