Stock Review: Welspun

 

News of a private equity investment in Welspun gave the leading global pipe manufacturer a much-needed boost on the bourses on Wednesday. The stock gained nearly 5% on Wednesday after its management announced that Apollo Global Management would invest . 2,250 crore in the Welspun Group.

As a part of the total investment plan, Apollo will invest . 1,305 crore in Welspun. . 788 crore of this will be invested by way of a preferential allotment of FCDs (Fully/Compulsorily Convertible Debentures), which will carry a coupon of 5% and be converted within 18 months into equity shares at . 225 per share. The remaining . 517 crore will be invested by way of non-voting GDRs (Global Depository Receipts), also at a price of . 255 a share.

Subject to the necessary regulatory and statutory approvals, once the FCDs get converted 18 months from now, the company's equity will increase by 38%, or 7.81 crore shares, to . 141.5 crore. At the conversion price of . 255 per share, the company's market cap is valued at approximately . 6,369.2 crore in 18 months.

Aday before the announcement of this news, the stock closed at . 169 with a market cap of . 3,464.5 crore on the Bombay Stock Exchange. Post the announcement, the stock rallied over 5% before closing at . 174. At the current market price, the stock is available at a 12-month trailing price to earnings ratio of 5.6. Even at . 225, the stock trades at a 12-month trailing price earnings ratio of 7.3, which is still cheaper than its peer Jindal Saw, which trades at . 156, which is 9.5 times its 12 month trailing earnings per share.

Together with the board of directors of Welspun, Apollo will also acquire the entire promoter stake in WMSL, which is part of the Welspun Group. As part of the transaction, Welspun will purchase 87.5% of WMSL's equity for a total consideration of . 805 crore, while Apollo will purchase the remainder for . 140 crore.

WMSL is one of the largest gas based merchant direct reduced iron (DRI) producers in India and has major plans to expand downstream into the production of highend steel slabs. . 130 crore of this capital expenditure will be funded by Apollo.