Reviews

In this edition, we have reviewed Welspun Corp Ltd. and Tata Power Company Ltd.. We suggest our readerinvestors to HOLD Welspun Corp Ltd. and Tata Power Company Ltd. 

We had recommended Welspun Corp Ltd. in Volume 38, Issue No. 26 dated November 20, 2023 — December 3, 2023, under the ‘Choice Scrip’ segment. The recommended price for the stock was ₹521. We had recommended the stock based on a confirmed order book, planned capital expenditure and focus on pipeline projects. Welspun Corp Ltd. (WCL), the flagship company of Welspun Group, is a leading global manufacturer of welded line pipes. In 2008, it was ranked as the second-largest pipe producer by Financial Times UK and ‘The Emerging Company of the Year’ by Economic Times. 

WCL is known for its engineering excellence and has supplied some of the world’s most critical pipelines, including the deepest, highest, longest and heaviest projects. The company also provides coating, bending and double-jointing facilities. In Q4FY24, on a consolidated basis, its revenue increased by 9.61 per cent YoY to ₹4,461.17 crore compared to ₹4,070.15 crore from the previous year’s same quarter. On a sequential basis, the revenue decreased by 6.07 per cent. The PBIDT excluding other income decreased by 21.5 per cent to ₹330.15 crore YoY as compared to ₹420.55 crore from the previous year’s same quarter, while sequentially decreasing by 28.69 per cent. 

The net profit stood at ₹191.5 crore compared to ₹211.5 crore, a YoY decrease of 9.46 per cent, while sequentially decreasing by 20.34 per cent from ₹240.4 crore. At TTM, the shares of Welspun Corp are trading at a PE of 14.1 times, which is lower than its three-year median PE of 16.4 times, whereas the industry PE stands at 19.9 times. If we look at its PBV, it is currently at 2.74 times, which is higher than the industry PBV of 2.65 times. The company has a three-year average return on equity (ROE) of 12.2 per cent and a return on capital employed (ROCE) of 13.7 per cent. 

India’s oil and gas business is experiencing steady demand, with an expected 10,000 km gas grid pipeline installation in the next 2-3 years. The water sector is also experiencing growth, driven by irrigation and potable water projects. The US market is focusing on pipeline projects in the Permian Basin. Saudi Arabia operations have had a confirmed order book for over two years. The company’s FY25 guidance appears flat due to a cautious approach. A capex of ₹2,300 crore is planned for the next two years, with a significant portion allocated to expanding DI pipe capacity and investing in plastic pipes. Hence, we recommend HOLD. 

 

We had recommended Tata Power Company Ltd. in Volume 38, Issue No. 26 dated December 18, 2023 — December 31, 2023, under the ‘Choice Scrip’ segment. The recommended price for the stock was ₹338.05. We had recommended the stock based on its focus on renewable projects, increasing power demand and selective bidding in transmission projects. Tata Power Company Limited is a public limited company in India, listed on the BSE and NSE. It is a pioneer in the energy sector, focusing on technology, processes and platforms. 

Tata Power offers products and services in renewable energy, conventional generation, transmission, distribution and next-generation power solutions, trading and services business. In Q4FY24, on a consolidated basis, its revenue increased by 27.24 per cent YoY to ₹15,846.58 crore compared to ₹12,453.76 crore from the previous year’s same quarter. On a sequential basis, the revenue increased by 8.16 per cent. The PBIDT excluding other income increased by 22.96 per cent to ₹2,741.12 crore YoY as compared to ₹2,229.28 crore from the previous year’s same quarter, while sequentially increasing by 5.14 per cent. 

Its net profit stood at ₹729.23 crore compared to ₹759.7 crore, a YoY decrease of 4.01 per cent, while sequentially decreasing by 10.75 per cent from ₹817.1 crore. At TTM, the shares of Tata Power are trading at a PE of 40.6 times, which is higher than its three-year median PE of 31.2 times, whereas the industry PE stands at 40 times. If we look at its PBV, it is currently at 4.32 times, which is higher than the industry PBV of 2.69 times. The company has a three-year average return on equity (ROE) of 11.2 per cent and a return on capital employed (ROCE) of 10.7 per cent. The power demand in India grew by 8 per cent last year, with a 10.5 per cent increase in the last two months. 

The company expects peak demand to reach 260 gigawatts and plans to implement nearly 4 gigawatt projects in FY'25. It has indicated a strong performance in the rooftop business and is actively involved in the PM Surya Ghar Yojana programme for rooftop solar power. It is also leading in the EV business with 86,000 home chargers and is focused on supporting government and OEM e-mobility initiatives. The company’s financial performance has improved with an 18th consecutive quarter of profit growth and improved credit rating to AA+. Its future plans include doubling revenue, EBITDA and profit by FY27, focusing on renewable projects and selective bidding in transmission projects. Hence, we recommend HOLD. 

(Closing price as of June 05, 2024)