Welspun Living Limited, a home textiles and flooring major, conducted its Q3 FY ’25 earnings conference call on January 30, 2025, hosted by JM Financial. The management team comprising Ms. Dipali Goenka (MD & CEO), Mr. Sanjay Gupta (CFO), and Mr. Salil Bawa (Head of Investor Relations) spoke about the performance of the company, growth plans, and outlook. The company posted consolidated revenues of INR 2,528 crores in Q3, a 3% YoY increase, and INR 8,049 crores YTD, an 11.7% YoY increase, in line with their 10-12% annual revenue growth guidance. EBITDA was INR 319 crores (12.6% margin) in Q3 and INR 1,133 crores (14.1% margin) YTD, with full-year EBITDA guidance revised to ~14% due to one-time expenses.
Financial Performance:
- Q3 revenue increased slightly by 3% YoY to INR 2,528 crores due to external factors such as Red Sea disruptions and currency fluctuation.
- 11.7% YTD revenue growth indicates robust performance in all segments, led by home textile exports (14% YTD growth) and emerging businesses (10% YTD growth).
- EBITDA margins were impacted by increased freight expenses (0.4% impact), rupee depreciation (0.6% impact), and a one-time product mix change (1% impact), resulting in a revised EBITDA guidance of 14% for FY ’25.
- Net debt came down to INR 1,658 crores from INR 1,832 crores QoQ, with capex of INR 595 crores YTD, primarily for a new towel project.
Growth Strategy:
Core Business (Home Textiles):
The business will continue to lead the market in home textiles, with exports up 6% in Q3 and 14% YTD. In the United States, Welspun increased market share in bed sheets (18% dispatch growth versus 5% market growth) and terry towels, with the help of a new pillow factory in Ohio (24% capacity utilization in Q3, with a target of $20M revenue in FY ’25).
Emerging Businesses:
Including domestic consumer business, global brands, advanced textiles, and flooring, these businesses account for 30% of revenues and grew 10% YTD. Key highlights are:
- Global Brands: Christy is growing internationally (e.g., Middle East, U.S., Africa, and soon India), with 10% Q3 and 23% YTD growth. Licensed brands such as Martha Stewart and Disney Europe increased more than 40% YTD.
- Domestic Retail: Welspun brand (12% YTD growth) and Spaces are aiming at mass-premium consumers, 25-30% CAGR target and breakeven objective in 2025 even in the face of muted urban demand (2% Q3 growth).
- Flooring: Domestic flooring expanded 17% YTD, aiming at hospitality and residential markets, while international flooring refines strategies after Red Sea setback (-12% YoY in Q3).
- Advanced Textiles: Increased 11% YTD with emphasis on sustainable non-wovens and new alliances despite a 5% QoQ fall due to transit problems.
Long-Term Vision: Cross INR 15,000 crores in topline by FY ’27 through continued core business growth and expansion of emerging businesses, with a 20-25% growth target for flooring next year.
Future Outlook:
- The management is also confident of meeting their FY ’25 revenue guide (10-12%) and anticipates normalization of freight expenses and currency effects from Q4 onwards. They anticipate 1-2% margin improvement due to softening cotton prices (held at INR 54,000 per bale).
- For the world overall, the U.S. is a beacon in the midst of mixed demand, with Welspun set to gain advantage from India’s strong supply chain and increased share in the U.S. market. Middle East and other markets will balance muted EU/UK demand.
- In India, consumption recovery is expected, with rural green shoots evident, supporting the emphasis on domestic branded growth.
- ESG continues to be core, with goals for 100% renewable power and sustainability by 2030, supporting international competitiveness.
Market Situation:
- Global: US consumer spending increased (3.3% Q4 annualized), though holiday demand was softer than anticipated, leaving retailer stocks. EU/UK demand is muted and Middle East and Japan are promising.
- India: Urban consumption eased with 5-6% inflation, while festive retail growth came in at 7% (below the forecasted 10%). Rural recovery provides a silver lining.
- Competitive Advantage: India leads U.S. terry towel (43%) and bedsheet (60%) exports, with Welspun recording higher-than-market growth rates.
Detailed Question and Answer Session
1.Prerna Jhunjhunwala (Elara Capital): Demand situation in the U.S. for home textiles after December sales and next year’s prospect?
- Dipali Goenka: The world picture is mixed, with peaks and troughs in season. The U.S. is a silver lining and will bounce back, as also the opportunities in the Middle East. India, and more so Welspun, is poised to be a global supply chain platform, as reflected in export growth (6% Q3, 14% YTD) and U.S. market share gains despite poor consumer sentiment.
2.Prerna Jhunjhunwala: Effect of falling cotton prices on gross margins?
- Sanjay Gupta: Cotton prices fell from INR 56,000 to INR 52,000-53,000 per bale. With 5-6 months of inventory at INR 54,000, we are looking for a 1-2% gross margin increase in future quarters.
- Dipali Goenka: That supports our overall profitability plan despite outside EBITDA pressures.
3.Prerna Jhunjhunwala: Was the product mix effect one-time or sustained?
- Dipali Goenka: It was a one-time because of a special Q3 promotional scheme. Macro issues such as Red Sea problems also impacted EBITDA, but our 10% topline growth promise remains intact with only a minor bottom-line deviation.
4.Yash Darak (RSPN Ventures): What caused the revenue decline in the December quarter?
- Sanjay Gupta: 6% increase in exports was below expectations, but flooring and advanced textiles were down due to Red Sea setbacks pushing buyer dispatches behind. Normalization during Q4 will pick up the slack.
5.Yash Darak: Why has interest cost risen when gross debt has fallen?
- Sanjay Gupta: Increased working capital due to delayed dispatches (Red Sea problems) contributed to higher interest costs. Stock was cleared through quarter-end and savings in Q4 are anticipated as working capital falls.
6.Yash Darak: Where is the status of the INR 341 crores capex that Q3 had planned?
- Sanjay Gupta: It’s almost done and should close this quarter (Q4 FY ’25).
7.Yash Darak: Year’s effective tax rate and U.S. tariff advantages?
- Sanjay Gupta: Effective tax rate at 25-26%. India’s supply chain strengths (traceability of cotton, stable democracy) well set up to handle U.S. opportunities irrespective of individual tariff modifications.
8.Bhavin Chheda (Enam Holdings): Updated EBITDA guidance for FY ’25?
- Sanjay Gupta: Pulled back to ~14% on account of one-off charges in Q2 and Q3 (freight, currency, mix).
9.Bhavin Chheda: How long is the impact on margins (freight, rupee, mix)? and Why would bath linen sales fall while bed linen increased?
- Sanjay Gupta: Freight (0.4% effect) should progressively reduce from Q4. Depreciation in rupee (0.6%) will be phasing over 4-5 months since 60-65% are hedged. The 1% mix impact was one time and won’t be recurring.
- Dipali Goenka: U.S. bath linen market degrew (OTEXA data), yet we grew 2% as a result of stock sales. Bed linen increased 15%. It’s a stocking issue normalizing in Q4.
- Sanjay Gupta: Timing of production versus sales and inventory in the warehouse created the variance.
10.Bhavin Chheda: Flooring business prognosis after decline?
- Dipali Goenka: Red Sea affected hard flooring (-12% YoY), whereas carpet tiles increased double-digit. Normalization expected in Q4-end and 20-25% growth next financial year towards our FY ’27 INR 15,000 crore target.
- Sanjay Gupta: Quarterly run rate should be back to INR 250-260 crores with improved margins.
11.Pratik Tholiya (Systematix): Why sudden finance cost rise?
- Sanjay Gupta: Increased working capital due to Red Sea delays and holiday season inventory buildup increased interest expenses. Rates increased to 7% from 6%. Relief expected in Q4 when working capital reverses.
12.Pratik Tholiya: Gross debt outlook by FY ’25 end?
- Sanjay Gupta: Gross debt stands at ~INR 2,800 crores currently. Net debt would fall to INR 1,400-1,500 crores by the end of FY ’25, INR 1,000 crores by FY ’26, and close to zero by FY ’28.
13.Monish Ghodke (HDFC Mutual Funds): Pillow business Q3 revenue?
- Dipali Goenka: $20M target for FY ’25, doubling in the next year. It’s a high-volume play like towels, with better/best categories.
14.esham Jain (DSP Asset Managers): Cotton dynamics with CCI purchasing?
- Sanjay Gupta: CCI holds ~85 lakh of 185 lakh bales at INR 53,000-54,000. Global cotton is cheaper, but import duties favor domestic use. Prices may rise to INR 56,000 depending on seed prices, but we’re insulated with stock.
This Q&A and summary demonstrate Welspun Living’s strength, strategic intent in branded and new businesses, and faith in reaching long-term objectives in the face of short-term setbacks.