Hold Welspun India; target of Rs 849: Edelweiss

Welspun India’s (WLSI) Q2FY16 revenues, up 4% YoY (1% below estimate), was impacted by high base and capacity constraints. EBITDA margin, at 25.4%, was close to its life-time high of 25.9% reported in Q1FY16. The company reported its highest-ever quarterly PAT, aided by decline in interest expenses. With enhanced capacity getting commissioned from Q3FY16, the company will extend the high growth logged in earlier quarters. While the stock remains well priced, visibility on increased capacity and ancillarisation could lead to rerating. We maintain ‘HOLD’ with TP of INR 849 (INR 832 earlier).

Outlook and valuations: Growth visibility awaited; maintain ‘HOLD’With capacity coming on board in the quarters ahead, WLSI’s earnings are expected to be in line with estimates. We had downgraded the stock in the previous quarter on rich valuations, but capacity expansion in sheeting over the announced 72mn mtrs and planned high‐RoE low‐capex ancillarisation projects could provide upside on further visibility. We continue to value the stock at 6.0x FY17E EV/EBITDA, giving us a target price of INR 849. Maintain ‘HOLD’. For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.