Welspun Living Limited (514162) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Welspun Living Q1 FY '27 Earnings Conference Call hosted by 360 ONE Capital Market. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Aradhana Jain from 360 ONE Capital Markets. Thank you, and over to you, ma'am.

Thank you, Yousuf. Good evening, everyone. On behalf of 360 ONE Capital, I welcome all participants and the management of Welspun Living to the 1Q FY '27 conference call. Without much ado, I hand over the call to Ms. Bharti Agarwal, Head, Investor Relations, Welspun Living, to introduce the management. Over to you, Bharti.

Thank you, Aradhana, and good evening, everyone. On behalf of Welspun Living Limited, I would like to welcome you all to the first quarter FY 2027 earnings call. On this forum today, we have Ms. Dipali Goenka, Managing Director and CEO; Mr. Manish Bansal, Chief Financial Officer; and also Mr. Harsh Rungta, Group Head, Investor Relations, Welspun World. Apologies for the delay in filing the results due to some technical glitches. We hope you've had the opportunity to review the earnings presentation, which has been filed with the exchanges today and is also available on our website. During the course of today's discussion, we may make references from this presentation. As usual, we'll begin with the opening remarks from the management, following which we will open the floor for a Q&A session. Should you have any additional questions after the call, please feel free to reach out to us. With that, I would now like to hand over the call to Ms. Dipali Goenka. Over to you, ma'am.

Thank you, Bharti. Good evening, everyone, and thank you for joining us for Welspun Living's quarter 1 FY '27 earnings call. We have started FY '27 on a strong note, delivering broad-based growth across our businesses, continued margin expansion, and further strengthening of our balance sheet. We had the strongest quarter in 7 quarters, with a consolidated revenues growing 23.5% year-on-year and 15.4% sequentially to INR 2,828 crores, while EBITDA margins expanded to 12.5%, improving by 140 basis points year-on-year and 170 basis points sequentially, driven by healthy volume recovery, operating leverage, and an improving business mix. Profit after tax nearly doubled, with PAT margins improving from 3.8% to 5.7%. More importantly, Q1 revenue is 9% above the same quarter of FY '25, the pre-tariff baseline. We are not simply returning to where we were, we are ahead of it. Margin expansion is now in its third consecutive quarter from 6.8% at the trough to 12.5% today, and it is structural, not circumstantial. Across our manufacturing network, we have been systematically simplifying processes, accelerating automation, and deploying AI tools and Industry 4.0 technologies on our shop floors to drive sustainable efficiencies. These are capabilities that compound. The organization we are building is genuinely different from the one that entered the tariff disruption. The macro environment is more constructive than it was a year ago. The recently announced U.S. tariff framework has currently preserved India's competitive position. The India-U.S. BTA talks are progressing, and we remain optimistic of a positive outcome. India's moment in the U.K. market has arrived and presents a significant growth opportunity for Indian manufacturers. The India-U.K. Free Trade Agreement, effective 15 July, puts India on an equal tariff footing with Pakistan, which today holds over 50% of U.K. home textile imports. We are not starting from scratch here. Christy, our Disney brand relationships, and an established retailer network mean we are already embedded in this market and ready to scale. Our U.K. and Europe businesses delivered 20% plus growth this quarter. The runway ahead is significant, and we expect double-digit growth in our U.K. businesses over the coming years. Home textiles exports grew 28.1% year-on-year, our strongest quarter in recent years. Behind that number sits a business that is difficult to replicate. We continue to be the world's largest exporter of terry towels. That position is not just maintained by scale alone. It is built on technology, innovation, and customer trust accumulated over 3 decades. Our IP portfolio stands at 50 patents. That is a moat, and it is deepening. Innovation led sales grew 16% this quarter and contributed approximately 25% of our revenue. Our U.S. onshore pillow businesses grew 2.3x this quarter. The Ohio pillow facility has ramped up to around 81% utilization. Our Nevada facility has commenced operations and is building momentum in sleep category. Together, these facilities strengthen our customer proximity, improve speed to market, and enhance supply chain agility. We are on track to double revenue to reach USD 60 million this year. On our branded businesses, Christy delivered 15% growth this quarter, supported by strong U.K. performance and expanding presence in the Middle East and growing traction in the United States. Welhome is increasing acceptance across North America, Japan, and newer markets. The recently concluded Wimbledon Championships was watched by millions of fans around the world. Every towel on the Center Court was a Christy towel, continuing a proud partnership spanning nearly 4 decades. The Christy monogram, woven into our signature HygroCotton towels, featured in courtside moments, player interviews, and iconic images throughout the tournament, bringing together 175 years of British textile heritage and modern manufacturing excellence. In India, our domestic businesses grew 21.3% year-on-year, sustaining the trajectory from Q4 with Welspun and SPACES continuing to strengthen their presence across key channels. Our B2B and B2C both grew in strong double-digits. The ongoing shift from the unorganized to the organized home textiles market continues to be a structural tailwind for our businesses, our widely distributed brand position as well to capture an increasing share of this opportunity. In flooring, our turnaround efforts are also beginning to deliver visible results. EBITDA margins materially improved to 10.4%, highest in over 2 years, reflecting operational discipline and structural actions taken over the past year. Alongside improving profitability, we are diversifying beyond the U.S. into markets such as Australia and Canada through strategic partnerships and strengthening our presence in commercial flooring. Our continued commitment to exports, innovation, and sustainability was also recognized during the quarter at the TEXPROCIL Export Awards 2026, where Welspun Living received the platinum trophy for the highest global exports and gold trophies for innovation and excellence in ESG. These recognitions reinforce the differentiated position we have built in the global marketplace. Before I close, I would like to briefly address the unprecedented flooding at our Vapi facility. Post the incident, our immediate priority was the safety of our people, and within a few hours, every person on site was evacuated safely. Operations partially resumed within a week and are expected to be restored in a phased manner. Our teams responded swiftly by activating contingency plans and rerouting production. We are fully insured and are working closely with our insurance providers to facilitate the claims process. What stays with me from this episode is not just the disruption, but the response, the agility, and ownership demonstrated by our teams reinforcing the resilience of organization. That is the Welspun spirit. To conclude, we remain focused on building on this resilience and translating it into sustainable growth and profitability. We remain confident of delivering double-digit revenue growth and EBITDA margins in the low teens for FY '27 and remain well-positioned to capitalize on the opportunities ahead. With that, I will hand over to Manish to take you through the financial performance. Over to you.

Thank you, Dipali, and good evening, everyone. I will keep my remark brief. We have started FY '27 with a strong financial performance reflecting broad-based growth across our business and continued improvement in profitability. Consolidated revenue grew 23.5% year-on-year and 15.4% sequentially to approximately INR 2,828 crores while EBITDA margin improved to 12.5%, expanding by 140 basis points year-on-year and 170 basis points sequentially. This marks our third consecutive quarter of margin improvement. The improvement in profitability was driven by a combination of healthy volume recovery, operating leverage, better business mix, and sustained cost optimization initiative across the organization. At the same time, our ongoing focus on manufacturing productivity, procurement efficiencies, automation, and process improvements continue to strengthen our underlying cost structure. These structural initiatives are expected to support sustainable margin improvement as volume continue to recover. Alongside improving profitability, we have continued to strengthen the quality of our balance sheet through disciplined working capital management, healthy cash generation, and prudent capital allocation. Our capital allocation philosophy remains unchanged. We continue to invest selectively behind projects that enhance productivity, improve operational efficiency, and strengthen our long-term competitiveness. As part of this approach, the Board approved INR 121 crore de-bottlenecking and modernization project at our Anjar facility in July, which will replace older technology with more advanced technology, improve plant utilization, and enable us to drive several evolving markets' demands. This profit -- this forms a part of our overall FY '27 capital expenditure. Overall, we continue to expect FY '27 capital expenditure in the range of INR 400 crores to INR 500 crores. In parallel, we have also made significant progress in transitioning the Anjar manufacturing complex towards a greener power ecosystem. With this commissioning of the CTU line, the facility commenced receiving 100% green power supply from mid-July 2026. This marks an important step in advancing our sustainability commitments. With Anjar now fully powered by green energy, 79% of Welspun Living total power consumption is now green. On the tariff refunds, the process is progressing in line with the applicable regulatory framework. We have initiated the necessary procedures for eligible claims and, wherever applicable, have started receiving refunds. The timings and quantums remain subject to completion of the administrative process. Looking ahead, our priorities remain unchanged. We remain focused on improving not just growth, but the quality of growth by strengthening cash generation, enhancing asset productivity, maintaining disciplined capital allocation, and delivering sustainable improvement in return ratios. We continue to target an improvement in ROCE to the low teens during FY '27 and believe our strengthened financial position provide a solid foundation to support the company's next phase of profitable growth. With that, we would now be happy to take your questions.

[Operator Instructions] First question is from the line of Soham Samanta from Motilal Oswal. Please go ahead.

Just wanted to check a couple of points. Why did gross margin decline in this quarter? Any particular reason? I mean, I know that raw material has been an inflation trend. Anything you want to highlight on this particular point?

It is primarily because of the raw materials. And if you look at it, even going forward, the raw materials will be something that we will have to watch out for and, of course, the macroeconomics factors are also playing, whether it is your crude that you are seeing and cotton, I mean. So these are the 2 important ones that we can really talk about here.

So for next couple of quarters, will it be in the same range, assuming that raw material is in the similar level as of now?

Yes. I mean, we will maintain the numbers that we are projecting today as well.

Got it. Second thing, within home textile, if I just look our volume numbers in home textile, bed and bath. Bath, I have seen the 2% volume growth, and bed the volume was down. So just wanted to check, most of the growth came from a realization, right, for this quarter in home textile.

No. It is a mix of volume and value. And -- there are a lot of times there's a lot of GIT factor also that comes into play. So it is everything that is realized in this quarter. And you must appreciate, in the textiles, as we dispatch, it takes 50 to 60 days. So definitely there is that kind of a stagger effect in this.

Okay. And one follow-up in that, that one of our competitors have pointed out that some issue on this container availability and all. For us, there is no any kind of issues you are facing in this quarter, right?

Let me just tell you a few things here. We have long-term partnerships with all the freight carriers, and that has yielded results. And whatever we will continue to do, it'll be in the terms of a path that we are very comfortable with. And the market rates have increased, but our impacts to the customer dispatches will not be impacted here.

Okay. And last question from my side. When we are saying the double-digit revenue growth, so we are indicating a mid-teens or mid to high-teens? How we are indicating the numbers for next couple of years?

I mean, you have seen the growth this time, and we will maintain.

Next question is from the line of Prerna Jhunjhunwala from Elara Securities.

Just wanted to understand the bed linen utilization rates. Are we seeing further traction with U.K. FTA. And can we assume that it will be about 80% for the year as a whole? Or any color on the utilization rates for bed linen that we can expect for this full year?

Prerna, our utilizations will be over 80% across, and that is what you see -- you will continue to see. And it will be -- with our mix that we have, and you know it, that with the U.S., U.K., Europe, rest of the world, we have a very healthy mix of retailers. So that goes without saying that we will continue to grow, expand across all the geographies, and our utilizations, in fact, across all our verticals will be around 80%.

Okay. Understood. And what kind of traction are we having with U.K. and European clients? Are they -- have they started giving orders given the U.K. FTA has been signed? And -- yes.

Sorry, Prerna. You can continue if you have to.

No, I just wanted to check on this, that whether European clients are also looking forward to diversify their sourcing because it is largely sourcing from one particular country.

Yes.

How are we seeing these 2 geographies playing out?

We are actually -- I think I can talk about India also here, Prerna. And as the FTAs have opened up for U.K., then Europe is right around the corner, and the other countries are also just coming through, we are in a very good position as a country. And for Welspun as well, as you already know, that U.K., we actually had a 20% growth. So we already are in this market, but we can also see a big upside. As you already know that Pakistan actually controls around 50% of the shares in U.K. When you talk about Europe as well, they are the retailers we already are working with, and we see a great upside there as well. To your question, yes, U.K. and Europe are going to have an upside for us with the FTA as well.

And have the order inflow started, ma'am? Just wanted to understand from that perspective for at least U.K., because Europe is still around the corner, but U.K. is already implemented.

Yes, Prerna. And I mean this already started with the conversations that had begun -- when the FTA conversations had begun. So the inflow, see, it is a process, Prerna. As we approve the product, then it is kind of a product development. So it's a cycle. So the discussions have begun, approvals are happening, confirmations are there. So this will gradually come into our system.

Okay. Understood. Second question is on the flooring part. One of the best margins that you have reported in this quarter at around 10% -- 10.4%. Just wanted to understand the levers that helped to improve the margins, and are they sustainable?

Yes. In the flooring, the important thing actually is a strategic shift towards soft flooring, and where our categories, which are in the terms of area rugs and the others. We have actually focused on qualitative products. So here -- so the margins, hence, definitely have seen an upside. Along with that, focusing on different partnerships, like with Australia, New Zealand, and Canada. So there is a target. There is a certain target of products. There is a certain target of margins. And also we are looking at our costs as well. So overarchingly it has held us in good stead, and it will continue to do so.

So we can now safely assume 10-odd percent margin for the entire year and going forward? Is this doable?

Yes.

Next question is from the line of Roshan Nair from Antique Stock Broking.

Congratulations on good set of numbers. So your margins have expanded to around 11.5%. So can you help me understand whether this is a bigger structural change that is happening on the demand side or is it because of the company's internal efficiencies? And what is the scope for further improvement, and in which areas?

So I think there are 3 clean drivers that we are seeing. The volume recovery and tariff share unwinding converting into operational leverage on the largely fixed cost base. The business mix is improving. That is the second one. Third is the cost discipline. The structural cost actions that are taken over last year, reducing energy cost, automation improving, and the throughput, I think, have held us in a good stead. So as we have already spoken, that our full year guidance for EBITDA margins will be targeting around low teens, and that is what it is going to be.

Understood. That is helpful. And also, can you quantify the impact that can come up in this quarter due to the floods? Maybe some idea over there?

So with Vapi, if I can say that we are covered with the insurance adequately. And quarter 2 will be covered -- quarter 2 will be impacted because it has been an onslaught right now, and it has been very tough. But however, I can tell you that quarter 3, quarter 4, we are going to restore. So annually, if I look at my growth at Welspun Living, it will continue to give the double-digit growth, and we will be on the track.

Next question is from the line of Bhavin Chheda from Enam Holdings.

Yes. Congratulations to the entire team for a very strong numbers and a positive outlook also. Ma'am, couple of questions. First, I missed out on the capacity utilization across segment, what you are targeting for the entire fiscal? Because the bed linen, I believe, was 60% in quarter 1. So what's the outlook going forward?

Our utilization annually is going to be 80% across all the categories. Let me just be very clear on that, whether it's our towels, the bedsheets or rugs. This is just a staggered kind of a lag that you can see where you are seeing these utilizations. But as we go forward, it is definitely going to be 80% across everything.

That's a very strong number, if the bed linen crosses 90% utilization. Okay. My second question is on...

I said 80%. Bhavin, I said 80% across all the categories.

But yes, for the full year, 80%, which means the coming quarters, the bed linen should be crossing 90%, right?

Yes. It will depend on quarter 2, quarter 3, quarter 4, but the average we are talking about an 80%, 85%. Yes.

Sure. My second question is on advanced textile and domestic retail business, how they are doing, and is domestic retail now EBITDA positive?

So domestic retail this time actually has worked pretty well, and we are actually seeing a double-digit growth around 20%, and we are around near about breakeven. And this will be something where as we grow this business, we are on the target to achieve INR 1,000 crores. And we see both our businesses, Welspun and SPACES, both have continued to show a great growth across the country.

Sure. Third question...

Yes, go ahead.

On the flooring business, we saw first-time double-digit margins of 10%. So are those margins sustainable, or was there a one-off in that margin?

No, this is going to be sustainable. As I spoke earlier as well that there is a lot of work that is done in the qualitative business that we are taking in terms of soft floorings. There is also the geographic diversification that we are working on in terms of different countries like Australia and New Zealand. And a lot of cost controls have been also taken on here. And hence, you are seeing this number, and which we will continue to maintain. We are very comfortable with it now, at the moment.

[Operator Instructions] Next question is from the line of Deepali Kumari from Arihant Capital Markets Ltd.

I have a couple of questions. Like, your EBITDA margin stood at 12.5%. Given your normalized target of 15%, so what are the key levers required to give this 250-plus gap? Is it purely operating levers or further mix optimization? And does this guidance factor in potential spike, cost spike due to ongoing West Asia conflict?