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Small & Midcap Mantra | After a 70% rally in Sept quarter, will Welspun India cross Rs 200 in next 2 quarters?

Two analysts, Moneycontrol spoke to, say it will. However, Gaurav Garg of CapitalVia says the stock is over-stretched now. Manoj Dalmia of Proficient Equities advises buying the stock now, with a target of Rs 185-187.

September 30, 2021 / 04:12 PM IST
Welspun Corp

Welspun Corp

 
 
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Mumbai-based textile company, Welspun India, has turned out to be the third- biggest gainer in the BSE500 index in the quarter ending September 2021, after JSW Energy and IRCTC.

Welspun India rallied 70 percent during the quarter to around Rs 165, outshining all indices, including the benchmarks. It has a market-capitalisation of more than Rs 15,000 crore.

In the same period, the BSE Sensex gained 13 percent, and the BSE Midcap & Smallcap indices were up nearly 12 percent and 11 percent, respectively, while the BSE500 index climbed nearly 12 percent.

Revival of economic activities is said to be the bigger reason for the rally, not only in Welspun India but also in the textile sector.

The approval of the production-linked incentive (PLI) scheme by the government earlier this month, news of capacity expansion and a healthy growth in June quarter earnings, though on a low base, YoY, also aided the stock rally.

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“Welspun India is one of the major global retailers, which has given splendid returns in the current quarter. Post-COVID, as things are coming back to normalcy, with the supply chain getting into shape again, I expect demand to return,” said Gaurav Garg, Head of Research, CapitalVia Global Research.

In recent days, Welspun India's decision to invest around Rs 800 crore on capacity expansion for its home textiles and flooring businesses over the next two years have triggered positive sentiments. “I expect its capacity to enhance by at least 25 percent in the next few quarters,” he said.

Expansion plan

On September 18, the company approved its plan to augment its towel manufacturing capacity at Anjar by around 20 percent -- from 85,400 metric tonnes per annum (MTPA) to 102,000 MTPA to meet the growing demand from overseas customers.

The company also approved an investment in 40 looms for towel fabric at Anjar, which represents around 7 percent of installed capacity. It also approved the rugs capacity expansion plan at Vapi by 80 percent, which commenced during the last financial year. The company has approved additional investment on automation for faster production turnaround at lower cost.

Welspun India is expected to invest around Rs 656.5 crore for these expansion programmes over FY22 and FY23. “The benefits will start accruing in phases, from Q1FY23 onwards. This expansion has a revenue potential of around Rs 1,207 crore from the second year of operation,” the company said.

Further, its wholly-owned subsidiary, Welspun Flooring, also approved a capex of Rs 143.6 crore, to be invested over FY22 and FY23, for debottlenecking and rebalancing its facility in Telangana, including the setting up of a 25MW renewable energy power plant, for uninterrupted power supply at lower cost.

During the current financial year, the company has invested Rs 281 crore in capex and the total investment during FY22 will be Rs 750 crore, including the investment approved for the home textile and flooring businesses.

PLI scheme

On September 8, the cabinet approved the Rs 10,863 crore PLI scheme for man-made fibres and technical textiles.

The scheme is expected to help Indian producers switch from cotton textiles to these new products, which account for two-thirds of global textile production,  textile minister Piyush Goyal had said.

The scheme aims to boost production of these products and regain India's position as one of the largest sources of apparels and textiles globally.

Can the stock rally to Rs 200 levels?

“Investors should wait for a correction as the stock is over-stretched; Rs 130-135 is a decent level to accumulate this stock for the long term," said Garg.

He feels the stock might cross the Rs 200 level in the next two quarters. Investors should book partial profits at current levels, he advised.

Manoj Dalmia, Founder and Director, Proficient Equities, advised buying the stock at the current levels with a target of Rs 185-187, and also advised buying on dips to check the FOMO (fear of missing out) factor.

According to him, the stock can rise more than the Rs 200 level by the end of FY22. “Looking at the current price-to-earnings (PE) ratio, at 23.09, it looks slightly overpriced, compared to its peers," he said.

Earnings

Welspun India recorded a 343.1 percent year-on-year (YoY) growth in profit, at Rs 217.5 crore, for the quarter ended June 2021, partly due to the low base of Q1FY21 when there was a nationwide lockdown. Total income during the same period, at Rs 2,227.2 crore, grew by 83.2 percent.

At the operating level, EBITDA (earnings before interest, tax, depreciation and amortisation) surged 93.1 percent to Rs 459.8 crore and margin expanded to 20.6 percent in Q1FY22 from 19.6 percent in Q1FY21.

During the quarter, the company also reduced its debt by Rs 83.2 crore, sequentially, to Rs 2,249.5 crore.

Disclaimer: The views and investment tips by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before making any investment decisions.
Sunil Shankar Matkar
first published: Sep 30, 2021 04:12 pm

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