Buy Welspun Gujarat for target Rs 500: Asit C Mehta
Asit C Mehta has initiated coverage on Welspun Gujarat Stahl Rohren with a ‘buy’ recommendation for a target price of Rs 500 (implying a forward P/E multiple of 11x on FY10E earnings).
By INDIATIMES NEWS NETWORK |
MUMBAI: Asit C Mehta has initiated coverage on Welspun Gujarat Stahl Rohren with a ���buy��� recommendation for a target price of Rs 500 (implying a forward P/E multiple of 11x on FY10E earnings). The company's order book as on March 2008 stands at Rs 5,900 crore.
Further the company has bid for $4 billion worth of orders. Such robust order book position gives a clear sustainability and visibility for company's earnings in passing years.
Welspun has setup a 1.5 million tonne plate cum coil mill at Anjar in Gujarat, which will be fully operational from FY2009. This Backward integration would improve company's EBIDTA margins. The brokerage expects the company's EBIDTA margins to increase from 12.6 per cent in 2006-07 to 17.8 per cent and 18.4 per cent in FY09E & FY10E respectively on account of backward integration planned by the company.
USA has a substantial demand of pipes for laying its Oil and Gas transportation infrastructure. In order to cater to this growing demand of linepipe, Welspun is setting up a 0.3 million tonne HSAW plant in U.S.A with a capital expenditure of $ 100 million. Such plant is expected to reduce
freight cost as the company won't have to export pipes to USA. This plant is
expected to be operational from FY2009.
Welspun plans to expand its HSAW capacity by 0.15 million tonne and LSAW capacities by 0.3 million tonne, such capacities are expected to come in phases in 2009 and 2010.
Welspun has got approvals from niche customers like British Petroleum, Chevron, Elapso besides large approvals from 44 major oil and gas companies. The company has also entered into a frame agreement with two of its most renowned clients Saudi Aramco and Chevron. These frame agreements automatically qualifies Welspun for every project that the companies undertake.
The company had return on capital employed and returned on networth of 10.4 per cent and 11.6 per cent in FY2005. With increasing profits, its ROCE and RONW are expected to increase to 31.7 per cent and 30 per cent respectively in FY2010E.
Asit C. Mehta expects the company to register a growth in EPS from Rs 8.7 in 2006-07 to Rs 45.5 in FY10E. At market price of Rs. 409 the stock is trading at 21.0x FY08E, 13.5 x FY09E and 9 x FY10E earnings per share.
Further the company has bid for $4 billion worth of orders. Such robust order book position gives a clear sustainability and visibility for company's earnings in passing years.
Welspun has setup a 1.5 million tonne plate cum coil mill at Anjar in Gujarat, which will be fully operational from FY2009. This Backward integration would improve company's EBIDTA margins. The brokerage expects the company's EBIDTA margins to increase from 12.6 per cent in 2006-07 to 17.8 per cent and 18.4 per cent in FY09E & FY10E respectively on account of backward integration planned by the company.
USA has a substantial demand of pipes for laying its Oil and Gas transportation infrastructure. In order to cater to this growing demand of linepipe, Welspun is setting up a 0.3 million tonne HSAW plant in U.S.A with a capital expenditure of $ 100 million. Such plant is expected to reduce
freight cost as the company won't have to export pipes to USA. This plant is
expected to be operational from FY2009.
Welspun plans to expand its HSAW capacity by 0.15 million tonne and LSAW capacities by 0.3 million tonne, such capacities are expected to come in phases in 2009 and 2010.
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Welspun has got approvals from niche customers like British Petroleum, Chevron, Elapso besides large approvals from 44 major oil and gas companies. The company has also entered into a frame agreement with two of its most renowned clients Saudi Aramco and Chevron. These frame agreements automatically qualifies Welspun for every project that the companies undertake.
The company had return on capital employed and returned on networth of 10.4 per cent and 11.6 per cent in FY2005. With increasing profits, its ROCE and RONW are expected to increase to 31.7 per cent and 30 per cent respectively in FY2010E.
Asit C. Mehta expects the company to register a growth in EPS from Rs 8.7 in 2006-07 to Rs 45.5 in FY10E. At market price of Rs. 409 the stock is trading at 21.0x FY08E, 13.5 x FY09E and 9 x FY10E earnings per share.
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