Sharekhan has given Buy recommendation for Welspun India with a target price of Rs. 105 in its research report issued on May 10, 2022

Sharekhan’s research report on Welspun India

Welspun India Limited (WIL) posted weak performance in Q4FY2022 as revenue growth was affected by logistics disruption and inventory correction at retail level, while margins were affected by input cost inflation. Revenue grew by 4% y-o-y and PAT decreased by 62% y-o-y. Supply-side constraints and input cost inflation continued to persist, impacting margins with gross margin declining by 772 bps y-o-y and EBITDA margin falling by 483 bps y-o-y. Capacity utilisation stood at 67% for bath linen, 69% for bed linen, and 57% for rugs and carpets. The company expects margins to continue to be affected in the near term (next 2-3 quarters) but is confident of restoring margins to pre-COVID levels of ~20% by undertaking calibrated price hikes. The company expects export demand to revive once global uncertainties stabilise, as India has a strong market position in key markets.

Outlook

The stock has corrected by 45% in the past six months (36% in the past three months) and currently trades at 10.4x/7.3x its FY2023E/FY2024E earnings. We maintain our Buy on the stock with a revised PT of Rs. 105.

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