Shares of Welspun India Ltd tumbled over 9% in Thursday's (October 26) trade, a day after rallying 13% to hit a 52-week high of ₹143.95 on better-than-expected second-quarter earnings. Welspun India's risk-reward stays unfavourable after a 73% rally on the counter since the beginning of this year, said Nuvama Institutional Equities in a report.

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Nuvama has maintained a 'Hold' rating on the stock even as the brokerage has upped its target price on Welspun India to ₹148 from ₹110 earlier. This indicates a further upside of 15% from the current market levels.

The scrip was trading 9.49% lower at ₹128.70 apiece on the NSE today. It is trading at 8 times two-year blended forward EV/Ebitda, which is well above its long-term average of 5.5 times.

With global demand reviving and cotton prices normalising, Nuvama expects margins to improve further. "This gives us the comfort to hike the target valuation to 8 times (from 6 times)."

"While we are edging up FY25 EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) by 3% on improving demand, risk-reward stays unfavourable at this valuation," the brokerage said.

Welspun India's management has guided for 10–12% sales growth each in FY24 and 25 with potential EBITDA margins of 15%. Upcoming festive demand backed with stable cotton prices should keep margins intact, Nuvama said.

The brokerage said that net debt for Welspun India declined to ₹1,600 crore in Q2 from ₹1,800 crore as of June 2023. Net debt to equity stood at 0.4 times in Q2.

Welspun said its Q2 profit came in at ₹196.7 crore, up more than 22 times on a year-on-year (YoY) basis. Total revenue for the September quarter climbed 19% YoY to Rs 2,542.4 crore.

"It is a proud moment for the company to have reported highest ever consolidated quarterly revenues in Q2 FY24 with consistent profitability in last few quarters, in the face of relatively adverse global economic situation and subdued consumer sentiments. It is also heartening to see the flooring business picking up well and reporting highest quarterly revenues and margin," said Welspun Group chairman BK Goenka.

On the domestic front, Welspun showed resilience during the quarter despite weak retail market sentiments, as a result of focus on continued expansion and also continued to be in positive margin space, Goenka added.

Separately, Welspun has appointed Murali Sivaraman as an independent director for a four-year term.

(Edited by : C H Unnikrishnan)

First Published:Oct 26, 2023 12:25 PM IST