Welspun Corp To Sell Assets Worth Rs 940 Crore

Welspun Corp Ltd. announced the sale of its plate, coil mill and power divisions as it looks to divest its non-core assets to pare debt.

The company said in an exchange filing that it would sell its plate and coil mill division for Rs 873.5 crore to Laptev Finance Private Ltd. not later than Dec. 31, subject to approval from the Competition Commission of India. The power division, comprising 43 megawatt in generation capacity, will be sold to a group entity, Welspun Captive Power Generation, for Rs 66.9 crore by May 31.

Akhil Jindal, director of group corporate affairs of Welspun Group, told BloombergQuint that the plate and coil mill division was being sold at a discount of nearly 25 percent to its book value of Rs 1,175 crore as difficulty in sourcing slab—a key raw material—led to the division's utilisation dipping to 30 percent. The power division, Jindal said, was being sold at its book value and the deal is expected to improve company's return on capital employed by 7 percent.

Contribution Of The Divisions

The plate and coil mill division's contribution to Welspun Corp's consolidated turnover and Ebitda is 16.9 percent and 15 percent, respectively. The power division is a loss-making entity.

Valuations

The plate and coil mill division has been sold at enterprise value to Ebitda ratio of 7 times.

Leaner Balance Sheet

The company demerged its non-pipe business (asset-heavy model) to Welspun Enterprises Ltd. and started focusing on its core pipe business in 2013.

The current divestment is expected to provide significant liquidity to Welspun and deleverage its balance sheet.

Kotak Securities, while initiating coverage on Welspun Corp's stock, suggested that its plate mill business is currently dragging the return ratios and a sale of this business would further reduce its net debt and improve return ratios.