Welspun Living Limited analyst Q&A

The first question comes from the line of Prerna Jhunjhunwala from Elara Securities.

First question, I just wanted to understand the demand scenario in the US like how the inventory position of the retailers is, how pressed they are to source from their dominant partners? And what is the kind of tariff sharing expectations they have given that the tariff rates are actually very high against expectation after a deal also for various countries.

Thank you for you r question. So definitely, there has been a decline in the volume and the retailers this time are correcting the inventories as well. So that is one thing that they're doing. Secondly, everybody has been very cautious. For example, this time, the top line also de-grew because a couple of promotions actually got held on by the customers as well. And the other thing is how we are looking at the tariff situation is what everybody is evaluating. Now the second question that you asked about how the tariff is hig h and how it's going to be shared or how it's going to be taken forward. I think let me just tell you that the retail prices in America haven't gone up for the past 20 to 30 years. And now obviously, if there's any kind of a steep thing that happens, it wi ll be between the consumer, it will be passed on to the consumer than the retailer. And of course, there's a partnership that works on. So there could be that kind of a conversation. So however, this is not going to be anything that can be taken by the ve ndor alone. It will be kind of shared between all the 3 kind of verticals here, Prerna. I hope I've answered your question here. And if you talk about the volumes going forward, it will now depend. See, now also the tariff announcement uncertainty is an o verhang. It is just hanging uncertain. There's an uncertainty here. While having said that with USA, we continue to focus on UK, Europe and rest of the world, where our business grew by – our thing -- our share is around 40%. So that's where we're also foc using and seeing how we can increase our share there as well because that clearly will now establish an opportunity for India as well as others.

Okay. And how do we see the margins then? Because this quarter, we've done around 10% of EBITDA margin. And given that there is an expectation that vendors will continue to see the impact of tariff, do we see normalization of margins even by the end of this year or we continue to remain at lower margins for some time till there is reduction in tariff rate?

So Prerna, I'll tell you one thing. The concerns are there in the terms of the uncertainty of the tariff, okay? Let me just put it and table it there. And the top line definitely will be impacted because the customers are going to evaluate what they have to buy, they'll take very conservative calls there. So that you will see there. And so that top line will also impact the EBITDA indirectly, directly because that definitely will be an impact. So however, I can also tell you this is a blip momentarily. And in the year as we go forward, we will see that come back again, and we are working towards that. So while the tariff situation is getting resolved, we're also working on our cost. We are working on the other measures, other thi ngs so that, that gets corrected till then. And these numbers are going to come back. See, I can just tell you one thing. Welspun is not here for today or tomorrow. They're here for the next 100 years, and we are building a legacy of it.

I completely agree, ma'am. But just wanted to -- I mean my question was generally to near-term performance. I mean, how long would it be? Ma'am, my second question on -- with respect to profitability, which I asked you, what are the challenges in servicing newer markets now because we have predominantly focused on US in the past. Now that we are focusing on newer markets, whether these markets can compensate for the growth that we are seeing challenge in the US over a period of year’s time or it will sti ll be impacting our volumes despite focus on newer markets? I mean I'm just trying to understand how much growth and margins that we can really see over the year?

Sure. So Prerna , very good question indeed. So first of all, let me tell you one thing. So even when you're talking about the US tariffs, okay? One thing, let me be clear here, India is in a good position, apart from all the other competitors that India has and the peers that India has, right? So whatever will happen, India will be at a better position there. So the business opportunity still remains for India. Now when you're talking about other geographies that we're talking about, the opportunities are very good. And for us, we already started a penetration in UK and Europe, and that's where we are seeing more and more opportunities. And Japan again, is emerging as well. So it is a reemerging economy. Let me tell you that. So again, that's a very important country that we are focusing on. And of course, there will be ANZ and also the GCC. So while -- see, USA. is the biggest market of consumption. Let me be very clear. However, but this is again a very interesting geography for us. So while right now, we are struggling with the tariffs for USA., where still I maintain that India will be in a good position, but we are continuing to make forays into this part of the world as well.

Okay. And what will be the revenue share of US in our emerging business or I mean, advanced materials and other businesses?

No, I think we don't disclose the breakup, but I'll tell you one thing. Advanced Textile, of course, America is a good market, so is Europe and UK and rest of the world as well. Yes, this time, we got a little blip from the top line in the advanced textile as well and also flooring owing to the concerns about the whole tariff offtakes as well. So yes, that's an overhang on the tariffs as well, yes.

The next question comes from the line of Deepali Kumari from Arihant Capital.

The company has low net debt compared to the previous year. So what is the internal range mark or target for FY '26? Should we anticipate any additional prepayment?

So we have giv en a direction for our net debt, which will be in the range of about INR1,300 crores to INR1,400 crores for financial year '26. We have done quite well in first quarter itself, and we have reached INR1,400 crores. So definitely, we would try to top our gui dance in this regard.

Okay. And one more question, like your wet wipes segment have done good from last quarter, but it is only 24% of capacity utilization, even though you have 100 million of pack capacity. So is it due to weak demand, pricing issue or problem in distribution?

No, nothing of that sort, Deepali. The thing here is that with the US where we had an opportunity, where that's the reason the business actually, people were just anticipating and they're holding on for the tariffs. So that's where we are looking at it. Otherwise, the opportunities are not only in the wet wipes for makeup wipes, but baby wipes to the medical wipes, dry wipes. And so there are a lot of opportunities that we're exploring, a lot of innovation is being done here as well. So let me just give you kind of a comfort there that this is a category that we'll see to grow.

Okay. So there is no any seasonal impact?

No, no. The seasonal impact is not there. This is a tariff impact.

Okay. And like your flooring business at what level it will be breakeven?

Flooring business is already -- we are already at about 8% to 8.5% EBITDA margin. So it is already -- breakeven has happened 2 years back.

Okay. So the new facility I'm asking.

Sorry, I didn't get you.

The newer facility you have talked about at what level that will be breakeven?

So there's no newer facility that we're investing in Deepali, I think.

It's in the that we are investing, not in flooring.

So what I wanted to ask was that with the overall revenue declining, but the domestic flooring showing a strong growth of 26% year -on-year basis, can we expect the flooring business to become a larger revenue contributor in the upcoming quarters?

So I think so domestic flooring will be -- is a great opportunity in India as we see hospitality institutions coming up and the residential opportunity also continues to grow. And so while saying that India will definitely be a good opportunity, but we also will be focusing on the global markets here.

The next question comes from the line of Kunal Shah from Jefferies.

So my question is in the last 15, 20 days, you've seen countries sign trade deals, right? And at least for some countries, I know we don't compete with many of them, start to emerge. So just from a customer standpoint, have there been any change in conversations on how things will pan out in the coming? I know actual orders and volumes and others may take time, but any change in conversation or direction in the last month or so as these trade deals are starting to flow in?

Hi Kunal, so for us as India and the other countries, trade deals you're talking about, I just want to clarify like UK and the other countries.

No, no, I mean US signing trade deals with something like Indonesia or Vietnam. I know we don't compete with them, but just from a customer conversation standpoint, any change or any anticipation that they have at their end or what's the next step from their side?

Nothing of that sort, Kunal. See, Indonesia's operations are very minimal, and I think that focuses on minerals that side. Vietnam focuses on other categories more than home textiles. So that, again, is a p erspective that let me just clarify as well. So India continues to be a very strong sourcing arm. And definitely, we will see how the tariffs pan out, but India will continue to be a very strong sourcing country for them.

Understood. Understood. So it would be fair to say, let's say, half of the issue is also the category itself being weak and the rest is the destocking. And the category weakness is also evident in the branded piece, which has also declined for you. That would be a fair understanding, right?

Yes. Yes, Kunal. Because see, I'll tell you one thing, they are looking at the stocks, they're looking at that as an evaluation, then the tariff overhang is one thing. And the other thing also as we go forward is, again, the ec onomy might also be something that we will see a little slowdown.

Understood. Understood. That's clear. And second bit is on the UK side, any early interest that you are seeing which you can tap in the next one year or so? I mean any large cust omers that you're looking at? I can understand you can't share the name, but any incremental interest that can help build those revenues out in the next year or two?

The next question comes from the line of Roshan from B&K Securities.

I just wanted to understand when is the new facility likely to be operation?

It will start by quarter 4 of this year in Nevada, yes.

Okay. I understand. And by when do you expect to reach the optimum utilization level?

See, it takes at least 6 months to 8 months to reach the optimum. Yes, the second year will be the optimum optimization that you will start seeing because it takes that much time to scale up as well, right? Because every capacity can do around 10 million -- 10 million to 12 million units of pillows.

Right. Understood. And given what is your outlook on the festive season in the internat ional markets because probably from quarter 2, your exports starts happening for the festive season. So what is the outlook over there? How are the buyers behaving? What is the overall mood? Maybe if you can help me understand that?

So this year, it will -- see, every year, our quarter 2 comparatively to the quarter 1 is a little better. So that is the trend we will also witness. Now to that extent of what it will be in the terms of kind of a better off than the previous year, that is not something I will be able to say. But yes, it will be better than this quarter.

The next question comes from the line of Bhavin Chheda from Enam Holdings.

I wanted to understand from the presentation, what do you mean by effective cap acity versus installed capacity?

In pillow, you mean?

Pillow also and flooring also because we keep on showing 2 numbers.

Yes. So flooring, we have built the capacity for 2 7 million square meters, but we have operational 18 million. So there are some balancing equipment which we will have to set up at a very low capex, which will enhance the capacity as and when we need it. For the pillow as well, the whole capacity for the 2 shift operations. And also there are so me automations which are still to come in. And so as they become operational, we will start reporting those. Currently, it is only single shift operation and there are another 20% to 30% automation still there.

So since we have also announce d the new facility in Pillow, I'm assuming this you will be ramping up first to the installed level or there would remain a bottleneck to ramp this up?

No, no, no. That will -- see, let me just explain the whole way that the pillow works and the pillow plants work in America. See, since it is logistically very -- it's very heavy and cumbersome. So it is focused on that same zone. So now when we are in Ohio, it focuses on the East Coast, and that's where the distribution will happen with the D Cs of the various retailers, right? And when the West Coast comes in, it's focused on the retailers on the West Coast like the hospitality and the other major retailers as well. So that's the way it works and that suffices that zone as well. So that's the way we work on actually. So that's the way the pillow works in America.

Sure, ma'am. So I should understand, so this pillow facility, though we are saying installed 13.5 million and effective 4.7 million PCs, there would be some automation a nd maybe double shift capacity you have mentioned. You also mentioned that each line normally is capable of doing 10 million pillows. So as and when the demand situation improves in East Coast of USA., this would be reaching volumes of closer to 10 million pieces, right -- facility?

Yes. Already, we have seen from 30% to now 47% this quarter.

47 is of 4.7 basically – 0.6 million is 2.5 million run rate but what this facility can do. So maybe 3 years' time, basically, once this t ariff uncertainty gets over and the capacity gets ramped up, the ramp-up is not very difficult in these kind of facilities. So maybe a couple of years, this would be a 10 million output, right?

In 2 years max. But I think we already -- I mean, by the end of this year and exit, we'll be at 70% of our capacity.

70%, again 4.7 or?

No, 4.7 will increase. So we will start second shift of operation as well. And so you will see a de-clogging of the effective capacity and also achieving higher capacity utilization of that. So we are effectively fine for that double of last year's turnover in Pillow, so 15 million to 30 million. And hence, capacity utilization will ramp up very fast from here.

Okay. My second question, I think you shared that non -US market was close to 40% of sales, right? That is non-US, non-India or that includes India?

It includes India as well because it's rest of the world.

Okay. And if you can share some gro wth in those markets, particularly UK, EU, if we can get some trends there?

So I think we can just give you a consolidated perspective right now. And I think this will continue to increase as a share and as the tariff opportunity open, the a greements open up for India. Like UK, you already know that we are seeing opportunity. EU conversations already happening and retailers are very, very positive about that as an opportunity. Japan, again, is a great opportunity. So yes, and also Australia is done, but New Zealand is again right around the corner by the end of the year. So yes, those are the things that we will see. So I can just give you that perspective at the moment.

The next question comes from the line of Tanishk from Antique Stock Broking.

Can you share the US and UK and EU revenues in terms of total revenue for this quarter?

The next question comes from the line of Lakshmi Narayan from Ksema Wealth Private Limited.

Sir actually in previous con calls, you have given net debt target would be around zero by FY '28. That still hold good?

Yes, correct. So we are trying for a zero net debt by financial year '28 which is 3 years.

Okay. Sir, my next question is on numbers basically. Could you give me the split of advanced textiles under the home textile segment? Is it possible? How much revenue contributed?

INR117 crores revenue.

For this quarter, sir?

INR117 crores for this quarter.

Okay. FY '25 also is it possible for you to give, last year?

You can get in touch with Salil, he will provide you the numbers. I don't have it currently.

The next follow-up question comes from the line of Kunal Shah from Jefferies.

So in this B2B business, that 14%, 15% decline in revenues, possible to share a split of what that would be for, let's say, US customers and non-US customers? How much would that decline be for US then decline or maybe some growth for non-US?

Kunal, I think I can just tell you that the overhang of tariffs is the reason for what you saw in the decline. And I think that's what I can just give you an answer on because the certain promotions were in the anticipation and that actually got a little postponed or a little. So that's the reason I can just say that the tariff overhang was the reason here. And I think it's primarily United States.

Understood. But fair to say that the non-US business would have grown Y-o-Y or?

Yes.

Understood. Understood. And second thing is with demand in the US generally being weak, are you seeing increased competition both in the US and, let's say, outside the US as well as partners like you would want to get volumes from other markets to compensate for the weakness in the US Is there some sense on that front?

So we already are working with UK, Europe and rest of the world, Kunal. And I think that's been a great opportunity for us. We're continuing to explore that for the long time as well. And now it actually will start seeing a lot of more fruition positive -- in the positive trend. So that's where it is. But also, Kunal, let me tell you that India still is in a decent position with the tariff situation as well because if you look at the other peers as well. So I can just say that we'll wait and watch, but India's position will not dilute to that extent.

Just wanted some color on the product-wise demand, if you can share like bed versus bath, how the demand is and any color which can help us understand where the demand can really improve going forward, maybe versus premium from where the demand is shaping up in current scenario?

So I'll tell you one thing. Right now, I can just say that towels actually degrew this time, but we will see that again come up and ramp up again, Prerna. Sheets -- so the towel had a mega drop, which we will see again come back next quarter and the others. Sheets was also down and the results were also down. But I think Prerna in the coming times, we'll see them gaining the share and not only ramping up for America, but the other countries will also start ramping up in the terms of t he demand. Let me just give you the perspective here. And in the towels also, you will see the weak season coming in. So there will be a ramp -up for the Jacquard and the fashion towels as well. So yes, that's where it is.

Okay. And the n our branded global revenue combined online and offline would not have declined much. So is it reason to assume that branded piece is still seeing good demand or is it more client acquisition and value segment or premium segment doing better in the brande d segment? I mean just trying to understand branded is largely constant for us on a Y-o-Y basis.

So overall branded portfolio is at 18% of the operating revenues right now.

And you're right, Prerna. So overall branded portfolio has grown in single-digit in the quarter

Yes. So I'm just trying to understand whether that will -- that scenario continues and what is driving this branded segment versus the decline in B2B? Because at the end of the day, I mean, I don't -- I mean, just trying to understand how -- if we can further shape up this branded business faster given we have much control on that.

So here, actually, Prerna, because these are all brands like Creative CO/Lab and the others. So they are specific programs that come in and which we launch, and that actually does well in these times. And more so Christy is continuing to grow as well. So yes, that's where we are seeing a contribution of the branded share not getting diluted comparatively globally.

And as we had last quarter as well, we are informing this quarter as well. So there is a visible soft action by the retailers because of the overhang of the tariff. And hence, though the demand at the customer end has not gone down to that extent the buying has and hence, you see -- to be a lower volume rather in the branded segment.

Ladies and gentlemen, we'll take this as the last question for today. I would now like to hand the conference over to Ms. Dipali Goenka for closing comments.

Thank you. So as we close Q1 and look ahead, it is clear that FY '26 has begun amidst significant external headwinds. The implementation of reciprocal tariffs has added layers of complexity to an already dynamic global trade environment. While near -term volatility is inevitable, we see this period as one that will separate the resilience from the rest. We are actively engaging with our customers and stakeholders to navigate these uncertainties. At the same time, we rema in focused on what is within our control, driving operational efficiency, optimizing costs and staying close to market shifts to respond with agility. The India- UK Free Trade Agreement, once fully implemented, holds strong promise expanding our reach and competitiveness in the UK market. And similarly, progress in the US-India Bilateral Trade Agreement remains an important milestone, and we are waiting outcome to gain more predictability in trade flows. We remain deeply committed to creating sustainable va lue for our stakeholders through prudent action, disciplined execution and our trusted partnerships across the markets. Thank you all for your continued confidence in Welspun Living. We look forward to updating you as we move ahead. And for any further queries, please feel free to connect with our Investor Relations team.

Thank you. On behalf of JM Financial Institutional Securities Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.