However, we feel Welspun Corp’s strong cash & investment position in the #balancesheet and very low #longtermdebt will help the company withstand the current turmoil and bounce back stronger.
WHY BUY #WELSPUNCORP
1. Crude from a high of $60 in Jan, 20 crashed to $20 in May, 20. As a result, Welspun Corp lost 40% of its FY20 order book.
However the company still has 8-9 months of #revenue visibility and can easily service its #fixedcost & employee expenses for FY21.
1. Crude from a high of $60 in Jan, 20 crashed to $20 in May, 20. As a result, Welspun Corp lost 40% of its FY20 order book.
However the company still has 8-9 months of #revenue visibility and can easily service its #fixedcost & employee expenses for FY21.
In the last month, crude oil has recovered around 50% from the bottom, as a result Welspun Corp won 90KMT #order in its US facility last week indicating normalcy once global trade & economy resets.
2. Interesting Case Study- #MohnishPabrai - effective way of buying distressed companies in bad times, buys at what he calls PE ratios of 1. He looks at unfavourable industries, (car industry in 2012) finds companies that will not go bust & have potential to deliver high earnings
For example, in 2012, he was buying Fiat-Chrysler (FCAU) at an average price of $4. The current EPS is $2.22. If we deduct 40% of the 2012 purchase price as the value gotten from Ferrari, we get to a PE ratio close to 1.
#WelCorp #Valuations- WelCorp is at distressed valuations and won’t go bust. On a steady state and normalized environment post COVID19, the company can do a 1000 cr EBIDTA in FY22 against an EV of 1,600 cr. At an #EVEBIDTA of 1.6 times, Welspun Corp at CMP is priced to extinction
3. Strong Financials & ability to withstand loss of revenues in FY21- As of Q3FY20, Cash & Cash Equivalent in the balance stands at 920 cr. Welspun Corp has a #debt to equity below 0.5 times, absolute number of debt is around 1,000 cr.
#Interestcoverageratio for FY20 would be around at 5 times (approx.) which provides huge comfort towards the management’s ability to service the debt. Last 5 years average #CashFlow from Operations is around 600 cr
4.
Management quality+
Consistent Cash Flow generation+
ROCE+
Cheap Valuations
is perfect recipe for a multibagger
Management quality+
Consistent Cash Flow generation+
ROCE+
Cheap Valuations
is perfect recipe for a multibagger
#ManagementQuality- Zero Pledge by promoters, Consistent dividend payout for last 10 years, No cross holdings in other group companies.
#CashFlow from Operations- Last 10 years, accumulated CFO at 6,000 cr and current market price is at 10years low.
#CashFlow from Operations- Last 10 years, accumulated CFO at 6,000 cr and current market price is at 10years low.
#ROCE- Return on Capital Employed for FY20 at 25% (approx.), vs FY17 at 6.5% indicating a clear turnaround in operations.
Cheap #Valuations - Welspun Corp at FY22 is valued at 1.6 times EV/EBIDTA is giving the company a shutdown valuations.
Cheap #Valuations - Welspun Corp at FY22 is valued at 1.6 times EV/EBIDTA is giving the company a shutdown valuations.
5. Positive #CorporateAction - In 2019, promoter did not tender #buyback and post that gave 10rs dividend. The recent corporate announcement dated 30th May, pre-payment of #NCD worth 250 cr, further reiterate the company’s balance sheet strength and #liquidity position. 
The group has maintained relationships with reputed overseas customers, which include Saudi Aramco, TOTAL, Qatar Petroleum, Exxon Mobil and Kuwait Oil Company. It also supplies line pipes to all major players in domestic market, such as BPCL, IOC, GAIL, RIL, GSPL, and L&T.
Prudent #ManagementStrategies during PreCOVID19 era led to significant turnaround
Turnaround in Saudi’s Joint Venture’s Operations
The Company has a JV in Saudi Arabia. The loss making operations from this geography was weighing down on the bottom line of the company till FY19
Turnaround in Saudi’s Joint Venture’s Operations
The Company has a JV in Saudi Arabia. The loss making operations from this geography was weighing down on the bottom line of the company till FY19
However, due to bidding discipline and margin focused orders, the Saudi division witnessed a turnaround from Q4 FY 2019 and it posted positive #operatingprofits. The share #SAUDIJV increased from a loss of Rs. 60 crore in H1FY19 to a operating profit of Rs. 75 crore in H1FY20.
Focus on Core Business
The management had planned to make the business model of the company into #assetlight model. They identified some assets which were weighing the capital employed, but were not contributing to the company’s profits.
The management had planned to make the business model of the company into #assetlight model. They identified some assets which were weighing the capital employed, but were not contributing to the company’s profits.
Therefore, the management of the company took the strategic decision to divest plate and coil mill division & the 43 MW power division.The sale of assets will result in the cashinflow of Rs. 900 crore which will help the mgmt to reach its target of zero netdebt by the end of FY20
However, due to COVID19 impact on businesses, this decision has been deferred to March, 21 and so far only 20 cr has been received by the management. But the management’s intent focus towards asset light model & focus on core business is clear.
#CurrentOutlook
#Orderbook as of Q3FY20 was 1,305KMT. Oil & Gas players globally being main clients, Post COVID19 company lost 40% (approx.) of its order book. Current order book stands at 765KMT valued at 6,200 cr giving the company #revenuevisibility for atleast 8-9 months.
#Orderbook as of Q3FY20 was 1,305KMT. Oil & Gas players globally being main clients, Post COVID19 company lost 40% (approx.) of its order book. Current order book stands at 765KMT valued at 6,200 cr giving the company #revenuevisibility for atleast 8-9 months.
#CrudeOil bounce - However, #brentcrude bounced 40% from lows due to which company recently won projects worth 102KMT, out of which 90KMT is from US.
Weslpun Corp Consolidated #Capacity
