Detailed Narrative
Strong Q1 FY25 Performance Driven by Exports and Emerging Businesses
Welspun Living reported a robust Q1 FY25, with revenue increasing 17% year-on-year to ₹2,588 crores. EBITDA stood at ₹393 crores, growing 15% year-on-year, achieving a margin of 15.2%. This performance was primarily fueled by core home textile exports, which grew 19%, with bed sheets seeing a 40% increase and Terry Towels a 10% increase. Emerging businesses also contributed significantly, growing 7% year-on-year and accounting for nearly 30% of total revenue.
Navigating Red Sea Challenges and Muted Domestic Market
Despite strong overall growth, the company acknowledged challenges from Red Sea issues, which led to container rate increases (3x last FY) and FOB shipment delays, particularly impacting flooring dispatches. The domestic retail market remained muted in Q1 FY25, with the domestic business growing only 3% to ₹123 crores, mainly due to lower consumer spending in discretionary categories. Management is expanding into new categories and channels, anticipating increased demand during the festive season.
Strategic Investments and Capacity Utilization
Welspun Living invested ₹206 crores in CAPEX during Q1 FY25, primarily for towel projects in Anjar and pillow projects in the US. The company provided a FY25 CAPEX guidance of ₹860 crores, with an additional ₹300-400 crores projected for FY26. Capacity utilization for bath linen reached 94%, while the new Telangana Spunlace facility achieved 63% utilization. Flooring capacity utilization stood at 64%, with a target to reach over 80% by FY27, which is expected to drive EBITDA margins for the segment to 15-16%.
Shareholder Returns and Debt Management
The Board approved a share buyback of up to ₹278 crores at ₹220 per share, with promoters tendering 100% of their eligibility. Additionally, a 10% dividend for FY24 was approved. The total outflow for buyback, dividend, and associated taxes amounts to ₹353 crores. Despite these distributions and Q1 CAPEX, net debt increased by ₹208 crores from March '24 to ₹1,562 crores, but management emphasized that net debt is not an issue, having reduced it from ₹2,333 crores in FY21 to ₹1,354 crores by FY24 end.
EBITDA Margin Outlook and Cotton Price Impact
Management reiterated its consolidated EBITDA margin guidance of 15-15.5% for FY25. They clarified that the 'normalized' margin has shifted from 20-22% (when cotton was ₹40,000-45,000) to 15-16% due to current cotton prices of ₹60,000-65,000, as end consumers are unwilling to bear higher prices. However, the export business continues to achieve healthy 17-18% margins. The company anticipates overall EBITDA to reach 16-18% in the next couple of years as emerging businesses gain momentum.
Commitment to Green Energy and Cost Efficiency
Welspun Living is committed to achieving 100% renewable energy by 2030, with the Board approving an 18 MW solar plant at Vapi to meet about 30% of its power requirements. Management expects power costs to reduce to half of current levels by FY26-FY27 as renewable energy capacity builds up. This reduction is projected to contribute to a margin improvement of over 200 basis points over the next two years, enhancing overall profitability.