Recommendation: Buy
CMP = Rs 97
Price target: Rs 140
- Welspun India Ltd (WIL) has reported a profit after tax (PAT) of Rs10.71 crore for Q4FY2006 and Rs41.55 crore for FY2006. The earnings per share for Q4FY2006 stood at Rs1.35 and that for FY2006 at Rs5.35.
- The sales grew by 38.9% from Rs147.61 crore in Q4FY2005 to Rs205.10 crore in Q4FY2006. The exports grew by 37.5% from Rs135.59 crore in Q4FY2005 to Rs186.41 crore in Q4FY2006.
- The operating profit grew at a lower pace of 20.4% from Rs26.11 crore in Q4FY2005 to Rs31.42 crore in Q4FY2006 mainly on account of the increased staff cost and other expenditure. The PAT stood at Rs10.71 crore in Q4FY2006 as against Rs10.17 crore in Q4FY2005, a growth of merely 5.1% on account of the higher depreciation and interest cost.
- WIL's net sales have grown by 37.2% from Rs476.31 crore in FY2005 to Rs653.73 crore in FY2006, led by a 37.5% growth in exports. However, the PAT growth was muted at 7.7% year on year (yoy) for FY2006 and the same stood at Rs41.55 crore in FY2006 as against Rs38.58 crore in FY2005.
- WIL spent Rs575 crore for capital expenditure (capex) for the phase I of its expansion, which has already gone on stream and the benefits of of the same will be reflected in FY2007. WIL has lined up a capex of Rs650 crore for phase II, most of which would be completed by Q4FY2007.
- WIL will be a key beneficiary of the growth in the home textiles exports as its product offerings will include terry towels where it is a leading player as well as bed linen and decorative linen items, making it a complete home textiles shop.
- I expect WIL's revenues to grow at a compounded annual growth rate (CAGR) of 48% over FY2006-08 and the earnings to grow at a CAGR of 52% over the same period from Rs41.2 crore in FY2006 to Rs95.9 crore in FY2008.
- At the current market price of Rs97, WIL is trading at 7.7x its FY2008E earnings and 6.7x its FY2008E enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA). I maintain a Buy on WIL with a price target of Rs140.
