Welspurn Corp CMP 132:

Welspun group is one of the largest players in the global steel line-pipe business with capacities of 2,555 kilo tonne per annum (ktpa) and consistent sales of more than 1,000 ktpa.
Welspurn Corp is the flagship company of the Welspun group promoted by Mr B K Goenka. It manufactures line pipes at its plants in India (Dahej and Anjar in Gujarat, Bhopal in Madhya Pradesh and Mandya in Karnataka), the US (Little Rock, Arkansas), and KSA (Dammam).

Financial

- ROE and ROCE is around 22% and 29% respectively (Positive)
- P/BV - 1 (Positive)
- Forward PE is around 5.5 which is very fair as per Industry benchmark.

- FY20 topline was around INR 9.9K Crs Vs. 8.9K Crs and up by 10% YoY.

FY20 bottomline was around INR 635 Cr Vs. (13) Cr in FY 19. Significantly improved due to Other income impact and reduction of interest on debt.

- Q1FY21 topline was around INR 1,158 Cr Vs. 2,258 Cr therefore significantly declined by 52% in YoY.

- Q2FY21 bottomline was around INR 217 Cr Vs. 276 Cr in YoY and therefore declined by 27.6%

- Operating profit margin improved in Q2FY21 by 200 bps and its highest among last 12 quarter. The good thing is after Covid ease company started the cost measure and due to this operating margin nearly all time high after so many quarters.

- Debt as of Sep 30 was around INR 368 Cr and significantly reduced in past two years and it was almost declined by 70%.

- Promoter holding is around 48.2% which is slightly up during this quarter, FIIs and DIIs hold around 9% and 8.3% respectively. Akash Bhanshali Anchor investor also hold around 3.1% in the company.

- Operating cash flow is also very sound as Sep 20 it was around INR 766 Crs Vs. 648 Crs in March 20 Vs. 186.5 Cr in Sep 20. (VERY POSITIVE)

- Cash & Cash equivalent was around 990 Cr in Sep 20 and debt was starting around 335 therefore Net cash flow 655 Crs as of Sep 20.

Key Positive/Strength

- Strong Order book and in Sep 20 Current Global Order Book stands at 701 KMT valued at Rs. 6,100 Crs.

- Recently got another order of 1200 Crs for 129 KMT for Saudi Aramco.

- Improvement in capacity utilisation in all the three regions - India, the US and Kingdom of Saudi Arabia (KSA) leading to strong revenue growth and better operating profitability. Profitability improvement was driven by strong operating margins in the KSA unit.

- The financial risk profile has further strengthened with prepayment of debt in the first quarter of fiscal 2021. Given healthy cash generation and progressive debt repayment, capital structure is expected to remain healthy with net gearing (debt less unencumbered cash to networth) of less than 0.5 time as on March 31, 2021. Liquidity is expected to remain strong, backed by strong cash flow, and management stance of maintaining surplus cash and cash equivalent of more than Rs 500 crore at any given time.

- Key client includes reputed overseas customers such as Transcanada Pipelines Ltd, Shell, TOTAL, Kinder Morgan, Saudi Arabian Oil Company etc. It also supplies line pipes to all major players in the domestic market such as Bharat Petroleum Corporation Ltd, Indian Oil Corporation Ltd, Gas Authority of India Ltd, Reliance Industries Ltd, Gujarat State Petronet Ltd, Adani Gas Ltd, TATA Projects Ltd and Larsen & Toubro Ltd.

- Plan to listing of Saudi JV viz. WMEPL at the local Stock Exchange. The process of Listing would involve divestment of 30% of stake, split equally between both JV partners.
WCL currently holds 50.01% in the JV through its overseas subsidiary. This divestment would further improve liquidity at Welspurn Corp

- Management outlook "Our strong free cash flow generation, cash reserves, additional liquidity from Saudi divestment and PCMD deal and strong organizational & execution capability will enable us, to explore and fund new business opportunities bringing growth and consistency in financial earnings". Key risk/weakness
- Highly dependent upon Oil and Gas segment and due to this Covid impacted their topline in Q1 and Q2 FY21. The current high inventory levels and surplus crude oil production capacity will limit any upward pressure in the near term.

- Demand in the domestic water segment across States continues to be low, as their resources have
been diverted in the fight against COVID-19. Water projects will pick momentum as the governments renew their focus on providing piped water connections and improve irrigation facilities in drought prone
areas.

View Share is currently trading at 132. Strong order book and continoulsy getting good orders with pretigious client as well after Covid era. Those who want to add can add some here and if it correct 115-120 add more. Target can be 160/180 in short to mid term. SL can be 95.

Disclaimer: View share here are personal in nature and any buy/sell should check with your financial advisor or do your own diligence.
#NIFTY50 #WELCORP