Welspun Enterprises climbs 11% after Antique initiates coverage with buy, sees 78% upside

Using the sum-of-the-parts valuation, Antique assigned a target price of Rs 172 to the stock, implying 78 percent potential upside.

Infrastructure developer Welspun Enterprises shares jumped 11 percent intraday Friday after Antique Stock Broking has initiated coverage with a buy call on the stock, citing attractive valuation.

The stock was quoting at Rs 106.30, up Rs 8.95, or 9.19 percent on the BSE, at 12:13 hours IST.

Welspun Enterprises is an asset recycling infrastructure model, offering investors a margin of safety and growth opportunity at an attractive valuation, Antique Stock Broking said.

Unlike other companies in the road sector, where burgeoning order backlog and new project bids could possibly stretch balance sheets, WEL is a company that has developed assets, even beyond roads, sold them, and bid for new projects. And it has all happened with adequate cushion of cash in hand, it added.

Even better, it said WEL has an Rs 5,750 crore order backlog in hand. This, without new order, in itself sets the revenue growth trajectory until 2021 at 36 percent CAGR, it added.

In first nine-month period of FY19, the company’s revenue has grown 67 percent YoY growth while EBITDA growth has been 104 percent YoY.

Between FY18 and FY21, the company can deliver a revenue/EBITDA/net profit growth of 59 /90 /48 percent CAGR respectively, according to him.

The research house said unlike the company’s peers that have only been talking of asset sales, WEL has actually walked the talk.

WEL has sold its assets like Leighton to its parent, Maxsteel to JSW, renewable portfolio to Tata Power and Dewas road project to IDFC fund.

After achieving the commercial operation date, WEL plans to divest its entire stake in the Delhi-Meerut project, which is the first HAM project in the country, and is already in talks with prospective buyers, Antique said.

WEL has completed this first HAM project in a record time of 19 months as against the scheduled 30 months. The project consists of a six-lane expressway in the centre, flanked by two four-lane highways on either side.

With NHAI’s increasing focus on expressways, WEL’s work in building India’s first 14-lane sustainable green expressway could act as a prequalification for the Rs 4 lakh crore opportunity ahead, the research house feels.

Using the sum-of-the-parts valuation, Antique assigned a target price of Rs 172 to the stock, implying 78 percent potential upside.

A stake sale similar to the MP road project or renewable portfolio in the past poses an upside risk to valuation while the cost of financing and delay in executing existing portfolio remain the downward risks, it said.

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