UBS Investment Research
Welspun Corp
SEBI order impacts investor sentiment
„ SEBI bars promoter entities to trade in Welspun stock, till further notice
SEBI has directed promoter/promoter group entities not to buy, sell or deal in
Welspun Corp (WCL) shares till further notice. This is on preliminary SEBI
enquiry on alleged trading by the Dangi/promoter entities to possibly influence
WCL price. Entities can file their objection within 21 days and request a hearing.
„ Welspun clarifies that the order has no bearing on its business/financials
WCL clarifies that the SEBI order has no bearing on any of its business/financials.
Further, promoter entities have also indicated that they are taking professional
advice and believe they are in full compliance with all applicable laws.
„ Cost of capital higher; capital raising may be difficult on weak sentiment
In our view, SEBI ex parte order may not have a significant impact on the existing
business (reasonable balance-sheet and can deliver on quality projects). However,
required cost of capital (equity risk premium, beta) is likely to increase and any
potential capital raising (WCL has no requirement in c2 years) would be difficult.
„ Valuation: Downgrade PT to Rs 250, maintain Buy only on fundamentals
We have marginally revised our estimates lower to incorporate MSK Projects. We
downgrade our price target to Rs 250 from Rs 400, on higher WACC (from 12.1%
to 15.4%) and slightly lower long term growth. We are positive on pipes sector and
WCL’s business and maintain Buy on fundamentals. Yet, SEBI ex parte order may
keep investor sentiment muted over medium term. We await more clarity on the
SEBI enquiry; any negative surprises would significantly impact investor
sentiment and perception on the stock
