February , 2019
Welspun leader in Line Pipe and Home Textiles globally
12:51 pm

Rajesh Agarwal

Company Background

Welspun Enterprises Ltd. (WEL), formerly known as Welspun Projects Ltd., the fastest growing company of USD 2.3 billion Welspun Group, is an operating company engaged in infrastructure development along with investments in Oil & Gas exploration. The Company, in its current form, was created by the merger of the erstwhile Welspun Enterprises Ltd., Welspun Infratech Ltd., Welspun Plastics Pvt. Ltd. and Welspun Infra Projects Pvt. Ltd. with Welspun Projects, which was renamed as Welspun Enterprises Ltd. through the Scheme of Amalgamation and Arrangement made effective from 2015 aiding the Company to target opportunities which need large free cash and strong balance sheet.

Investment Rationale

l Welspun Group has established a leadership position in the Line Pipe & Home Textiles sectors globally with manufacturing facilities strategically located in India, USA and Saudi Arabia. WEL is an India-based company with registered office in Kutch, Gujarat.

l By 2015, the Company had divested most of its Engineering, Procurement and Construction (EPC) and Build, Operate and Transfer (BOT) business. WEL started its association with National Highway Authority of India (NHAI) in 2016 with focus on the more attractive Hybrid Annuity model (HAM) and built a sizeable portfolio through a bid and buy strategy, making it one of the key and unique players in the Indian infrastructure space.

l WEL started FY1718 with one HAM project and added 6 more HAM projects till date to its portfolio taking the total HAM portfolio size to Rs. 85+ billion and 590+ kms. Engineering, procurement and construction (EPC) order book after 9MFY19 was Rs. 58 billion. Apart from the HAM projects, WEL also has a small portfolio of legacy BOT projects - two in road and one in water.

l WEL has completed India's first and only HAM project - 14 lane expressway in a record time of 19 months against the scheduled 30 months, setting a new benchmark with operational efficiency and commitment. All other HAM projects have achieved financial closure tie-up and are in the advanced stage of implementation.

l As part of its de-risking strategy, WEL is exploring opportunities in the water segment under the HAM model with focus on bulk water transmission, lift irrigation and sewage treatment plant (STP) projects. WEL is in advantageous position to tap these opportunities with experience in water pipes and water supply project.

l WEL has invested in the oil and gas sector through a

Joint Venture Company - Adani Welspun Exploration Ltd. (AWEL), owning 35% stake. Under the existing portfolio, WEL has five relevant blocks - two in Kutch where the operator is ONGC, one in Mumbai (100% owned), one with Discovered Small Field project in Mumbai (acquired) and in Palej which is on hold.

l In Q3FY19 WEL’s consolidated net sales grew by ~49% and net profit grew robustly to Rs. 44 crore from Rs. 16 crore YoY respectively. Revenue during the quarter was contributed mainly by three HAM projects as against only one project in the same quarter last year. Operating profit was up by ~60% on account of the EPC margins from the higher execution partially offset by MTM impact on Other Income.

l The Company has a policy of regularly divesting completed assets in order to recycle capital. During Q3FY19, the 13% residual stake in Dewas Bhopal road project was sold for Rs. 58 crore. With this, the total consideration received by WEL was Rs. 184 crore as against its fund infusion of Rs. 85 crore implying a multiple of 2.15x.


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