Welspun Corp could excel in your Investment Portfolio

12 Agu

Investment Advice by Gooodluck Capital (SEBI Registered)

Buy Welspun Corp
WELCORP

● Buy Range (1) - CMP (current market price)
● Buy Range (2) - 660 - 665
● Buy Range (3) - 620 - 630

● Target - 960 - 970
● Stoploss - below 500

● Potential Return - 50 - 52%
---------------------------------------
Approx investment period 18 - 24 months

Company Overview
Welspun Corp Limited manufactures and sells steel pipes, coatings, plates, and coils in the US, Europe, Saudi Arabia, and India. The company offers helically, longitudinally, and electric resistance welded pipes, pig iron and ductile iron pipes, billets, thermo mechanically treated rebars, stainless steel pipes, tubes, and bars. Its products are used in various industries, including oil, gas, water transmission, infrastructure, and defense. The company was incorporated in 1995 and is based in Mumbai, India.

Sector - Iron & Steel

Technical Analysis
(1) In January 2008, the stock faced significant resistance around the 500 level, leading to a substantial price correction.
(2) Over time, it established a support base near the 45 level, from which it began to rebound, climbing back towards the 300 level.
(3) However, the stock struggled to break past the 300 threshold and eventually retreated to its former support.
(4) Following this, it entered an extended phase of consolidation until it finally broke through the 300 level in July 2023.
(5) This pivotal moment propelled the stock into strong upward momentum, culminating in a multi-year breakout at the 500 mark after nearly 16 years.
(6) Subsequently, the stock not only maintained this breakout level but has also begun to steadily rise.

Entry, Target & Stop-loss


● Entry with Capital allocation strategy
(1) consider adding 40% of your desired quantity at the current market price.
(2) The second buying opportunity will be in the 660-665 range, where you can also add another 40% of your quantity.
(3) If the price dips to the 620-630 range, that will present the best buying opportunity. Make sure to reserve 20% of your quantity to take advantage of this level.

● Target
Chart analysis indicates a promising upside potential of above 50% for this stock from the current level, with a target around the 960 to 970. There is also a strong likelihood that the stock could exceed this target.

● Stoploss
It is crucial to implement a strict stop-loss below the 500 level, as we anticipate that the stock may encounter challenges if it drops to this point.

Fundamental Analysis
● Stock Valuation ●

(1) Intrinsic Value


➖ The current price-to-earnings ratio for the stock is 14.5.
➖ The median price-to-earnings ratio for the stock over the past year stands at 15.4, while the earnings per share for the trailing twelve months is 45.55.
➖ This leads us to calculate the intrinsic value of the stock as follows: 15.4 * 45.55 is equals to 701.47.
➖ With the current market price hovering around 695, which is below the intrinsic value of 701, it clearly indicates that the stock is considerably undervalued right now.

(2) P/B Ratio
The present PB ratio for this stock stands at 3.06, indicating a slightly high valuation but not reaching overvalued territory.

● Debt Analysis ●


(1) The company's current debt is Rs. 1,949 crore, which is quite minimal compared to its market capitalization of Rs. 17,249 crore.
(2) With a debt-to-equity ratio of just 0.35, it’s evident that the debt level is relatively low for this type of capital-intensive business, providing the company with the flexibility to secure additional funding as needed.
(3) A glance at the balance sheet reveals a significant reduction in debt, dropping from Rs. 3,381 crore last year to the current Rs. 1,949 crore.

● Revenue Break-up ●


(1) Product wise break-up
The company generates its revenue through three primary product categories:
➖ HSAW Pipe, which accounts for approximately 76% of the total revenue,
➖ LSAW Pipe, contributing close to 15% of the total revenue,
➖ ERW Pipe, responsible for about 8% of the total revenue.

(2) Location wise break-up
The company derives approximately 54% of its revenue from India. Additionally, Welspun Corp. operates facilities in the USA and Saudi Arabia, contributing around 8.6% and 34.2% to its overall revenue, respectively.

● Profit & Loss Analysis ●


(1) Over the past three years, this stock has achieved an outstanding compounded annual growth rate of 34% in sales.
(2) The cumulative profit increase over the past three years has been an impressive 21%, indicating a strong upward trend.
(3) The profit margin has seen a significant boost, rising to 9% from 5% YoY.
For the fiscal year 2024, the growth in earnings per share is striking, skyrocketing to 42.41 from 7.90 in fiscal year 2023.

● Cash Flow Analysis ●


Operating cash flow has seen a remarkable surge, soaring to 1,306 crore from a negative 185 crore in FY23.

● Shareholding Pattern ●


(1) As of the June 2024 quarter, the promoters own a notable 50.03% stake in the company.
(2) Goldman Sachs possesses a notable 10.51% share in the company, reflecting a slight decline from 10.70% in March 2024.
(3) Domestic Institutional Investors (DIIs) have reduced their stakes since the previous quarter, yet they still hold over 9%, which remains quite significant.

● Conclusion ●
The steel industry in India is set for expansion, bolstered by new government initiatives. Lower import duties on essential raw materials, combined with heightened public investment in infrastructure and housing, are anticipated to greatly enhance the sector's performance. Therefore, we are excited to see how Welspun Corp will thrive in the near future.