Welspun Corp, a flagship company of global conglomerate Welspun Group is a leading manufacturer of large diameter pipes globally, offering a one-stop solution for all line pipe-related requirements with its wide range of high-grade line pipes.
The company has finally completed its acquisition of Sintex BAPL Ltd for a cash consideration of ₹1,251 crore through its wholly owned subsidiary, Propel Plastic Products Private Ltd, effective March 29, 2023. This acquisition was made to expand the company's building material portfolio.
Sintex BAPL was established in 1931 and was a part of the Sintex group, which had diversified businesses across plastics, textiles, power (thermal), and infrastructure (EPC).
Sintex has been a household name in India for decades for water tanks and other plastic products. It has a strong distribution network across India.
The Sintex-BAPL deal was executed by WCL, Propel Plastic Products, and another group company, Plastauto, formerly known as Tubular Pipes. Following the execution of the deal, both of the unlisted Welspun companies will be merged into Sintex-BAPL.
Global brokerage firm Phillip Capital has a positive outlook on the acquisition of Sintex’s plastic division, as it believes the B2C business will provide better revenue stability than Welspun’s existing pipe business and can help the company in downturns.
However, considering the increased competitive landscape, a ramp-up is likely to be slow, so we are factoring one additional year into our payback calculation (while expecting it to be EPS-positive in FY24 itself), said the brokerage.
Phillip Capital has maintained its 'buy' rating on Welspun Corp with a target price of ₹275 apiece, signaling an upside potential of 26.26% from stock's latest closing price.
The value of Sintex BAPL is currently at ₹11 per share but has the potential to reach ₹40 per share if Welspun's management successfully achieves its goals, it said.
The brokerage has stated that the acquisition of Sintex-BAPL will not have an impact on the company's debt.
In Q3 FY23, Welspun Corp's debt rose to ₹18.4 billion due to capex in DI pipes and inorganic acquisitions such as Sintex and the assets of ABG Shipyard.
Since Sintex had a cash balance of ₹7.3 billion (adjusted against acquisition cost) and Welspun already acquired ₹4.2 billion of debt, the effective incremental cash outflow from Welspun is negligible (only ₹400 to 500 million in working capital financing may be needed), thus the deal will not inflate debt any further, the brokerage noted.
Before the COVID-19 pandemic in FY19, Sintex's plastic division reported revenue of ₹10 billion with EBITDA margins of 22%. The division had a market share of over 20%, which has now decreased to 9%.
With a network of more than 900 distributors and 13,000 retailers, the management is optimistic about regaining its lost market share and achieving revenues of ₹10 billion, leading to an improvement in margins, according to the brokerage.
In September last year, the company secured an order for a carbon capture pipeline project in the United States. This order is for the supply of 785 miles (1,256 KM) or 100,000 MT (approximately) of high-frequency induction welding (HFIW) pipes, and would be used for transporting captured carbon dioxide.
The company reported a 41% fall in its consolidated net profit to ₹23 crore in Q3 FY23. Revenue from operations increased 66.57% to ₹2,402 crore in the December quarter, compared to ₹1,442 crore in the same period last fiscal.
03 analysts polled by MintGenie on average have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
