In an interview to CNBC-TV18's Latha Venkatesh, Reema Tendulkar and Anuj Singhal, SP Tulsian, sptulsian.com shared his and outlook on Websol Energy System.
Below is the verbatim transcript of the interview.
Q: Your recommendation is Websol Energy, you have put a target price of Rs 140, take us through how you arrive at it and what the story is behind it?
A: First let me give you the business profile of the company, they are making photovoltaic solar sales and modules and they have recently increased their capacity from 120 megawatt to 200 megawatt. They have their manufacturing plant in West Bengal.
If you see the dramatic performance, which we have seen in FY17, firstly they have gone for one time settlement of repayment of Rs 270 crore debt and that has converted the company’s net worth from negative to positive. If you take a call on the financial performance, its income for FY17 has been at about Rs 300 crore with an operating profit of about Rs 13.17 crore. I am referring operating profit because I am not taking the net profit, which includes onetime settlement, gain of Rs 70-71 crore also of about Rs 360 crore having paid by the company, which was at about minus Rs 6 crore for FY16. That means there has been a turnaround of about Rs 20 crore or an incremental gain of about Rs 20 crore in FY17 and 96 percent of that has come in the second half of FY17. That means first half was again loss-making or flat and 96 percent of that has come in the second half largely because of a classical case of turnaround.
In fact in the similar space, we have recommended share Swelect Energy Systems in the beginning of June and that stock has risen by about 60 percent post our recommendation or maybe 50 percent. We recommended in the morning show at Rs 400, now the stock is ruling at Rs 600. So they are also similarly more or less in the similar space.
Coming on the equity base, it is at Rs 22 crore, promoters have a low equity of closer to about 30 percent but they have been increasing their stake in the company gradually, net worth is at about Rs 60 crore, which was negative Rs 205 crore on March 31, 2016 largely because of onetime write-off they got and then because of the conversion of the FCCB. So these two things and because of that change in the fortunes of the company because of the profit making status and all that.
Coming on the solar sector per se, if you see in FY17, the addition in the renewable source of energy has been equal at about 7,300 megawatt in the wind and 7,300 megawatt in solar and there is a huge demand because of the capital cost having come down and even for the photovoltaic sales and modules because of the incremental demand coming up in the solar space, this company is likely to do quite well. Incremental capacity of 120 megawatt to 200 megawatt will be the kicker.
So taking all this into consideration, maybe a turnover of about Rs 370 crore can be expected for FY18 with operating profit of closer to about Rs 30 crore and company is due to declare their results tomorrow. Generally we refrain giving the buy call ahead of the results.
The same strategy has been followed by us in Prakash Industries when I recommended the stock, about a week back and post good numbers, the stock has risen by about 30 percent. So it is slightly taking a slight risk on playing ahead of an event but that is worth taking a chance that if you buy the stock today probably with a target of about Rs 140 for six months but those who are cautious investors, wants to wait to see the results, they can wait to see the Q1 numbers tomorrow or we have a buy call with a horizon of six months with a price target of Rs 140.
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