Welspun Living Limited (514162) Earnings Call Transcript & Summary

Welcome all on the 2Q FY '21 Earnings Call of Welspun India. From the management side, we are joined by Mr. Rajesh Mandawewala, Managing Director; Ms. Dipali Goenka, CEO and Joint Managing Director; Mr. Sanjeev Sancheti, President, Finance and CFO; and Mr. Akhil Jindal, Group CFO and Head, Strategy. Now I would like to hand over call to the management, after which we can start Q&A session. Over to you, Dipali, for opening remarks. Thank you very much.

Thank you, Ankit. A very warm welcome to all of you to Welspun India's Quarter 2 Half 1 FY '21 Investor Call. I hope that you and your family are keeping well and safe. I'll cover the key business updates for the quarter, and later Sanjeev will take you through the financial highlights. After the steep decline in quarter 1, global economic activity appears to have rebounded sequentially in quarter gone by, owing to lockdown relaxation and policy support from governments across all major global economies. However, we need to keep a close watch on the tenability of the revival process till this pandemic is brought under complete control. Consumer behaviors are settling into a new normal as people globally are learning to live with COVID-19. Hygiene and wellness has become integral part of existence. Consumers are spending more on essentials and hygiene products and cutting back on discretionary category. They are still reluctant to resume their normal out-of-home activities and are spending more time at home. This change in underlying behavior and rise of homebody economy has resulted in reallocation of spending, which is driving the overall demand for our home textile product. For big box retailers and departmental store chain, the growth of home goods has outpaced that of other categories. Big box retailers continue to be a destination for all kind of shoppers for various consumer goods. As a sale, our skew towards such retailers since June, we have witnessed buoyancy and demand for our home textile products. Consumer shopping online has increased significantly and is here to stay. With the growth of omnichannel, retailers have also adapted to the next normal in consumer experience and engagement. During quarter 2, we have witnessed a sharp jump in volumes. And as we speak today, our plants are running at full capacity. The projections for the rest of the year also looks robust. With the customer demand continuing to be buoyant, the company is exploring further ways and means to enhance its capacity by debottlenecking its manufacturing processes and rebalancing the facilities. This has a potential to increase present plant capacity by around 20%. Our new Welspun flooring facility at Telangana is fully integrated with advanced capabilities and infrastructure. It can complement the strength of our existing rugs and carpets manufacturing unit at Vapi. The synergies will help us to further develop innovative solutions and enhance customer serviceability. We have developed to utilize the flooring division to produce rugs and carpets for our home textile customers as our rugs and carpets facility at Vapi is running at full capacity. This will not only help in meeting the increased demand for export of rugs and carpets, but will also increase utilization of soft flooring plant at Hyderabad. This quarter, we also launched industry-first virtual 3D showroom and omnichannel experience at New York September Market Week, which was very well received by our customers. As COVID has restricted travel, by using innovative digital technology, we are virtually engaging with our customers to showcase our latest innovation, product assortments, conduct virtual inspection and factory visits. While our home and innovation portfolio grows from strength to strength, we continue to build and strengthen our global licensed and own product brand portfolio to cater to changing consumer preferences across geographies. U.S. consumer reach is getting stronger with brands like Martha and Scott in our portfolio, U.K., Europe getting stronger with the Christy brand, and India consumer reach is getting enhanced with Spaces and Welspun. Additional brands giving us additional shelf space, opens up new channels and create incremental volumes, both online and offline hitherto not available to us now. Our Martha Stewart brand license product are witnessing strong growth across both online and offline channels. I'm excited to share that we have further strengthened our brand portfolio by expanding our brand licensing partnership with Scott Living. Scott Brothers are well-known designers and twin TV hosts in North America with million of followers. The Scott Brothers launched the Scott Living collection in 2014. And today, the brand is extremely popular with products available in major retail outlets across U.S. and Canada. Through the expanded partnership for home furnishings, Scott Living and Welspun to reach wider consumer base with innovative home textile products. The licensed brand portfolio is expected to cross $20 million in the current financial year. Many consumers plan to continue shopping online, even though brick-and-mortar stores have reopened. Our e-commerce and omnichannel initiatives have seen strong tailwinds resulting in giving us higher touch points. During the quarter, our global e-commerce business grew by more than 4x year-on-year, while Christy branded e-commerce business grew by more than 2x year-on-year. Our domestic home textile e-commerce business, which includes brands, Spaces and Welspun, grew by more than 75% year-on-year and 50% quarter-on-quarter. From predominantly being a B2B textile home product supplier to global retailers, we are also evolving into a strong B2C home textile player, direct consumer to end consumer. Apart from the encouraging growth we see in our own global and domestic brands, we see a huge growth opportunity through our licensed brand and e-commerce businesses, where we expect to cross $100 million each over the next 2 to 3 years' time. Coming to our domestic business, quarter 2 has seen tailwinds and consolidated the consumer confidence in our brands, Spaces and Welspun. With the onset of festive season, we expect an improvement in the demand for our products in the second half of this fiscal. With the innovative festive campaigns, Dono Taraf Khushiyan and Chalo Paltai, and a festive collection, Rangana, we are getting great engagement with the trade and end consumers. Our B2C business has grown by more than 200% since last quarter, backed by unlocking of the economy, coupled with our initiatives, campaigns to bring our products closer to the consumers. With an aim to be Har Ghar Welspun, we increased our nationwide footprint to 3,075 outlets and 52 distributors with brand Welspun and 2005 outlets and 25 distributors with brand Spaces. Hospitality has been one of the worst hit sectors during the pandemic. Hotel occupancy in United States is down by 30% year-on-year and is currently around 50% occupancy. We are hopeful normal demand will return by the next year. However, it is based on COVID recovery without another severe round of lockdown. During the quarter, our hard flooring business received positive responses from U.S., U.K., Europe and Middle East regions. We are in progress of onboarding B2B distributors across these geographies. The existing capacity is largely tied up, and we are adding downstream equipment to augment hard flooring capacity. We have started receiving and servicing sizable volume orders from U.S. and Middle East regions. Overall, our target geographies are getting positive business traction, and we expect sizable revenues coming from the business vertical going around. In domestic markets, we are flooring -- we see flooring demand returning back gradually. Sales have now returned to almost pre-COVID levels, driven mainly by taking lockdown. Welspun flooring launched industry-first antiviral range of flooring solutions certified by the ResInnova Labs U.S.A. In flooring solutions, we would be the only brand in the markets offering safety and convenience of 1-day installation, COVID-safe installation for the consumers. Considering the present scenario, this would continue to be the key customer consideration. Our relentless focus on channel expansion has yielded promising results with signing of 50-plus new plazas. Our digital strategy of customer acquisition has also done well. Our webinar series, Masters of Design, and conversation with leading architects have received excellent feedback and will strengthen our brand image with a specific community. Demand for wipes has grown substantially in the developed market as there is an increased preference and probability for using demands for hygiene by individuals and for personal spaces. We are witnessing heightened demand for our spunlace product, which we are running at full capacity. Hence, as planned and updated in the last earnings calls, we have begun the capacity enhancement projects for spunlace and wet wipes. We will invest around INR 300 crores in the above facility over the next 2 years and expect to generate additional potential turnover of INR 400 crores at optimum capacity utilization. Health and hygiene is a strategic extension of advanced textile businesses, where we are capitalizing on a cost trend in nonwoven. We are offering health and wellness solutions with clear focus on ready-to-use products branded under Welspun Health. This will bring more end-to-end solutions to the market as we convert more of our roll goods into finished products through value addition. Disinfectant wipes, disposable bed and bath products are some of the immediate offerings in this direction. On health and hygiene vertical, Welspun products continue to receive good feedback. All of our products, namely 3-layer disposable masks, SSP2 face masks and overall are now certified by BIS. Our masks are made to protect and are manufactured in a complete clean room environment. We have received the ISO 13485 QMS certification for a health and hygiene manufacturing facility, which is critical for medical device industry. With ease of export prohibition, we also see demand coming from overseas markets. The pandemic economic recovery will continue to have sustainability at its core. We have already made proactive shifts, both in our business strategy and operating model, that fulfills the SDG and ESG principles. With well-defined road map and targets, I'm extremely proud of team Welspun for their resilience, collaboration and outstanding response to support customers and all stakeholders during current challenging times. We are recognized by Home Textiles Today U.S. as Supplier Titan for a swift response to COVID-19 pandemic at the prestigious HTT Trailblazers and Titans Awards. Now I would like to hand over the call to Sanjeev to provide updates on financial numbers. Thank you.

Thank you, Dipali. Good morning, ladies and gentlemen. Many thanks for joining the Q2 FY '21 Welspun India investor con call. I will give a brief overview of the financial numbers for the quarter before we open for Q&A. Before I come on the numbers, I would like to give you the update on the corporate realignment plan of the flooring business, which we announced during our Q4 investor call. After due deliberation, the committee of independent directors has opined that WFL should continue to be a part of WIL in its formative years. Hence, in line with the recommendation of the committee, the company has decided not to pursue the realignment plan. During the quarter, the company fully recovered from the lockdown impact and the plants worked at full capacities. Revenue grew by more than 8% from INR 1,837 crores to INR 1,993 crores and EBITDA remained flat at INR 405 crore versus INR 403 crore in the same quarter last year. EBITDA margin came down to 20.3% from 22%, while the core business EBITDA was at 21.9%. Growth in total income was largely led by volume. It is also heartening to note that revenue and EBITDA has grown significantly over the previous quarter by 64% and 70%, respectively. In home product portfolio, bath linen volume grew by 13% Y-o-Y and 15 -- 51% Q-on-Q, while bed linen volume grew by 13% Y-o-Y and 145% Q-on-Q. I'm happy to share that we have achieved highest ever bed sheet volume in this quarter. Q2 FY '21 home textile revenues stood at INR 1,924 crores versus INR 1,812 crores during the same period last year. EBITDA margin stood at 21.9% versus 23.1% in the previous quarter of the same year. Average exchange realization for this quarter was INR 73.81 as against INR 75.49 in the corresponding quarter last year, which impacted our margins. During the quarter, the company entered into promotional programs, which impacted revenue and margin of core business by 1.8%. Benefit of these programs will accrue in the coming quarters, and this will help the company augment margins in the rest of the year. Even while the impact of pandemic is to fully settle, we have been able to generate revenue and EBITDA similar to what we had achieved during the same period last year. Profit after tax stood at INR 180 crores versus INR 199 crores in Q2 FY '20. TTM EPS stood at INR 3.86 versus INR 3.15 in the same period last year. While revenue from flooring business increased to INR 77 crores during Q2 FY '21 from INR 13 crores in Q2 FY '20, EBITDA loss stood at INR 30 crores during the quarter. Revenue for the previous quarter was INR 25 crores, while EBITDA loss was INR 27 crores. We have started dispatches this quarter for orders of hard flooring from U.S. While we had invested into the project with domestic focus, looking at the present scenario, export business is looking promising, and we expect large part of the business in the near future to come from exports. Emerging business, which includes flooring, retail and advanced textile, contributed 10% to the top line during Q2 FY '21. Net debt of the company stood at INR 2,380 crores, a reduction of INR 582 crores over March 2020. In fact, net debt of the core business has reduced by INR 1,041 crores since March 2019. We have been able to continuously reduce our net debt, even though we have added capacity in various businesses, which will yield significant cash flows in future. We continue to allocate capital judiciously in order to enhance shareholder value, and our strategy on capital allocation is to calibrate our CapEx based on cash flow available and keep it around the total depreciation charge to maintain a steady dividend distribution of at least 25% of stand-alone profit to continue to invest in our brands across geographies and channels. Till date, we have spent INR 190 crores in CapEx. CapEx for the full year is expected to be around INR 500 crores to INR 600 crores, which will be calibrated based on cash flows. In spite of CapEx from growth business, net debt is expected to remain around INR 2,400 crores as on March '21. China has hitherto been the major supplier for flooring products into U.S., and customers are looking at derisking dependence on the Chinese vendors. This should increase demand for flooring products from countries like India. Welspun being one of the only players in its segment, it stands to gain from this development. Large global businesses are recalibrating their supply chain strategy, and this may bring in great opportunities for companies like us who have deep relationships with some of the largest retailers in the world. Being an integrated textile house with excellent supply chain logistics and strong brand image, we stand to gain significantly from this. While we were aided by higher volumes and lower raw material prices in the current quarters, raw material prices have still hardened and rupee has come stronger. However, with our drive towards cost optimization, use of technology and improved efficiency, aided further by strong business prospects and robust outlook, we believe we should be able to maintain overall EBITDA margins between 19% to 21% and overall top line of around INR 7,000 crores. Let us assure you that we are well equipped and ready to take advantage of the improved business prospects as we continue to focus on long-term goal of sustainable growth and delevering our balance sheet. With this, I will leave the floor open for Q&A. Thank you.

[Operator Instructions] The first question is from the line of Nihal Jham from Edelweiss.

Congratulations to the management for the good performance. Sir, I had 3 questions from my side. The first one was, obviously, on the industry and the current demand in home textiles. As you mentioned, obviously, because of the increased time spent in home, it is driving higher consumption of home-related product, which is, I think, very much visible in the pickup in U.S. retail sales also. I think the critical question that even we are trying to check is that, is there any sense of any market share shift happening from China? Or is the current buoyancy purely driven by the increased domestic demand and potentially restocking? So first, just your thoughts on that.

Dipali?

Yes. So the fact is, yes, you're absolutely right. The consumer behaviors have changed. And definitely, the majority is coming in for the kind of consumer behavior shift that is focusing on essentials and not only discretionary sales spend. That is something we see definitely happening. China is something that all the global retailers are looking at an opportunity to have kind of a backup country and a plan B in their product mix. So that is not just because of the China backing, but I think that is something that we see as a kind of opportunity there, but not in a very -- but I think in principally, I would just sum it, that people have started staying at home more. And the home textile buying is a prime focus because the homebody economy has resulted in the reallocation of spending and driving the overall demand of our home textile products.

Sure. But in home textiles, anyways, we are the largest exclusive dealer. So there's no -- there's a possibility maybe some other country may become a backup. And over the last 3, 4 years, the share has stayed stagnant while some of the other export categories speak of it and it's reflecting in the data also. Just specifically for cotton home textiles I wanted the same jab. The increased demand is just restocking and higher consumption from U.S.? Or you actually expect that going forward, there could be actually some of the market share shift from China, specifically in our bed and bath category?

So I will just say that cotton is our -- kind of a forte as a country. And definitely, that would be an advantage for India. China could be an opportunity. But I will just put it as China plus 1 as India as something going forward. But going forward, India will definitely gain in the cotton category because that's a forte for us here.

Sure. The second question was on the margin side. Is it that, say, the 500 bps reduction that has happened on the gross margin side from last quarter -- is purely explained by currency? Or is there a component of mix also in that? Just a sense on that.

Dipali -- Sanjeev, you can go on this.

Yes. Okay. So I think part of it is, obviously, currency, as I'd explained in my opening remarks. A part of it also the mix. I mean what happens is in the second quarter, there are certain significant programs, which are run for some large retailers. The benefit of this actually accrues over the next -- largely over the next -- the second half of the year. So what will happen is some of these promotions will not continue over the next 2 quarters, and it will then augment the margins in the next 2 quarters. So really speaking, this is a 1 quarter phenomenon which as -- and I've already said that it is about -- almost about 1.8% impact because of that as well. And then, obviously, this quarter, we had some COVID related expenses and we have also restored salaries of employees with retrospective effect. So these also have impacted the margins, which are not something which would be expected to continue over the next 2 quarters.

Sure. And last question on my side. We've seen an increase in a lot of brand licensing that we are acquiring. I just want would have thought that on that specifically, is there a change in thought? And is it that that's expected to drive our domestic capacity? Also, what is the thought in terms of taking up the brand licenses? And on an average, how much are we spending on acquiring each of these licenses? Just a sense on that.

Dipali?

Yes. So I think I'll just put forward in a multipronged way this question. So I think when I take United States of America, for us, at Welspun, as you know, we have been a B2B player. And we do majorly replenishment programs. With the help of Martha Stewart and with Scott Living, this opens up more shelf space with the existing retailers as well as online retailers as well and also different channels like grocery channels as well. So that is a very big opportunity that we see going forward. And as we see -- and we all know that in these current times, digitization has accelerated 35%. More and more buying will happen online. So brands play a very important role there. For us, I think I would just say for both our brands, we are absolutely on goal and target with our numbers and margins. And with the focus of growing our share on the shelf space and online presence will be completely strengthened here. When I talk about Christy, which is our brand, which we are looking at growing completely digitally, we have a very strong presence in U.K. And as you saw, we've had a strong growth. We are looking at growing that across the world. And we have recently got listed on one of the mega online, DIY, even in the United States of America. Coming to India, India will be a play where Spaces and Welspun will have a very big presence. Our goal, to get into every household and every shop. So one is the shop-in-shops that we have organized play, but the MBOs, with the vision of Har Ghar Welspun, is going to be very, very important. The e-commerce play in India is not going to be a pure play in India. It's going to be a mixed play. So along with being present at the e-marketplaces, we'll also be looking at a play of omnichannel in this country because we see a growth happening majorly also in the Tier 2 and the Tier 3 towns. That is something that you see as we going forward as well. So in short, principally, our focus towards brand is going to be very, very important. And as we spoke, e-commerce and -- e-commerce will also be a very important play. So I could actually put it forward that in the next coming years, brands could contribute $100 million onto that portfolio, and $100 million of e-commerce play will be also very, very strong.

The next question is from the line of Tarang Agrawal from Old Bridge Capital Private Limited.

Just wanted to check, what is your terry towel and bedsheet capacity? And what have your volumes been for H1 FY '21? And how do you see these volumes for H2 panning out?

Sanjeev? So let me come in here. Our capacity for towels is about 90,000 tonnes on an annual basis. And as Dipali mentioned that we are looking now to debottleneck it and grow it by about 20%. So the plans are being currently worked upon, and we are looking to debottleneck it. Likewise, on the bed linen side, we are -- our current capacity is about 90 million meters on an annual basis. And that also, we are looking to debottleneck it and grow it to about 110 million. So say look -- we are looking to grow it by about 20% on both sides of the business. Also in the rug side, we are about 10 million square meters in capacity which we are with the synergy with the Telangana flooring plant. We are now looking to double that to about 20 million. So this -- we already have most of the capabilities already built in, in our flooring plant. So -- and with a little bit of balancing and shuffling some equipment between the 2 plants, we will double our capacity for the next year. So this is how our capacities are looking. Right now, the home textile business is full throttle. So we are virtually this -- working full throttle. And Nihal also raised the point in terms of are we seeing this demand to restock. So the answer is no. Today, the retailer shelves in America are just going empty. So it's not about restocking. It's just that the consumers are actually buying more. So Tarang, I hope that answers your question.

Volumes for H1? And how do you see the volumes for H2?

So we will -- I gave you the capacities that we are working at full throttle. And so -- and this quarter, between towels and bed sheets, we have double-digit growth on volumes, so about -- between 13% and 15% on both the products. And the rugs is slightly better than that. So we'll continue that run rate. And so we hope to utilize from textile side all our capacities fully for the balance part of the year.

So I would...

Yes. Please go ahead.

I would just step in for a minute to RRM's answer as well, is also our brands will also play a very important part in the contribution of volumes. And we also look at doing global outsourcing for our brand specifically because certain products are not what we make. So that will also add on some contribution to what we do.

Okay. But you all don't disclose specific numbers, is it, for your volumes?

No, we have not been doing that. And so what we have alluded this time is the year-on-year growth on both the products. And so this -- it's 13% on the bed side -- on the bath side and 15% on the bed side.

Okay. Can you give us some broad split of the net capital employed of INR 6,800 crores between textiles, flooring and advanced textiles?

Yes. So on the capital employed, I will get you the numbers. So from a capital employed point of view, the overall capital employed for the flooring business is about INR 1,100 crores, and the balance is for the core business.

Okay. And within advanced textiles, is there any manufacturing that you all do? Is there some proportion which is specifically allocated to that business?

Yes, yes, of course. So this -- everything that we do is manufactured in-house. And so this -- we have -- and the products that we are currently doing are for the hygiene industry. So we make raw materials that go into products like wipes and disinfectant wipes and baby wipes and diapers and so on and so forth. We are also converting part of those raw materials into wipes. So it's pretty much everything manufactured in-house. And to complete the capital employed answer, so the advanced textile business is currently -- is we have deployed about INR 350-odd crores of capital for that business.

Sure. Sure. And ma'am, in your opening comments, you mentioned that your flooring capacities are being largely tied up. Yet if I look at your H1 FY '21 revenues, they're in the ballpark of INR 100 crores. So I wasn't quite sure of what you meant there.

Let me take that. So Tarang, we are embarking on a plan now to do that, and this will involve shifting of some equipment from one plant to the other and also balancing some of the output. The impact of that will be seen in the next year. It will take us until February, March to accomplish this. And some new equipments -- will also balancing new equipment, which will not be expensive, will need to be bought. We are working on that. So the whole impact of that will actually be felt from April, and the financial impact will be seen in the next year.

The next question is from the line of Bhavin Chheda from Enam Holdings.

Yes. Congrats on excellent performance to the entire management team. A couple of questions. Again, on the capacity, what you announced, the debottlenecking, which would happen, what would be the amount spent on that? And when would that debottleneck capacity would be ready?

Bhavin, we are working on it. And this -- it will take us a few weeks to work that out. But -- so this -- everything is brownfield. So it is about debottlenecking. So this allow us a few more weeks to zero in on the numbers. And this -- what -- availability time will be, let's say, sometime in the second quarter of the next year. Part by part, it will start coming. But by and far, let's say, this -- most of it between the second and third quarter of next year.

Okay. Again, the second question is the positive surprise your results also and all your competitors, all home textile companies from India doing very well. And almost 3, 4 companies have declared result, and almost all are operating at 100% utilization. So basically, just wanted to understand on the demand perspective. Obviously, because of the health and the hygiene region, the demand is good, and there would be some impact of pent-up demand. But what is your call on 6 to 12 months perspective? How much demand would actually sustain? How many small shops have actually closed down and big box retailers have gained market share permanently? So just a call on a long-term demand if you were getting something from the clients you can share with us.

Dipali?

Yes. So right now, you're absolutely right. We see this as a kind of a peak happening. But I must say that health and wellness and hygiene are here to stay, and home plays a very important role. Lot of companies and big corporates and global giants have already asked their people to work from home until June '21. That is something that we are definitely seeing. But having said that, today, the shelves of the retailers are practically empty. So that's what we are gunning to fill. But it is going to be a change of behavior that a lot of studies have already spoken about. So maybe if not being to that extent, but, definitely, we will see kind of an upside of at least, overall, 15% to 20% kind of an upside, definitely in the demand for home goods.

That is good to hear. And just a continuation of that question since I think that data is not yet available. So last 3 months have -- or last 2 months, we have seen almost like 100% utilization and big demand. So is it that the industry demand has gone up as there is some portion of India taking away market share from China? Are the Chinese and the other countries home textile growing by a similar amount?

It is just an opportunity -- it is an Indian opportunity. And I think India being at where, I think it is long overdue for us. Cotton being our forte now, one of the biggest producers of cotton, cotton textile, vertically integrated plants in this country, definitely, it is an India advantage. China is there. But I think India is coming into prime more and more. I will just say that.

Okay. And the last one, what was the growth of advanced textiles in the current quarter and first half? .

So Bhavin, we are already maxed out -- by and large maxed out on the core part of the home textile business -- sorry, on the advanced textile business. So the spunlace line is actually working full throttle. And the wet wipes we are at about 60%. We've added some capacity there. So there, our utilization levels are about 60%, which, hopefully, by the end of the year, we will fully utilize. On the needle punch side, there is some area to grow. Year-on-year because of the first month that we lost, we are just about flat. But the back half of the year, we should see double-digit growth in the advanced textile business. And with the addition of the new line, which Sanjeev mentioned, with a INR 300 crore CapEx, so that should more than double our revenues over the next couple of years.

Yes. And best of luck. We're really seeing buoyant times for home textile companies.

The next question is from the line of Prerna Jhunjhunwala from B&K Securities.

Congratulations on excellent set of numbers, sir. The demand is seeing a very good movement, as told by you and visible in other companies' result as well. So being a leader to gaining -- I mean excellent performance. Sir, I wanted to understand the flooring part of the business. Could you help us understand what kind of revenues we can see in FY '21, '22, '23 based on the conversations with the clients and the kind of tie-ups we're seeing wanted to understand the traction that can be seen in that business going forward? Is there any improvement on the conversations with clients?

Good question, Sanjay (sic) [ Prerna ]. So yes, we are seeing a lot of international traction to the flooring business. And it's primarily on the hard flooring side. And see, what happens is hard floor can actually replace the floor in a day's time. And in this COVID period, so it's actually -- you don't want people hanging around in your house, if you have to change your floor. So there is an uptick on the flooring side on the international side. Also, by and large, most supplies actually have been coming from China. So there's been very little exports happening from other parts of the world. So that kind of opens up doors for us with this China one -- China Plus One thinking. So it opens up a lot of doors for us. Our business is growing. The hard flooring part is already looking very good. The current quarter, we have done -- the flooring business has done our top line of about INR 75-plus crores. I think this will cross the 3-figure mark in the coming quarter. And each quarter, we'll continue to keep improving. And hopefully, this -- there are 10-odd discussions with very large clients that are currently underway. And while we'll get a better handle over the next 2, 3 years, but to say that we could do INR 700 crores, INR 800 crores of revenue in FY '22 will not be out of order right now with the traction that we are seeing with the business. Also in the domestic market, we are seeing a lot of traction again. So this -- our value proposition is to change the floor in a day and which we have been very diligently doing going into clients' homes. And in COVID times, with people spending more and more time at home, so to get a floor changed in a day is appealing to the consumers. And through digital marketing campaigns, we are trying to reach as many consumers as possible. And so we've built a good system of lying up the digital marketing, getting leads from there, putting it into our call centers, tying it up with sales force. So the digital direct-to-consumer sales is growing significantly. We think we'll hit our 1 crore a month mark very soon in the next 2, 3 months. So all in all, we are seeing good traction on the domestic side as well on the residential side of the business. But very candidly, the hospitality business is struggling, which is our soft flooring business. And also the commercial part of the business, the floors which go into offices, so the activity is a little bit slow there. We believe it will take another quarter or 2 for us to get there. But a good estimate for the coming year, FY '23, would be INR 700 crores -- INR 700 crores, INR 800 crores of revenue. But we'll get a better handle of it as we get on the next 2 months. But all in all, our confidence is pretty good.

Okay. Sir, what will be the China's export size to U.S. in the categories for flooring business that you are targeting?

It's about $3 billion, by and large, in the range of $3 billion. So -- and this -- and the corresponding exports out of India is not even 10% of that. So there's a very wide room scope for us to grow there.

Okay. Sir, do we compete with the tiles segment in this? Or is it an independent category that people look at in the U.S. or globally for the...

So it's a fairly established -- each of the products that we do is a fairly established category. So it's not between tile or this. So there's a separate market for carpet tiles. There's a separate market for wall to wall. There's a separate market for the hard flooring side. So it's a pretty mature market. In India, the market is maturing. But internationally, it's a pretty figured out matured market there.

Okay. Sir, on this -- I wanted to -- thank you for this flooring clarity. Wanted to understand the brand and license part of core also. Since you are focusing more on brand and licenses, could you please help us understand whether it is largely for revenue buildup or the profitability in this segment also better and will give better return ratios? How are we looking at this B2B -- B2C component of our company as a whole?

Dipali, do you want to take that?

Yes, I will take that. I will take that. So with brand and licenses, as you know, the licenses, as I said earlier in the call, that they give us additional shelf space at the retailers. It also gives us new -- it opens new channels for us. And definitely being a brand, you have a better margin play as well. So having said that, we also have our own brand portfolio, like Christy, where we're going completely digitally aggressive. And of course, India will also play a very big role with Spaces and Welspun that we see as India, a very big opportunity. So I hope I've answered your question, but if there's anything, just let me know.

Ma'am, just wanted to understand. Suppose if we get a 10% incremental contribution from brands and licenses business. Will it translate into maybe 50 or 100 bps improvement in our margins? Is -- something that I'm trying to understand how do we look at this business from profitability to understand if it gives us better margins.

It definitely will give us better margin, Prerna. penner, I will just say that, and definitely also a growth of our business. Because you know that primarily we do replenishment programs. It does gives us an opportunity to grow here, definitely gives us a margin upside as well and also an opportunity to grow in online, offline, all the channels as well. Definitely, there will be an impact. But having said that, our private label and our -- that core business is around 60%, 70%. So the brand play is smaller in that. So the dent will not be that big compared to, but yes, definitely, it's going to add on a lot of diversity on our shelf space.

Okay. And my last question is on debt. We were planning to become debt-free by FY '22/'23. Is that still possible? Or there could be a delay in that?

Sanjeev?

Yes. So yes. So as we have, in our guidance, said that in this -- end of this year, in spite of the capacity expansion we are doing and the CapEx plan, we will be at INR 2,400 crores. So for the core business, debt is already significantly down. So I would rather say that in core businesses, debt should continue to go down, while we are investing in a couple of growth businesses like flooring and advanced textiles. So I think '22, '23 guidance is really difficult to give now because we're also calibrating on how we can expand that capacity through brownfield debottlenecking, et cetera. So I think this more accurate guidance, probably a better sense would come in towards the end of the financial year. However, the endeavor is to continue to calibrate our CapEx in a very conservative manner and look at investments, if at all, on -- which can give us a very quick payback.

The next question is from the line of Manish Bhandari from Vallum Capital.

I have 2 questions. One is I wanted to know at what revenue level which we should see a positive EBITDA in the flooring?

So we should be EBITDA positive around the INR 1,000 crores -- INR 800 crore to INR 1,000 crore mark. And there's work that we need to do to, let's say, just get operating efficiencies out of the business. So on the INR 800 crore to INR 1,000 crore, this operating level, we should hit EBITDA breakeven. So we are looking -- in fact, this -- the entire team is working towards EBITDA breakeven for FY '22. And this -- we are on course with that. And there's work to be done, of course, but this -- everybody is working towards that goal.

My second question is during the conversation on the conference call, there was a comment made on the change in the rupee movement, which has led to the -- some impact on the margin. So I wanted to know the ForEx hedging policy of our company in the process.

So we have a policy to hedge about 60% of our top line to be covered, to be hedged. That's a stated policy, and that is what we follow. So we tend to be between 55% to 60%, and the rest we keep it open. That's the stated policy.

But sir, if you keep a 60% hedge and if you would have hedged a year back or maybe 6 months back, I am still finding it hard to believe that how there can be a loss on the ForEx side. If you could spend a minute there.

Yes. So what has happened is -- so there are 2 or 3 things which impacts our ForEx revenue. One is that we don't cover the full amount. Part of it is covered. So some of the hedges, which we did, we do 12 months rolling hedging. So what happens is what we had hedged in last year had -- the impact of it comes in the current year. So that is a dynamic situation. So the actual net impact of ForEx was almost about INR 75 for the last year same quarter. And this year, it was INR 73.8. Going forward, what we have hedged will give us a headroom because 60% is already hedged at good prices. So that will give us headroom over the period -- over the next 4 quarters. At every point in time, we always cover the next 12 months. We keep next 12 -- rolling 12 months 60% covered, 55% to 60% covered.

Mahesh (sic) [ Manish ], we have been fairly consistent. Sorry, we have been fairly consistent with this over the last 5 years. So -- and there is so -- and there is no trading here. So just week on week, it is religiously followed. And week-on-week, this -- our estimated 60% sales is hedged. So there's a fair bit of discipline that we follow with this policy.

Sure. And you mentioned about INR 500 crore CapEx in this calendar year -- in this financial year, FY '021. Am I right on this number?

Yes. Yes, you're right. Out of which close to INR 200 crore we've already spent in the first half.

And where this number is -- what is the distribution of INR 500 crore?

So this is largely into the flooring and advanced textile CapEx, which we've already announced last quarter.

Sure. Sir, what is your estimate, how much would be the increase or decrease in the cotton prices, raw material prices for you in FY '021 versus FY '020?

Dipali?

So we definitely are seeing cotton prices go up, and the MSP also up by 3% to 5%. Pakistan has also reported around 40% decline in the cotton produced. So we definitely see that kind of forming in the coming months. But looking at the overall scenario and the cotton yet to come in, we expect the cotton prices to stabilize at around INR 38,000 a candy compared to INR 40,000 last year.

Yes relatively lower value, I mean to say, realizing it should be -- the cost should be lower than the last year, am I right?

Yes. The cost will be lower than the last year, definitely.

On an average basis.

On an average basis.

Yes, yes. Sure. I have a last question and observation. This is regarding the rearrangement of the business, which ones -- which was broken on various levels. So I wanted to read the mind that what kind of rearrangement we are looking at? Are we looking at demerging this company? And was that the deliberation in the Board? And if true, then my observation will be that as a shareholder as bear the pain of going through losses of test flooring business. So I would be glad as a shareholder to remain in this -- the flooring business to remain in the company. So I just want to read your mind and that what kind of rearrangement you have spoken about or you discussed about?

So we had -- earlier, you should remember that we had calibrated that we may look at demerging or any other way of looking at the flooring business. We had this -- we have a lot of -- we had a lot of discussions with the Board and a lot of other experts. I think the view, which has come out, is that at these committee, we've already borne the initial period of the flooring business. And as the business is expected to improve, it will not be prudent to demerge this business, and it should continue to be a part of WIL. So the decision has been that we continue and maintain status quo.

Does it mean for next 1 or 2 years permanently it will be status quo or is there any finer print, let's say, for us to hear from you?

So see, this is a -- this company is in formative years. So I think this whole question of whether we need to demerge it or do something else is something which we have put -- which we have decided we are not going to do at this point of time. After 2 years, what can happen is something which is very difficult for us to kind of predict now. But as of now, definitely, we are not looking at demerger or any other corporate restructuring as far as the flooring business is concerned. And it will continue to remain part of WIL.

Ladies and gentlemen, due to time constraints, that was the last question for today. I now hand the conference over to Mr. Ankit Gor for closing comments.

Thank you, guys. Thank you guys at Welspun India team. I would like to hand over call to the management for closing remarks as well. Thank you.

So thank you, everyone, for your participation, and I think stay safe and well . Thank you.

Thanks a lot, everybody. Thanks for coming on the earnings call. If you have any more questions, please reach out to Vipul or me. I want to also extend my seasons greeting to you and to your family. Stay safe. Stay happy.

Thank you. Thank you, all. Thank you very much.

Thank you. On behalf of the... [Audio Gap]