Release Date: January 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Welspun Living Ltd (BOM:514162, Financial) reported the highest-ever quarterly revenues of INR2,454 crores, growing by 29% year on year.
- The company achieved a sustained EBITDA of INR382 crores, clocking 15.6% in Q3, growing at 67% year on year.
- Welspun Living Ltd (BOM:514162) saw a significant improvement in annualized ROCE to 14.5% from 5.7% last year.
- The domestic consumer business achieved its highest quarterly results in Q3 with INR171 crores, up by 10% year on year and 20% quarter on quarter.
- The company's emerging businesses, including domestic consumer business, global brands, advanced textile, and flooring, grew by 21% in Q3.
Negative Points
- Geopolitical issues in the Red Sea have led to increased blank sailing of ships, causing enhanced turnaround time and higher container costs for the US East Coast and Europe.
- Despite the overall growth, the Indian market saw subdued retail sales remaining flat to slightly negative in Q3, especially in discretionary categories due to inflation volatility.
- The farm sector in India grew modestly at 1.2%, and private spending was close to 3.1%, indicating a challenging market scenario.
- The company faces potential risks from geopolitical dynamics and inflation volatility, which could impact future performance.
- Welspun Living Ltd (BOM:514162) has committed to significant capital expenditures, including INR326 crores for a new jacquard towel facility and $12.5 million for a pillow manufacturing unit in Ohio, which could impact short-term financial flexibility.
Q & A Highlights
Q: How is the demand scenario in the US for the next two quarters, and is the Red Sea situation impacting order inflow?
A: The US economy remains resilient with a GDP growth of 3.3% in Q4. Inflation and interest rates are steady. The holiday season saw a 3.8% Y-on-Y growth in retail sales. While the Red Sea situation is an aberration, we are mitigating its impact by planning ahead and working closely with our customers to minimize disruptions.
Q: Given the weak consumer discretionary demand in the domestic market, does this change your growth targets?
A: We are not changing our targets as the current market scenario is seen as an interim blip. The rural market and personal consumption have shown modest growth. We remain confident in our premium products and maintain our retail segment plans.
Q: What is the split between CIF and FOB contracts in home textiles?
A: FOB contracts constitute around 80% of our top line, minimizing the impact of the Red Sea disruption on our freight costs.
Q: Are we on track with our flooring business assumptions and expectations?
A: Yes, the flooring business is growing as expected, with a 40% growth in this quarter. We anticipate better EBITDA from next year as we indigenize the supply chain and improve business operations.
Q: What are the expected savings from the 30-megawatt solar power plant?
A: The solar power plant will provide electricity at around INR4 to INR4.05 per unit compared to the current INR8.5 for thermal power, resulting in approximately 50% savings.
Q: What kind of margin can we expect if cotton prices remain stable and freight costs do not escalate?
A: We aim to maintain our current margin rates, considering the global geopolitical dynamics. We are not providing guidance on higher or lower EBITDA but will strive to maintain our current EBITDA levels.
Q: What are the growth prospects for your various business segments?
A: We are optimistic about all segments. Licensed brands like Martha Stewart and Disney are expanding our market share. The domestic market remains strong, and our brand Christy is growing globally. Advanced textiles are also seeing growth, with new products being developed for marquee customers.
Q: Can you provide details on the CapEx for the new towel and pillow manufacturing facilities?
A: The Ohio pillow plant will be operational by Q2 2024-2025, and the Anjar towel facility by Q3 2024-2025. Both projects are expected to have an ROCE of over 20% and will significantly contribute to our revenue growth.
Q: What is the expected capacity utilization for the new Ohio and Anjar facilities?
A: Both facilities are expected to ramp up to full capacity utilization by the second year of operation, contributing significantly to our revenue targets.
Q: What is your CapEx guidance for the next two to three years?
A: For FY24-25, we have a CapEx of INR430 crores plus INR200 crores for maintenance. For the subsequent years, we expect to spend INR200 crores to INR300 crores annually on maintenance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
