Welspun Living Limited analyst Q&A

Thank you very much. We will now begin with the question -and-answer session. The first question is from the line of Prerna Jhunjhunwala from Elara Capital. Please go ahead. Prerna,

Congratulations on good set of numbers. Just wanted to understand the flooring growth rate of 2.2% this quarter, which is quite low as when compared to our expectations. So what happened and how this will pan out over the next two quarters?

Hi, Prerna. If you look at it, flooring business has actually clocked its highest revenue of around INR 927 crores this year. We have grown by 31%. But the thing here is that in the last quarter, because of the Red Sea issue, there were a little hiccups. Because see, in Home Textiles, around 80% of our businesses are FOB . Here, we are looking at CIS a nd that was the impact here. However, as we go forward in Q1, our numbers looked very intact a nd we are moving in the right manner in a committed way that we have committed on the top line and the numbers and a strategy that we are looking at, s o this was a little hiccup that we saw in this quarter ’4 because this was right at the peak of the Red Sea issue.

Hi, Prerna, so we have given a total overall growth of about 10% to 12% for the business. So whatever has been the breakup this year, you can consider the same kind of breakup for next year.

Okay. Understood and in the domestic market, in the Flooring business, how is the traction going apart from the export market? So what is happening in the domestic market in the Flooring business want to understand that itself.

Yes. That's very, very important because that's going to be a growth forward. So domestic front, we continue to see growth in hospitality and residential segments in the key markets in India. So domestic flooring actually achieved its highest quarterly revenues growing 41% and yearly revenues growing 15% here. So I think I can tell you that India will be the key market, t hough it is a steady -state growth that we are going to be seeing here a nd this quarter, we actually, to your point, actually, clocked the highest r evenue for the domestic market a nd it will be going bigger as we also capture the residential properties as well. We have reached around 2,500 AIDs as of now and that will, again, be growing 100% by the end of this year.

Okay. The second question is on cotton inventory. What kind of cotton inventory are you holding at the end of the year? a nd do you think cotton prices can move back to INR55,000 or above INR65,000? Just trying to understand what should be the deduction in your opinion?

So that's a valid point, Prerna. So first of all, we actually have covered until the beginning of the next cotton season, we are holding around six months of cotton until October '24 and as we look at cotton today, cotton prices l ook in the range of around INR59 ,000 to INR62,000 per candy. and as we are seeing the harvesting season being over, we will see a little hike coming in the end of June and July. But as the season comes in for cotton, it will mobilize. We feel that the cotton prices will remain around INR59,000 to INR60,000.

Okay and our cost of cotton inventory should be lower than that or above that?

Our costs will be around INR59,000.

Okay. It will be around that only. Okay.

Yes.

Okay. Thank you, ma'am. All the best.

Thank you. Thank you, Prerna.

Thank you. The next question is from the line of Dhanan Bagrodia from ASK. Please go ahead.

So we are already present in U.K., as you are aware, with our own comp any and distribution capability, we are supplying in the top of the better and the best category , U.K. constitutes about 9% of the entire world share, and our business share is also about 9% to 10%.

So I'll just say here something that, as Sanjay pointed out, we are in the better and the best already in these towels. The upside that we will see with the FDA comes in is with the bedding where Pakistan and Bangladesh dominates. So that definitely will be an interesting place to see because right now, we are playing in the better and the best even in the bedding as well and that is where I think we will be looking at a market sh are, because U.K. is definitely the second largest consumption economy after United States of America.

It would be tough to quantify such as if you have to quantify at the moment?

Yes, we cannot quantify at the mo ment becaus e it depends on the businesses opening up according to the demand. So it will be as in wait and watch when these things happen.

Okay, sure. Thank you.

Thank you.

Thank you. The next question is from the line of Vikas Jain from Equirus. Please go ahead.

Yes. Thank you for the opportunity and congrats for good set of numbers. First question is on the gross margin side, I believe the cotton prices have largely been on the stable side. So could you elaborate what will be the reason for the quarter-on-quarter dip in the gross margins?

Yes. Thanks, Vikas. So as you can see, the sales in e very quarter, the mix changes a nd so this time, the mix has been such, that has impacted the overall gross margin by about 1%. But overall, our EBITDA margin has remained intact. So this mix changes keep on happening on quarter-to- quarter and but overall margin we maintain.

Okay. Secondly, I would want you reiterate the breakup of the capex that you mentioned for full year FY '25?

Yes. So our capex is for Anjar TT, It is at INR341 crores, For our pillow capacity at Ohio, it is INR104 crores. For our transmission line for RE is INR75 crores, and maintenance capex is INR340 crores, totalling to INR860 crores.

Okay. So while given the fact that and my rough estimate is that we'll be broadly generating an operating cash flow of similar amounts. So are we suggesting that the debt balance that we have at this point of time would relatively be on the same levels by the end of FY '25 as well?

Understood. Second, sir, for the flooring side, while our installed capacities that we just quoted versus the maximum capacity that we can reach that is around 27 million square meters. So any plans to improve from the current 18 to 27, given the fact that we are inching up on the utilization side?

So once we reach the nearer to 18 million square meter capacity utilization, we will then think about expanding it to that balance 27. We have on an average reached about 56% capacity utilization from that 18 million this year. Let's first reach about 80% - 85% which we'll do in the next 1.5 years to 2 years and then we will think about increasing the capacity.

Understood. Okay sir. Thank you so much I will join back the question queue.

Thank you Vikas.

Thank you. The next question is from the line of Nilesh Jethani from Bank of India. Please go ahead.

Hi, good evening and thanks for the opportunity. My first question was on the advanced textiles. So when I see the Q -o-Q number there seems to be a small dip as far as the advanced textiles numbers are concerned. Just wanted to understand what would be the main reasons for it?

So, I don't see a di p. There has been a lower increase in the advanced textiles. Again, because the Red Sea issue and the buyers pushing that shipment slightly furthe r, but we have seen an increasing trend in quarter 4 as well at about 12% and overall, we have increased by about 25% for the year and from quarter, it's looking great, good, so this should be it.

Our demand will be robust here. It was just an aberration of the Red Sea that the people pushed it a little back.

So at the current capaci ty just wanted to understand what kind of potential revenue we can achieve in the advanced textiles piece?

So we have reached out 40% capacity utilization in Telangana. We are already at about 80% capacity utilization in Anjar. With the t otal capacity utilization 80% - 85% we should touch a revenue of about INR1,000 crores which should happen by in another 2 to 2.5 years’ time.

My second question was largely on the global business, the innovation p iece which you report on the P PT that has seen a sharp jump. Just wanted to understand overall export market perspective. One is, of course, the branded which is helping us drive higher growth, but in general what are we sensing on the ground level, the increased shelf space etc , which could be one of the reason for driving growth, but how to look at the growth rate sustaining going forward, how to look at it?

So, I'll just give you a little perspective here. So I think we are basically working on the quality of the share of shelf across. So it is not just a towel and a sheet that we sell in a private label, as you rightly pointed out our stake in the innovation gr ew by around over 67% this year. We actually are also looking at our licensed brands that grew, we have around USD140 million like Martha, and these business alone contributed around 13% to that top line. So when I talk about the share of shelf and the gro wth that you're talking about, if I look at the landscape across in America you have the mass retailers, you have the clubs, you have the discounte rs and the departmental stores a nd here, the discounters become a very key important aspect which are growing at the rate of around 10% to 15% at the moment in this kind of a steady state market as well. So with Welspun portfolio that we have about towel, sheet, bedding, rugs, carpets and now pillows. We are setting up our facility in America for pillows as well which actually has the same kind of a market of 2.6 billion in America as like the towel is so we actually are looking at that also growing very, very aggressively. So we feel very positive about the share of shelf and let's not forget the hospitality segment. That again is a very big market for us. Right now, we are at around USD80 million and we are taking it to the next USD100 million in the next 2 years.

Okay. Got it and on the B2B piece of home textiles, what's happening on that side, can you just give me some color on the growth rate. I believe last year a lot of growth products come via inventory filling also because during Christmas, etc, and that would have sustained, but how to look at this number, home Textile B2B piece going forward?

So we actually have committed on a 10% to 12% growth next year as well actually and that is something that we will work towards a nd that's what we are very confident about. I mean this year has been th e highest number in our quarter’ 4 number around INR 2,600 and we will take on the growth of annualized number of 10% here. So we are pretty confident on this and it will spread across all the categories. If I can say, towels we are the highest in the top line and also the rugs. So we have a lot of potential to grow in the bedding business which we are focusing on, not only sheet, but in fashion bedding, pillows and utility as well.

Got it. So the margins what we have reached in the home textile piece like give and take 15%, how should one look at the growth I believe towel and pillow are the two pieces of capex which we are coming in FY '25 and '26. But apart from that, how to look at the margin profile of the home textile business going forward?

So home textile business overall would give a margin of about 15% to 15.5% from the current year 15%. So we would, of course, be achieving slightly higher margin. If we break it up into only B2B business. So, B2B business is actually earning about 17% margin which will go up by another 0.5% to 17.5% a nd then there is the domestic business, the home textile includes the domestic business as well as other advanced textile business. So if overall 15% to 15.5%, exports B2B 17.5%.

Got it and the flooring business will see its own operating leverage playing out which will drive the growth over there?

And one last question from my side. Sorry if I would have missed that, but you said the net debt level would remain constant going forward also. I thought we had plans to reduce net debt. So can you please clarify it?

Yes. So this year, we couldn't achieve what we had advised for at about INR1,100 crores. So we touched about INR1,350 crores. That's because of increase in our investment in working capital. Next year, because of higher capex, which will set the tone for higher growth in the near future, we are spending INR860 crores in capex. Despite that and d espite the payouts that we are planning, we should be at the same n et debt and we should touch a zero net debt by financial year '27.

So I think I must just add on here, the opportunity for India is immense in the categories that China is displacing. So this is all also emerging to that and however, all said and done, our ROCE will maintain at the prudence of around 20% and in all these projects that we are setting up, that's the ROCE we are committing to.

Got it. It was helpful and thank you so much.

Thank you. The next question is from the line of Bhavin Chheda from Enam Holdings.

Good Evening sir. Congrats on great numbers. Just on the guidance part, you're giving a 10% to 11% top line guidance, but if I'm trying to break this, flooring would be growing at much more, say, 20% - 25%. I think your Flooring business target for next year is INR1,300 – 1,400 crores or more than that. Then Home Textile is less growth rate becomes less than 8% and if I'm seeing this year's number, you had a very strong volume growth across towels, bedlinen, rugs.I think if you see the numbers, terry towel was 38% volume growth, bedlinen was 35% volume growth, rugs was 45% volume growth. Even considering FY '23 last year was a decline and so the growth rate was much higher on a very lower base, but even if I try to compare on our FY '22 numbers, which were all-time high numbers on that number, your volume growth is still in double digits. So what I failed to understand is in FY '25, we have capacity, but you are expecting a low single- digit volume growth, if I try to tally your guidance with the Home Textile volume growth.

So we will maintain a growth of around 10% to 12%, and that will be overall on the bigger base that you see around INR9,800 crores that we closed this year and I must tell you that emerging businesses will continue to grow, they contributed around 34% to our top line, and that is the growth rate that we'll continue to see here. I think we are confident about this number, and we could better it and you know the business dynamics and the global dynamics that are prevailing. So we want to be cautiously optimistic and it's better to be cautiously optimistic and as you have seen this year as well, what we committed and what we've delivered. So we continue to delight you.

About INR300 crores - 340 crores.

INR300 crores - 340 crores. Okay. And the third one in the balance sheet there were some receivables from the government and some subsidy receivable. What was that number as on 31st March, '24?

We don't give out those numbers separately. but it remains at the same level as last year.

Thank you.

Thank you. The next q uestion is from Siddharth Bhattacharya from Authum Investment & Infrastructure Limited. Please go ahead.

So just a couple of questions on the Flooring business. So basically correct me if I'm wrong, but we are seeing operating leve rage sort of pick up now as more and m ore volumes get pushed through, so just wanted to understand what could be the peak EBITDA margins in this? That is my first question and secondly, is there an additional margin that can be earned by ideal mix of products within the segment? And what is that?

So Siddharth, yes. The peak EBITDA margin, so we have told this earlier as well, so we should be at the company EBITDA range of 15% to 16% in Flooring at the best operating leverage and giving ideal mix, I mean, this is anybody's world. So I can't give you an ideal mix, but we are trying to reach the EBITDA level at the company level so that the overall EBITDA of the company goes up.

Okay. So let me ask this differently, what is the highest margin product in your list of products for Flooring?

That is difficult to be given, Siddharth.

Okay, got it. Thank you so much.

That was the last question. As there are no further questions, I would now like to hand the conference over to Ms. Dipali Goenka for closing remarks. Thank you.

The fabulous growth that we have been able to achieve in all our businesses in FY '24 is a result of a continued focus on excellence and becoming a benchmark for our customers in terms of unparalleled innovative and patented products, actionable insights and solutions we provide through our investments in technology and digitalization and a stellar services to a marquee customer. Our speed of innov ation and that of meeting unmet needs of our consumers truly makes us an -- in FMCG of textiles. Added to that, our focus on B2C and D2C through our global brands like Christy, Wellhome, and Martha as well as domestic brands of Spaces and Welspun, has take n us much closer to a vision of ‘Har Ghar Se, Har Dil Tak Welspun ’. It's heartening to see our Flooring business flourishing with consistent growth and profitability. At the same time, ESG is a way of life at Welspun and our focus on doing business sustainably and responsibly would continue unbated, be it in renewable energy, fresh zero water usage, reducing carbon footprint, diversity or an unparalleled governance practices. Our recent industry-leading score of 66 by DJSI reaffirms the leadership on ESG fr ont. The certification by Great Place To Work, being among the top 100 corporates in all the key parameters is also a prestigious achievement. We are committed towards our future growth targets for all our businesses and with sustained growth profitability , we would continue to achieve higher ROCE and ROE, thereby creating substantial value for our investors and stakeholders. Thank you for your continued interest in Welspun Living. For any further queries, please be feel free to connect with Salil and Sanjay.

Thank you, ladies and gentlemen, on behalf of Antique Stockbroking, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.

Note

1. This is a transcription and may contain transcription errors. The Company takes no responsibility of such errors, although an effort has been made to ensure high level of accuracy. Some minor editing may have been done for better readability. 2. Any of the statements made herein may be construed as opinions only and as of the date. We expressly disclaim any obligation or undertaking to release any update or revision to any of the views contained herein to reflect any changes in our expectations with regard to any change in events, conditions or circumstances on which any of these opinions might have been based upon