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    Welspun Living

    WELSPUNLIVGood
    Textiles·30 Jan 2025
    Management Summary

    Welspun Living reported a modest 3% YoY revenue growth in Q3 FY25, reaching INR2,528 crores, with YTD growth of 11.7% keeping it on track for its annual guidance. However, Q3 EBITDA declined 16.6% YoY to INR319 crores, with margins at 12.6%, impacted by promotional programs, higher ocean freight, and rupee depreciation. The company revised its full-year EBITDA guidance to 14% but remains confident in its long-term growth strategy, including significant debt reduction targets and expansion in emerging businesses like the US pillow factory and domestic brands.

    Highlights

    8
    • Consolidated revenue of INR2,528 crores in Q3 FY25, growing 3% YoY.

    • YTD revenue reached INR8,049 crores, up 11.7% YoY, on track for 10-12% annual guidance.

    • Q3 EBITDA stood at INR319 crores with a margin of 12.6%, down 16.6% YoY.

    • Revised full-year FY25 EBITDA guidance to approximately 14% due to one-time costs and external factors.

    • Net debt at INR1,658 crores, with a target to reduce to INR1,400-1,500 crores by FY25 end.

    • Home Textile exports grew 6% in Q3 and 14% YTD, while global brands saw 10% growth in Q3 and 23% YTD.

    • Flooring business revenue declined 12% YoY in Q3 to INR216 crores due to Red Sea issues, but expects 20-25% growth next year.

    • Pillow business targets $20 million revenue by FY25 end, aiming to double next year.

    Concerns

    1
    • Red Sea issues impacting transit times and freight rates

    What Changed3

    vs Q4 FY25

    Tone shiftMixed → GoodGuidance items12 → 14 (+2)Risks discussed4 → 5 (+1)

    Key financials

    Single quarter

    06 metrics
    1. 01Consolidated Revenue₹2,528 Cr+3%YoY
    2. 02Consolidated EBITDA₹319 Cr-16.6%YoY
    3. 03Consolidated EBITDA Margin12.6%
    4. 04Consolidated PAT₹121 Cr-32%YoY
    5. 05Consolidated EPS₹1.27-31%YoY

    Segment breakdown

    • Core business Home Textile₹2,282 Cr86.8%
    • Flooring business₹216 Cr8.2%
    • Advanced Textile business₹132 Cr5.0%
    Donut· Share of Revenue (Q3)

    Guidance & targets

    14
    CategoryTargetPriority
    Revenue
    FY27 Vision Revenue
    INR15,000 crores
    High
    Revenue
    FY25 Revenue Growth
    10% to 12%
    High
    Revenue
    Pillow Business Top Line
    $20 million
    High
    Revenue
    Pillow Business Top Line Growth
    double this number
    High
    Revenue
    Flooring Business Growth
    20% to 25%
    High
    Revenue
    Domestic Brands (Spaces and Welspun) CAGR
    25% to 30%
    High
    Profitability
    Full Year FY25 EBITDA Guidance
    about 14%
    Medium
    Profitability
    Domestic Brands Breakeven
    breakeven
    High
    Capacity
    Pillow Factory Full Capacity Utilization
    2 years
    High
    Debt
    Net Debt
    INR1,400 crores to INR1,500 crores
    High
    Debt
    Net Debt
    INR1,000 crores
    High
    Debt
    Net Debt
    INR400 crores, INR500 crores
    High
    Debt
    Net Debt
    0
    High
    Tax
    Effective Tax Rate
    25% to 26%
    High

    Risks & concerns

    7
    RiskSeverity

    Red Sea issues impacting transit times and freight rates

    Led to postponed dispatches, 12% YoY decline in Flooring revenue, 5% YoY decline in Advanced Textile revenue in Q3, and a 0.4% impact on profits from higher ocean freight. Expected to normalize from Q4.Management acknowledged

    high

    Rupee depreciation against the dollar

    Resulted in a 0.6% impact on profits in Q3 due to mark-to-market adjustment for restating net current assets. Expected to taper down in 4-5 months.Management acknowledged

    medium

    Higher finance costs due to increased working capital and stock holding

    Interest cost increased to INR62 crores from INR42 crores last year, and average cost of debt rose to 7% from 6%. Expected to see reduction from Q4 as working capital comes down.Management acknowledged

    medium

    Subdued urban consumption and high inflation in key markets (e.g., US)

    Modest 2% growth in domestic retail business in Q3. US inflation and housing market are factors to be watched, with potential impact on consumer spending.Management acknowledged

    medium

    Cotton price volatility and import duties

    Management noted CCI's role in the market and current average cost around INR53,000-54,000 per bale, with potential for INR2,000-3,000 fluctuation. Confirmed they pay import duty on cotton.Analyst acknowledged

    medium

    Areas of Evasion(2)

    • Specific realization per piece for pillows
    • Exact average USD hedge rate

    Q&A highlights

    3

    “As you know, cotton prices have been slightly coming down from INR56 to INR52 to INR53... we should see 1% to 2% benefit from this coming in the ensuing quarters.”

    Provides specific quantitative insight into a key raw material cost trend and its expected positive impact on future profitability.

    asked by Prerna Jhunjhunwala

    3 min read6 chapters

    Detailed Narrative

    01

    Q3 FY25 Financial Performance and YTD Progress

    Welspun Living reported consolidated revenues of INR2,528 crores in Q3 FY25, marking a 3% year-on-year growth. Year-to-date (YTD) revenues reached INR8,049 crores, demonstrating an 11.7% YoY increase, which aligns with the company's annual revenue growth guidance of 10-12%. Q3 EBITDA stood at INR319 crores with a margin of 12.6%, reflecting a 16.6% decline YoY. This was primarily influenced by a 1% impact from product mix/promotional programs, a 0.4% impact from higher ocean freight, and a 0.6% accounting impact from rupee depreciation.

    02

    Segmental Performance and Macroeconomic Headwinds

    The Core Home Textile business showed a modest 1.3% YoY revenue growth in Q3, reaching INR2,282 crores, with an EBITDA margin of 12.5%. In contrast, the Flooring business experienced a 12% YoY decline in Q3 revenue to INR216 crores, and the Advanced Textile business saw a 5% YoY revenue degrowth to INR132 crores. These declines were largely attributed to the Red Sea issues, which led to increased freight rates and postponed dispatches. Management expects these operational challenges to normalize, with dispatches anticipated in Q4 and subsequent quarters.

    03

    Profitability Outlook and Cost Management Initiatives

    Despite the top-line growth, Q3 PAT declined 32% YoY to INR121 crores, and YTD PAT decreased 5.2% to INR507 crores. The company revised its full-year FY25 EBITDA guidance downwards to approximately 14%, citing one-time📎 costs incurred in Q2 and Q3, alongside external factors. However, management anticipates a 1-2% margin benefit in the ensuing quarters from declining cotton prices (from INR56 to INR52-53 per kg) and expects the impacts of ocean freight and rupee depreciation to taper off within 4-5 months.

    04

    Debt Reduction Strategy and Capex Plans

    Net debt stood at INR1,658 crores, an increase of INR117 crores YoY, primarily due to investments in capex and higher working capital. Welspun Living has outlined an aggressive debt reduction roadmap, targeting net debt of INR1,400-1,500 crores by FY25 end, INR1,000 crores by FY26, INR400-500 crores by FY27, and aiming for zero net debt by FY28. YTD capex for FY25 was INR595 crores against a full-year guidance of INR860 crores, with a INR341 crore capex project nearing completion by Q3 end.

    05

    Strategic Growth Pillars: Global Brands and Emerging Businesses

    The company remains focused on its FY27 vision of INR15,000 crores in revenue, with emerging businesses contributing significantly. Global brands witnessed robust growth of 10% in Q3 and 23% YTD. The US pillow factory, which commenced commercial production in September 2024 with 24% capacity utilization in Q3, is targeted to achieve $20 million in revenue by FY25 end and aims to double this figure next year. Domestic brands like Welspun and Spaces are projected to achieve a 25-30% CAGR and reach breakeven by 2025, supported by a 10% marketing spend.

    06

    Market Dynamics and Future Outlook

    Home textile exports demonstrated steady growth of 6% in Q3 and 14% YTD, with Welspun expanding its market share in US bed sheets and terry towels. While urban consumption in India remained subdued, management noted green shoots in rural consumption. The company expressed confidence in India's position as a robust global supply chain hub, particularly in cotton and vertically integrated plants, which is seen as an advantage amidst potential shifts in global trade policies and a focus on inflation control by new administrations.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.