Recommendation From Textile Sector

This section gives a recommendation of a stock having stock margin padding price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon

Welspun Enterprises

STRENGTHEN YOUR PORTFOLIO WITH WELSPUN ENTREPRISE

HERE IS WHY
Diversified source of revenues
Premium products’ volume continues to improve
Margins to improve with the installation of 15 MW solar plant.

The infrastructure sector plays a pivotal role in the growth and development of any economy and the Indian economy is no exception. As infrastructure has surfaced as one of the crucial sectors in propelling other sectors’ growth and India's overall development, the government of India is focusing significantly on the development of infrastructure and construction services through targeted policies. Therefore, Welspun Enterprises Ltd. (WEL) is our pick for the low priced scrip. WEL is a part of the Welspun Group and deals in the infrastructure business. The company develops and operatesPPP projects, including urban infrastructure, water, and roads on build-operate and transfer (BOT) basis. It also offers projects on the basis of Hybrid Annuity Model (HAM). 

In addition to these, the company serves and executes industrial projects for various large scale private and public sector companies, operating in the petrochemical, fertilizers, mining, and the pharmaceutical sectors. It has been investing in oil & gas exploration as well.

On a standalone basis, the total income from operation rose by 49 per cent to Rs. 515.9 crores in first quarter of FY20 from Rs. 347 crore in same period of the previous year. The EBITDA grew by 56 per cent to Rs 72.1 crores in the quarter ending June 30th in FY20 from Rs. 46.3 crore in same quarter of FY19. The EBITDA margin stood at 13.7 per cent as against 12.7 per cent in same period. The net profit climbed 39 per cent to Rs. 37.6 crores in the June quarter of FY20 from Rs. 27 crores in same period of FY19. The appreciation in the operational revenue and the net profit was due to the

contribution of 5 HAM projects as against 3 HAM projects in first quarter of FY19. 

WEL’s current EPC order book stood at Rs. 4,721 crores. The order book consists of 7 HAM projects and one water project. The company worked on Delhi-Meerut Expressway project, which was tendered by the National Highway Authority of India (NHAI). For that project, WEL received an early completion bonus of Rs. 27.09 crores. The project was completed 332 days before the scheduled completion date. It was the first HAM project of NHAI that achieved both, the financial closure and the commercial operation date.

At present, NHAI holds close to 30 HAM projects, with a total project cost of approx. Rs. 30,000 crores. These HAM projects are expected to be awarded in the near term. Since WEL successfully completed Delhi-Meerut Expressway project and received the early completion bonus, NHAI may offer other HAM projects to it as well. In the water project segment, the JalShakti Ministry's 'Jal se Nal' scheme to provide drinking water access to all by 2024, is expected to result in a huge potential opportunity for WEL.

On valuation front, the stock of WEL is trading at PE ratio 8.36x and ROE of 10.28 per cent. The valuation looks attractive than its peer group and the company is well-positioned for early financial closure given it healthy cash balance and strong credit rating. By the virtue of above factors, we recommend our reader-investor to BUY this stock.