Release Date: April 25, 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) achieved its highest ever quarterly revenues of INR2,617 crores in Q4 and highest annual revenue of INR9,825 crores, growing by 19% in Q4 and 20% in FY24.
- The company has been recognized as a great place to work by GPTW Certification Agency and secured a score of 66 in the Dow Jones Sustainability Index, placing it among the top three percentile of home textile companies globally.
- Exports grew by 23% in FY24, with the US market showing strong buying trends, and India strengthening its market share in exports to the USA.
- The domestic business showed resilience with a 12% year-on-year growth in Q4, achieving its highest annual revenues of INR571 crores despite challenging market conditions.
- Emerging businesses, including domestic consumer business, Global Brand, Advanced Textiles, and Flooring, grew 26% in Q4 and 16% in FY24, contributing 33% of total revenues.
Negative Points
- The retail sector demand in India remained muted during Q4 due to lower consumer spending, especially in discretionary categories.
- The flooring business growth rate was only 2.2% in Q4, impacted by the Red Sea issues, which increased voyage time and container prices.
- The global economic sentiment remains muted due to ongoing geopolitical skirmishes and trade disruptions, affecting overall business operations.
- The company’s net debt stood slightly higher than guidance at INR1,354 crores as of March '24, due to increased working capital requirements.
- The effective tax rate for FY24 was about 30%, higher than the consolidated current tax charge of 12.5%, due to deferred tax charges and one-off adjustments.
Q & A Highlights
Q: 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 how -- what's happened? And how this will pan out over the next two quarters?
A: So Prerna, we basically have our -- if you look at it, flooring business has actually clocked its highest revenue of around INR927 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. And that is again -- that was the impact here. However, as we go forward in quarter 1, our numbers looked very intact. And 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. So this was a little hiccup that we saw in this quarter four because this was right at the peak of the Red Sea issue.
Q: Okay. So what growth rate we can expect for the full year? I'm not getting into quarters because there can be some up and down there as well, but --
A: 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, we would -- you can consider the same breakup for next year.
Q: And in the domestic market, in the flooring business, what -- how is the traction going apart from the export market? So what is happening in the domestic market in the Flooring business? I want to understand that --
A: Yes. Yes. 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, though it is a steady-state growth that we are going to be seeing here. And this quarter, we actually, to your point, actually, clocked the highest revenue for the domestic market. And it will be going bigger as we also capture the residential properties as well. We have reached around -- to around 2,500 AIDs as of now and that will, again, be growing 100% by the end of this year.
Q: The second question is on cotton inventory. What cotton inventory are you holding at the end of the year? And 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?
A: So that's a valid point, Prerna. So first of all, we actually have covered until the beginning of the next cotton season around -- we are holding around six months of cotton until October '24. And as we look at cotton today, cotton prices look in the range of around INR15,000 -- 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.
Q: Okay. And our cost of cotton inventory should be lower than that or above that?
A: Our costs will be around INR59,000.
Q: Just a quick question from my side. If the US FDA would be signed, what would be the impact on our company?
A: So we are already present in UK, as you are aware, with our own company and distribution capability. And we are supplying in the top of the better and the best category to UK already. UK constitutes about 9% of the entire world share, and our business share is also about 9% to 10%. So -- 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 share because UK is definitely the second largest consumption economy after United States of America.
Q: 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?
A: Yes. Thanks, Vikas. So as you can see, we -- the sales in every quarter, the mix changes. And so this time, the mix has been said, 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.
Q: Secondly, could -- I would want you to like reiterate the breakup of the CapEx that you mentioned for full year '25?
A: Yes. So our CapEx -- restated 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, totaling to INR860 crores.
Q: 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 FY25 as well?
A: In my opening remarks with us, I have alluded to this that we will remain at the same net debt level, but the ROCE will be better because of the denominator effect, so we will be a higher yield ROCE percentage.
Q: My first question was on the Advanced Textiles. So when I see the QoQ 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?
A:
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
