Analyst corner: Welspun’s Rs 7-bn cash pile shows firm’s potential

By: | Published: September 18, 2018 2:07 AM

A strong balance sheet and an asset-light business model are just some of the findings in the whole wonder that is Welspun Enterprises.

The company has blossomed from Rs 25 billion net debt in the past to a Rs 10 billion cash surplus, weathering varied extremes.

A strong balance sheet and an asset-light business model are just some of the findings in the whole wonder that is Welspun Enterprises. The company has blossomed from Rs 25 billion net debt in the past to a Rs 10 billion cash surplus, weathering varied extremes. At present, its Rs 7 billion cash pile, speak volumes about the potential and promise this road hybrid annuity player holds.

The company sees projects from NHAI and state authorities, well within its scope, to further boost its present Rs 56 billion OB. It also sees promise in water projects that are up for bidding soon and expects to bag Rs 40 billion of them in coming years. It also regards acquisitions as a potential source of fuelling growth (it has already acquired two HAMs from MBL Infra and one HAM from Vishvaraj group, already part of the OB).

The company has maintained its intent to monetise the assets it holds. Having already achieved PCOD status on the Delhi-Meerut, and balance hybrid’s execution ahead of schedule, when these monetisations come through they would add to its cash pile. The company at the time of bidding ensures economic viability such that even O&M expenses are actually accounted for. It sees 1.25-1.3x as the bid price (of authority) for NHAI projects and 1.5- 1.7x for state projects as essential to ensure safe returns to the developer and future holder of such projects.

At the ruling price the stock trades at 1.5x PBV, as on 30th June 2018 standalone book-value of ~Rs 101 per share. We do not have a rating on the stock. Strong balance sheet, rising order backlog and bare-minimum debt work in the company’s favour. Risk. Delays in execution.The company is a project management consultant, which bids for projects, then sub-contracts them to regional operators well-versed in executing projects. It tags itself as a focused HAM player and operates certain legacy BOT projects. It also has interests in oil & gas (a non-core investment since inception). Management takes on a project ensuring not only that it is economically viable but also the advantages to be gained from its monetising.

Anandrathi

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