This Multibagger Stock Can Surge 23% In 2022, Buy Suggests Axis Securities

The brokerage’s take on Welspun India

Axis Securities in its research report has said that "Indian Textile companies to gain from 'China +1' strategy, The global players are reducing their dependence on China to de-risk their supply chain concentration, various human rights violations towards labour associated with the textile industry in Xinjiang region which has led to banning on Xinjiang Cotton (20% of world cotton production) in USA, trade tensions between USA-China, etc are some of the reasons which are leading to a shift in manufacturing operations from China to alternate sourcing destinations, this alteration is known as 'China + 1' initiative. India stands to be the forefront beneficiary of this development as the country's textile industry possesses similar structural advantages such as cheap labour, abundance of raw material, strong textile manufacturing infrastructure, and government policy support."

According to the brokerage "This shall help Indian T&A exporters gain a share from their Chinese counterparts globally. Further potential removal of Pakistan's General System of Preferences (GSP) status with the EU. The GSP status in the EU allows duty-free access, helping it gain a significant market share against India and China which attract ~10% duties. However, the EU Parliament is considering the withdrawal of Pakistan's GSP status to address the abuse of blasphemy laws in the country, providing further scope of growth for the Indian Textile industry."

In its research report, the brokerage has also claimed that "The company is the largest Home Textile player in the country as well as one of the largest Indian exporters of Home Textile (HT) products with ~45% share in overall HT exports. The company also commands ~20% market share in the US HT market. The advent of the Covid-19 has inflicted fundamental shifts in consumer behaviour leading to an emergence of a new trend - 'homebody economy', which has shown increased consumer spending on house comfort products. This has catalysed the adoption of the e-commerce route. We are also expecting the rise in pent-up demand in the US and EU as well as in the domestic market led by the economic unlocking and upcoming festive seasons. The revival of the Hospitality industry will also add to the demand for HT products."

Axis Securities has further highlighted that "With the cumulative experience of the traditional portfolio and existing relations with various distributors, Welspun forayed into Flooring. The company has already entered into a long-term strategic arrangement with one of the largest US-based distributors of hard flooring and the product is received well in other international markets. The segment at its peak is expected to add Rs 2200 to 2500 Cr to the WIL topline."

Buy Welspun India Suggests Axis Securities

According to the brokerage's call "The bed & bath linen businesses and the new segment of flooring products are expected to be the key growth drivers going forward. We believe Welspun is well-placed in the HT space given i) Strong industry growth levers; ii) Well-established long-term relationships with customers, and iii) strong brand presence auguring e-commerce and B2C channels. Growth from the new flooring business looks promising. At CMP, the stock trades at 18x FY22E EPS. We assign a target multiple of 15x FY23E EPS (i.e. at 20% discount to TTM PE) and initiate coverage with a BUY rating with a target price of Rs 173/share, implying an upside of 23%."

Disclaimer

The stock has been picked from the brokerage report of Axis Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.