Annual Report Analysis - Welspun Corp:: Edelweiss

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Cash conversion cycle improves, but may not be sustainable

n  Welspun Corporation’s (Welspun) cash conversion cycle decreased from (22) days in FY09 to (32) days in FY10. It, however, looks unsustainable as was the case in FY09 when cash conversion was low primarily due to steep increase in acceptances. With acceptances paid off in FY10, advances from customers have increased substantially from INR 2.2 bn in FY09 to INR 15.5 bn in FY10.

n  Order book reduced from INR 77.4 bn in FY09 to INR 64.0 bn in FY10. However, the company has guided that the order book, in quantitative terms, has increased to 791,000 MT FY10 (FY09: 781,000 MT) and the reduction in value is due to lower metal prices.

Net finance cost increases on lower interest income and capitalisation

n  Net finance cost increased from INR 1.8 bn in FY09 to INR 2.1 bn, as interest income dipped from INR 1.0 bn in FY09 to INR 0.2 bn in FY10. This is despite the increase in cash and investment from INR 10.6 bn in FY09 to INR 18.6 bn in FY10, which, we believe, is on account of cash received at FY10 end.

n  Interest capitalised dipped from INR 571 mn in FY09 to INR 81 mn in FY10 on account of commissioning of US spiral mill and coil mill at Anjarin FY09 end.

Borrowing cost dips as FCCBs replace high-cost debt

n  High cost debt was replaced by FCCBs, which reduced average borrowing cost from 14.2% in FY09 to 9.3% in FY10.

Operating margins rise, supported by reversal of forex provisioning

n  During FY10, the company’s revenues increased 28.1%, from INR 57.4 bn in FY09 to INR 73.5 bn in FY10.

n  EBIDTA margins grew from 11.1% in FY09 to 17.9% in FY10. This was primarily on account of lower raw material (RM) costs and reversal of forex provisioning of INR 1,256 mn on asset liability mismatch booked during FY09. Excluding forex provisioning, EBIDTA margins improved from 13.3% in FY09 to 16.2% in FY10.

FCCB redemption premium/ESOP discounts charged through reserves

n  During FY10, Welspun raised USD 150 mn (INR 6.9 bn) through issue of 4.5% FCCBs, convertible at INR 300/share, maturing on October 2014. Unless previously converted/ redeemed, the bonds will be redeemed at a premium of 2.8%.

n  Premium payable on redemption of FCCB, aggregating INR 16 mn, has been adjusted against securities premium account.

n  During the year, 1.1 mn equity shares were issued at a price of INR 80 each, on exercise of ESOPs. Discount allowed, aggregating INR 30 mn in respect of shares allotted, is adjusted in the securities premium account.

n  Welspun accounts ESOPs on intrinsic value basis. Had the company used the fair value model, PAT for FY10 would have been lower by INR 10.1 mn.