Welspun India shares jump 20% amid positive news flow; did you miss the bus?

Shares of Welspun India were on a roll in Tuesday's trade on the back of positive news for the investors. The stock of towel manufacturers was in the focus as it surged as much as 20 per cent during the trading session, hitting its new 52-week high.

Along with a strong performance in the period that ended on March 31, 2023, Welspun India announced a buyback offer at a hefty premium, strong quarterly performance, its robust EBITDA and dividend for the investors, which pushed to counter higher during the day.

Shares of Welspun India soared almost 20 per cent to hit its new 52-week high at Rs 104.90, just shy of its upper circuit limit. The company was commanding a market capitalisation of close to Rs 9,250 crore. The scrip had settled at Rs 87.64 on BSE on Friday.

Over the extended weekend, the company board of directors of Welspun India approved a buyback proposal of Rs 196 crore. Under this offer, Welspun India would buy back up to 1,62,50,000 crore equity shares at a price of Rs 120 apiece, which is a premium of 37 per cent compared to its Friday closing price.

The buyback will be carried out via the Tender Offer route and the record date for the same has been set as May 10 to ascertain the eligibility of shareholders for the buyback. Alongside, the company has also declared a dividend of Rs 0.1 per share, the record date for which has been set as June 30, 2023.

Welspun India reported revenue growth of 15 per cent year-on-year to Rs 2,154 crore while operating profit grew 44 per cent from an expansion of 300 basis points in EBITDA margins to 13 per cent for the period. Welspun India said this was the highest EBITDA margin for the company in the last six quarters.

At the end of financial year 2023, Welspun India had cash worth Rs 593 crore on its books and it aims to become net debt free by the financial year 2025.

The stock, which is not under the review of many brokerage firms, has had a mixed response from the analyst with positive bias. However, the stock has already achieved the target given by the analysts, thanks to the buyback announcement from the company board.

Welspun beat top-line and EBITDA estimates with margin improvement being a big driver. Margins are at a six-quarter high owing to normalizing cotton and freight costs. Management highlighted signs of improvement in demand, citing destocking from retailers in the US is behind, and guided for 10-12 per cent growth in FY24E with an EBITDA margin of 15 per cent, said Nuvama Institutional Equities.

"In light of the improving demand visibility, we ascribe the business a valuation of 6x FY25E EV/EBITDA, which is still lower than its five-year average of 6.6x acknowledging the environment has not normalized yet," Nuvama said. It maintained its hold rating on the stock but increased the target price to Rs 90 from Rs 72 earlier.

Mumbai-based Welspun India is a textile company, which is Asia's largest and the world's second-largest terry towel producer. It exports more than 94 per cent of its home textiles products to more than 50 countries.

Axis Securities, which is cautiously positive on the sector, said that moderating headwinds to help growth in the near term, structural growth levers of increasing domestic presence and a higher share of the branded business to drive margins in the long term. The company intends to be net debt free by

"We expect the company to do well in the coming quarters as we expect demand to revive with prices moderating and inventory pressure subsiding. We are revising our outlook on Welspun as its strong brand proposition and industry-leading position will help in the quickest demand recovery. We have revised our rating to 'buy' from 'hold with a target price of Rs 90 on the stock," Axis said.

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