Welspun Living Limited (514162) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '21 Earnings Conference Call of Welspun India, hosted by Edelweiss Securities Limited. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Nihal Jham from Edelweiss Securities. Thank you, and over to you.

Thank you, Rituja, and good afternoon to everyone. On behalf of Edelweiss, I would like to welcome you all to the Q3 FY '21 result of Welspun India. From the management today, we have 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. I would now like to hand over the call to Ms. Dipali Goenka for her opening remarks. Over to you, ma'am.

Thank you, Nihal. Good afternoon, and a very warm welcome to all of you to Welspun India's Quarter 3 FY '21 Earnings Call. I hope that you and your families are feeling and keeping well and safe. The year 2021 begins with a ray of hope that recent breakthroughs on COVID-19 vaccines, which should play a major role in the next round of economic recovery. I will cover the key business updates and later Sanjeev will take you through the financial highlights. I'm delighted to report record-breaking quarter as we have been able to register our highest ever quarterly income. The incredible efforts and commitment of our associates, who also kept the workplaces phased during these uncertain times has been a key driver to a superior performance. This has resulted in highest ever Bath Linen and Rugs & Carpets sales volumes in a quarter. Demand based on order book seems well distributed and across retailers and other formats. Current order bookings are upbeat for upcoming quarters. The strong emergence of homebody economy is becoming apparent and there's visible structured shift in consumers spending for home products. The holiday period saw a significant change when we share of holiday purchase spend, and we saw heightened demand during the holiday period as compared to previous holiday seasons on the back of strong record-breaking online sales. As we had mentioned in our last earnings call, consumers were reluctant to resume their normal out-of-home activities and were spending more time at home. The retail home furnishings category has seen tremendous growth in the last few months, owning to conscious preference for quality and performance-driven by hygiene and wellness over heavy discounted products. This has gone a long way and increased demand for a product Home Textiles, Home Textiles revenue grew by 26% year-on-year. During the quarter, under consideration, our plants at Vapi and Anjar operated at peak capacity with the customer demand continuing to be buoyant , the Board has approved a capacity expansion to debottlenecking and rebalancing of facilities at both the plants. It will be a capital light, quick turnaround expansion, resulting in increased capacity of Towels by 7%, Bed Linen by 20% and Rugs and Carpets by 80%. The company is expected to spend around INR 225 crores over FY '21 and FY '22. This capital-light investment will help us to create additional annualized revenue of over INR 1,200 crores by the second year of operation. The benefits from this expansion will start accruing in phases from as early as quarter 1 FY '22. Innovation is an integral part of Welspun's DNA and the foundation on which our customer-centric solutions are built. Welspun has always focused on consumers' needs and cater to them with innovations like nano core technology, industry defining, multi-level traceability process, belt track that tracks finished products back to the raw materials as well as HygroCotton technology. Our innovation-driven approach has helped us to challenge the status quo, set new industry benchmarks and build an industry-leading portfolio of 30 innovations over the years. Our innovation product sales during the quarter was more than INR 600 crores, registering a growth of 36% year-on-year and 61% quarter-on-quarter. We are proud to be amongst the Most Influential Innovators at the Clarivate South & South East Asia Innovation Award 2020. Welspun won the award in the Corporation segment and was the only player from the textile and apparel industry. The award is a testament to our efforts and motivates us to keep developing more relevant and innovative solutions for our customers. While the COVID caught the world's attention in 2020, the climate crisis continues to be the biggest concern for our planet earth. Business are increasingly changing the ways to adjust for the climate crisis by innovating more sustainable and environment-friendly solutions. Consumers now demand that brands should be more transparent, environmentally conscious in the production and delivery of their goods. At Welspun India, we are completely conscious about the challenges that society faces and the role WIL can play in surmounting them. Over the last few years, we have made significant investments in the area of sustainability, including amongst other initiatives like rainwater harvesting lagoons, sewage treatment plant, to lower the fresh water footprint. We also run a social initiative called SPUN, which is not only based on up-cycling, but is also dedicated to women empowerment. With significant progress already made in the areas of sustainability, the company is at the cusp, taking its ESG initiatives to the next level. To achieve its mid- and long-term ESG goals, the company has embarked upon an ambitious ESG strategy, explain more elaborately in the earnings update. I'm glad to share that Welspun has already rated low-risk on ESG factors by 1 of the top ESG rating agency and we are conducting gap assessment study and identifying measures to move to negligible risk rating. Welspun's sustainability journey is now a case study on Ivey publishing website. Recent trend shows that China share in U.S. market continues to be under pressure, and this is more evident, especially in the Rugs and Flooring products. We are seeing shift from China to India already happening over the last few months. Walmart has recently announced that it will triple sourcing of goods from India to $12 billion each year by 2027. Walmart's new import commitment is expected to provide a significant boost to companies like Welspun. Welspun and Walmart go over 2 decades and have been sharing a relationship built on mutual respect and trust. We are truly humbled to be recognized by Doug McMillon, President and CEO of Walmart, as 1 of their key suppliers at the recent HD Leadership Summit 2020. Pandemic has accelerated online spend significantly beyond prior years and online spending on HomeGoods continue to post record-breaking numbers. Online sales continued its strength with Amazon led early start to holiday buying. Followed by major big-box retailers who also witnessed multi-fold increase in online sales compared to previous years. Our e-commerce business has grown 22% year-on-year. In order to give further impacts to our e-commerce strategy, we have embarked upon project wave accelerated e-commerce growth, which should lead to a top line of over $100 million by '23. We have taken rapid strides in our food B2C business to licensed brands, which will enable us to deepen our connect with consumers across markets and aspirational categories. Martha Stewart brand will see expansion both online as well as on off-line. Martha brand has already clocked a turnover of about $20 million since inception, and we continue to see strong performance. We are also very excited about the prospect of Scott Living brand, which we had signed up last quarter. License brand brings to us new opportunity, pockets by opening up new channels and shelf space without cannibalizing our existing business, and we expect annualized revenue from license brands to cross $100 million in the next 2 to 3 years' time. Emerging businesses. The company witnessed strong performance in the domestic REIT retail as consumer confidence recovered quicker than expected, supported by the festival season and fall in COVID cases. E-commerce continued to stellar run, whereas modern trade fed better in quarter 3 after soft quarter 2. We added 6 new towns and 341 outlets for Welspun brand distribution, modern trade grew 14%, that's by best-in-class execution at stores. We reached 350 million consumers through our Rangana campaign and our new health life campaign reached around 12 million views on YouTube and around 2 million reach through social media. We are glad to share that the domestic retail business achieved its highest ever revenue in a quarter at more than INR 82 crores, growing by 16% year-on-year. We are extremely enthused with a significant turnaround seen in the retail demand over the last few months. And it gives us the confidence of crossing annualized revenue of INR 1,000 crores over the next 4 years. During the quarter, the Advanced Textile business continued to meet the growing demand of disposable nonwoven category with the industrial segments also showing recovery in spunlace, we are seeing better price realization and improved operational metrics. Buoyancy is global demand, especially for disposable nonwoven category, strong consumer relationships and superior product and service offering will keep our plants fully occupied in the coming quarters. Revenue during the quarter stood at INR 74 crores, registering 20% growth year-on-year. The new disinfectant wipes line is expected to commence production in February '21, while the expansion of spunlace business is expected to commence operations by September 2021. These would help this business achieve top line of around INR 600 crores by FY '23. During the quarter of the SPC plant ran at optimum capacity, we saw positive traction in our export business, especially in hard flooring as we added new clients across geographies and also added B2B distributors to our network. The ticket size of orders also increased from clients with whom we had established relationships in the earlier quarters, indicating a very good level of customer satisfaction from our product offerings and services. We also bagged our first orders from EU, Southeast Asia, Australia, New Zealand region for quarter 4 dispatches, and these geographies are expected to contribute significantly to overall businesses going forward. Our soft flooring business has also started taking shape with strong inquiries from U.S., Canada and RoW. In order to optimize capacity utilization of the soft flooring plants, we plan to produce Rugs and Carpets for a Home Textile customer from Welspun flooring facility as a facility at Vapi is running at peak capacity. Coming to our domestic flooring business. Quarter 3 saw tailwinds as we added businesses from large marquee brands across both commercial and hospitality channels. With continued focus on network expansion, we have added 20 plazas and 82 portals to our retail footprint. We have also upgraded our Plaza format retail stores to enable a better visualization of our products. In order to strengthen digital channel, we have overhauled the Welspun flooring websites to make navigation more intuitive and easier. Our digital strategy of customer acquisition saw 210% growth quarter-on-quarter. Total flooring business grew more than 3x year-on-year, and our branded product revenue grew by 107% year-on-year. The business looking very strong in the hard flooring segment and with the soft flooring starting to gain traction, we are confident that we should be able to achieve EBITDA breakeven in quarter 3 FY '22, and cash breakeven even during FY '23. The company maintains an optimistic outlook for the rest of the year. The company remains committed to its long aspiration of delivering sustainable and profitable volume-led growth, building on strong brand equity and gradually driving and scaling up new pillars accrued. Now I would hand over the call to Sanjeev to provide updates on financial numbers. Thank you.

Thank you, Dipali. Good afternoon, ladies and gentlemen. Many thanks for joining the Q3 FY '21 Welspun India Earnings Con Call. I will give a brief overview of the financial numbers for the quarter before we open for Q&A. I hope everyone must have got a chance to look at the earnings presentation and press release by now. After my interaction with various stakeholders and feedback received. I'm happy to share that from this quarter, we have not only started dissipating volume numbers for each of our businesses but also other granular statistics, which will help you to track the company's progress with clear lens. We have always been ahead of the curve, and we will take your suggestions, feedback to improve on the disclosures further. I'm delighted to share during the quarter, the company achieved highest ever sales volume in Bath Linen and Rugs & Carpets. Bath Linen sales grew by 17% Y-o-Y, Bed Linen sales volume grew by 43% Y-o-Y and Rugs & Carpets sales volume grew by 28% Y-o-Y. During the quarter, the total income grew by 27% from INR 1,605 crores to INR 2,050 crores, and EBITDA grew by 75% to INR 419 crores in versus INR 239 crores in the same quarter of last year, with an EBITDA margin of 20.4%. Even though the plants are not running in the initial period of the current financial year because of government imposed lockdown on account of COVID, we have been still able to achieve revenue in EBITDA growth over -- slightly be '20. While on an absolute basis, EBITDA margins improved by 554 basis points over the previous year, revenue and EBITDA of Q3 FY '20 were impacted due to reversal of INR 95 crores on account of MEIS. Even after adjusting this time, the EBITDA margin of Q3 FY '21 is higher by 80 basis points. We have been able to improve our EBITDA margin in spite of increasing input costs. The increase in other expenses is mainly volume linked expenses like stores and spares, nice chemicals, power and fuel, et cetera, apart from increase in logistic costs due to global increase in freight rates. Finance cost have increased in this quarter due to the accounting charge of INR 16 crores on redemption of preference shares by 1 of our subsidiaries, which is a onetime charge as we prepone the redemption due to higher cash flow in that company. Profit after tax stood at INR 181 crores, up 147% Y-o-Y. Reported TTM EPS stood at INR 4.93 versus INR 3.41 in the same period last year. Average exchange realization for this quarter was 74.08% versus 73.71% in the corresponding quarter last year. Net debt of the revenues stood at INR 2,469 crores, a reduction of INR 493 crores over March 2020. Over the last 3.5 years, our net debt equity has come down to 0.70x as on December 31 '20 versus 1.27x as on March 31, 2017. And there is continuous improvement in ROCE in spite of adding capacities in various businesses, which will gain significant cash flows in the future. Net debt of the core business has reduced by INR 235 crores in the last 9 months. Till date, we have spent INR 293 crores in CapEx. And for the full year, it is expected to be around INR 500 crores, including the recent investment announced for Home Textile business. In spite of investments in our growth businesses, net debt is expected to remain below INR 2,400 crores as on March 31, 2021. Coming to segmental results, Q3 FY '21 Home Textile revenue stood at INR 1,967 crores versus INR 1,549 crores during the same period last year, growing by 27% Y-o-Y. EBITDA margins stood at 22.1%, up 308 basis points versus the previous quarter of the same year. During the quarter, revenue from flooring business was INR 98 crores, up 348% Y-o-Y and 27% Q-on-Q. EBITDA loss narrowly -- EBITDA loss narrowed marginally to INR 24 crores versus a loss of INR 30 crores in Q2 FY '21. We are seeing improvement quarter-on-quarter, and we expect that we should be able to clock over INR 300 crores of revenue in this financial year. As Dipali has already mentioned, in the flooring business, we should be able to achieve EBITDA breakeven by Q3 of the next financial year. During the quarter, Advanced Textile business clocked revenue of INR 75 crores, up 20% Y-o-Y. Emerging growth business, which includes branded business, e-com business, flooring business and buying Advanced Textile cumulatively grew by 46% Y-o-Y and contributed 23% to the top line during the quarter on capacity addition. Dipali has already covered on the capital-light expansion in the Home Textile business. In Advanced Textile expansion project, we have recalibrated our investment. And out of INR 496 crores project announced earlier, INR 196 crores have been resold. Hard flooring is running at optimum capacity due to the strong demand and order book, while the capacity of hard flooring has been doubled in January 2020 month. It is being further doubled by Q2 FY '22 to cater to the growing demand. Increase in minimum support price by 3% to 5% has resulted in 8% to 10% increase in cotton prices since last quarter. Decrease in production estimates, increase in global consumption and ban on Xinjiang cotton in U.S. will keep pressure on raw material prices. RoSCTL has been discontinued since January 1, 2021 and RoDTEP scheme has come into effect from January '21. New policy rates for RoDTEP scheme is yet to be announced by the government. All round increase in input prices and global freight costs will keep the margin and the pressure in the coming quarter. And hence, we have already started discussion with our key customers of price increase. While 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 margin between 19% to 20% on the overall top line of over INR 2,300 crores. We remain focused on our strategic priority work pillars. We continue to lay emphasis on the long-term goal of sustainable growth and profitability and delivering our balance sheet. With this, I will hand over the -- I'll hand it over to Dipali for any further comments, and then we may open to Q&A.

Sure. Thank you, Sanjeev. I think over to you -- over to you, Nihal, and everybody there.

[Operator Instructions] The first question is from the line of Kirthi Jain from Sundaram Mutual Fund.

My first question is with regard to the RoSCTL and RoDTEP. Sir currently, given that the rates are not available, will we be recognizing the revenues based on the provisional rate or how the accounting will happen, sir, given that there is no rates available currently with regard to RoDTEP?

So let me take this. So first thing is -- so the policy change has been announced from January 1. And between now and end of March, we expect the rates to get announced. And this, of course, a very hectic work that our associations are doing. And this -- it appears to us that it is in final stages now. So we believe that before March, all these rates will get announced. And what will get recognized is what is visible. So we will recognize this, the new RoDTEP rates as they are declared in quarter.

Okay. Sir, with regard to, say, old rates, which is expected to be lower than the new rates, do you expect a pass on over 2 to 3 quarters, pass on can happen, sir?

Look, we have consistently maintained that our business is good for a sustained 20% kind of an EBITDA margin. And we have seen this, these cost pushes and pressures and the exchange rate movements and the incentive movements both in the upward and downward direction. So I believe our business is robust enough to pass on all such eventualities to our clients. Yes, you could have -- you could take a couple of quarters to get there. But I guess, this we have built enough strategic relationship with our key clients to be able to get back to our -- this expected turnover of margins. So we are -- and as Dipali said that despite this whatever the pressure, so we believe that we'll be able to pass on all these to our clients.

Sir, then Sanjeev sir had highlighted about INR 2,300 crores of turnover. The INR 2,300 crores turnover was with regard to what, sir?

The INR 7,300 crores for the full year FY '21, not INR 2,300 crores, that must be -- maybe I misspelled it, but it's -- we're talking about the INR 7,300 crores plus turnover for the current financial year which is FY '21.

Okay. Sir, next year -- this year, we have highlighted around INR 500 crores CapEx. Next year, approximately, what would be the CapEx, sir? Given the projects which you have planned up?

We will be around INR 600 crores or thereabouts in the next year. So -- and this covers, of course, the new Home Textile capacity growth that Dipali just mentioned about, so which is a good INR 200 crores, INR 225 crores. So all-inclusive, we should be around the INR 600 crore mark.

Okay. So next year, again, we will be targeting a double-digit growth at minimum, sir, given the ramp-up in the flooring business at the corporate level?

So Kirthi, again, on the growth part, we have been consistent that we will deliver double-digit growth, and it's not about this year or the next year. So on a consistent basis, we believe our business is good for double-digit growth. We will come back with revenue guidance and more as we come to the fourth quarter earnings call. But this our business is robust. I think our emerging businesses are doing well. So there's no reason for us not to believe that, that our business will grow double digit.

The next question is from the line of Sumant Kumar from Motilal Oswal.

So my question is regarding soft flooring, and you have mentioned in the press release, there is a strong inquiries from U.S., Canada and RoW. So can you discuss about more the -- is the soft flooring is going to a similar way of the hard flooring? What are the dynamics changing in the global market for soft flooring?

So look, let me say that this the hard flooring business has taken off a little faster. And for the simple reason that you can install the floor in almost no time and in COVID times, it becomes very helpful. So while Sanjeev mentioned that we are doubling and this our capacity is all over again. But the fact is that we actually deferred our capacities waiting for sales to come, so which we are just completing our project. So with whatever capacity that we are growing, it's just about completing the initially envisaged capacity of 10 millimeters or thereabouts. So we will complete the project now that we are seeing some traction in that area. Coming to the soft flooring. So this we are seeing now a good response in the marketplace. And so if we take a little more time for the simple reason that it's a floor which takes longer to -- a little longer to install. And having said that, I think this what we are seeing enough positive. This drive all across both our Indian market as well as international markets to believe that the investment has been put in the right place. And the second thing, which Dipali also mentioned Sumant, is that, look, from a manufacturing process perspective, there are a lot of common things between our Rugs business and the soft flooring business. So we have also put in a plan in place now that our Vapi Rugs facility is working full throttle. So we are also putting plans in place where we will be producing materials for the Rugs business as well. So we will be -- we will use a part of our capacity to grow our Rugs business in Vapi as well. So all in all, we feel much better with the soft flooring side of the business as well. And hopefully, in the next quarter, we could be a little more emphatic and a little more granular in terms of numbers on the soft flooring side as well.

When you talk about the strong inquiries coming from U.S., so is that -- what dynamics have changed in 4, 5 months, you're talking about the overall inquiries has increased and all?

Look, this so a, that it's a start-up. So in a start-up, and you make projections in a startup that this will get off the ground in 6 months or 12 months. And sometimes, it just takes a little longer for you to get off the road and start seeing traction in the business. So we believe that the business was good enough right upfront. It's just that this we -- this within 6 months, we got hit by the COVID situation. And before this, we could make inroads with the clients, travel stopped communication, this became almost reduced to digital fund. For a new startup, this it makes things more difficult to open doors in an environment like this. So it just took us a little longer for us to open the doors. But -- so it's just about what we are currently seeing is what we anticipated and what we projected in the past as we committed the large capital expenditure. Yes, the China plus 1 factor is also playing out. So this on 1 side of the business, the COVID situation accelerated our sales. But on the other it slowed down the sales on the soft flooring side. But you put the business in totality. I think this we are aware, we thought we will be just about a couple of 2 or 3 quarters late as compared to where we thought this we would get to. And so we are just seeing reinforcement of the thesis on which we actually met the flooring investment, Sumant.

Okay. Talking about overall, what we see the 3, 4 years -- in past 3, 4 years, we have seen, you are talking about domestic business, INR 1,000 crore, then you have entered into in-licensing or in-licensing business also and then they are flooring solution. So overall, the business dynamics, the dependency on the home, particularly bedsheets and towel is going to lower. So in next 4 to 5 years, how much dependency is going to reduce from all these new verticals?

Dipali, you want to take that?

Yes, sure. Sure, RM. Thank you. So I think the dependency on Home Textile will not reduce, but I think it'll complement because when you're talking about the consumer in the Indian context or the global context, I think the consumer is looking at home, and we provide a complete home solution for towels, sheets, linen, bedding, rugs, carpets and now flooring. So I think, Sumant, from your point, I think we are going to complement our Home Textile with the flooring business here. And we definitely see a robust growth in retail and we are absolutely positioned to achieve INR 1,000 crores as we have committed.

No, no, I'm asking the dependency on towel and bedsheets. When we have entered into the flooring solution, where we have a higher growth potential export, particularly, then we have also entered into in-licensing business. So that is another one. And then third is domestic business, what you're talking about INR 1,000 crores. I think currently INR 200 crores, INR 300 crores, in the next 4 years, it is going to be INR 1,000 crores, correct?

Absolutely.

Yes, dependency on towel and bedsheets is going to reduce, where the market share of India is 40% to 50% range. So the growth is going to come from the flooring and domestic business and technical textile and also you have entered into in-licensing that is also going to complement. So my question is, in 4 to 5 years, what is the mix of the towel and bedsheets versus others?

So I'll tell you, Sumant. I'll just cut it short to give you a perspective. You are actually talking about the core business, the private label business, you're talking about the brands and the licenses. So -- and the e-commerce business, I'll give you. The core business definitely will be a strong part of it. But if I can talk about the other businesses, they'll be growing. For example, our license business and our brand business is going to go to $100 million in America. Our retail business, I spoke about is INR 1,000 crores. And of course, the flooring is absolutely positioned. So the basket is going to grow bigger. So definitely, that is there a focus on brands and licenses will definitely be there. Our Advanced Textile definitely hasn't impacted but they're all going to be there, as a big basket there.

Let me just add here, Sumant, that -- so our core Home Textile business is still good enough to grow and it will continue to grow. We believe every product category in our core business is still good enough to continue to grow despite whatever market share that India has got. And we have demonstrated that in the current year, and we believe we will continue to do so in the future as well. So all parts of our business will continue to grow. And this the core business will just be this augmented and supported by all the emerging businesses. And look, we have been investing in these emerging business for almost 4, 5 years now. And hopefully, the time over the next 4 or 5 years, all those investments will start this paying back and start looking at this much more productive. So -- but to answer your question, we believe that our core business and within the core business, also every single product category will grow, will continue to grow as well.

Can you discuss more about the in-licensing business?

Mr. Sumant Kumar, I'm sorry to interrupt you. May I request you to please rejoin the queue, sir, there are participants waiting for their turn. [Operator Instructions] The next question is from the line of Prerna Jhunjhunwala from B&K Securities.

Sir, congratulations on a good presentation and increasing the transparency in the business that we can now see. So sharing the capacity utilization and the B2B branded global domestic, all these kind of breakup just gives us an insight that you are getting into sharing more information and improving the transparency with us. So that's commendable. My question is largely on the cost increases that we have seen in this quarter. Other expenses have increased and gross margins have also improved at the same time. So is there, the increase in yarn prices and other cost pressures not there a part of this quarter? If you could throw some light there? And what are the increases in other expenses, major items and whether this can increase further in the coming quarters? So I just wanted to understand the cost pressures that you're facing right now.

Sanjeev, you want to take that up?

Yes. Yes, I will take that. Okay. So just to come to on the major cost movement. So if you look at -- so when we talk about Y-o-Y, then obviously, the raw material prices haven't -- have been -- compared to last year, they were still on an average a bit benign. So actually, we gained a bit on the contribution side from -- as far as the input costs are concerned from a Y-o-Y perspective. But if you look at the Q-on-Q perspective, then, of course, yes, we had some pressure on. But [Technical Difficulty] the product mix is better, having a better margin, number one. Number two is, of course, that there is some increase in about 5% on exchange rate [Technical Difficulty] increase happens. Apart from that, the profitability from the U.S. business, the U.K. business and [Technical Difficulty] coming to the other expenses, so today you look at other expenses in which we have reported because of India sales that some part of the semi-variable cost like Power and Fuel, Dyes & Chemicals, job work and contract labors, even freight started to verify are a part of other expenses. So we did see increase -- a large part of these increases were volume-based. But some of the increases that have fall because of price increase, especially the freight cost where we did face about INR 20 crores to INR 25 crores of higher advertising what we could have liked. And similarly, there's been some headwinds on the Dyes & Chemicals and other spaces -- stores and space. So largely, these are fueled by volume and a very small part of it also because of especially the freight cost, which has been because of the highest freight, global ocean threats, which we all are experiencing now. Does this answer your question?

Yes. Sir, a part of it remains, how are these cost pressures going forward for the next 2 to 3 quarters?

So I think, it always...

So let me take that, Sanjeev.

Yes.

So look, so we have seen some major movements on a lot of the cost that we incur and particularly raw materials, which is cotton and yarn. And also the freight rates have moved up significantly. Now when you look at it from a year-on-year perspective, so the last quarter, as Sanjeev said, was by and large where we were in the same quarter last year. But you should certainly expect this -- the cost pushes and the increased costs coming and impacting the margins in the future, purely, if you look at it from a cost perspective. But having said that, look, the company has got historically been following up a foreign exchange policy. So while the currency is appreciating, but we have got some very strong hedges going forward into the future. 2 is with this growth in capacity, then we operate leverage, that will significantly improve. And also, the sheer quality of demand where the innovative products are, let's say, this contributing to a larger share of our business, both the innovative as well as the branded business, which have better margin. So all these things put together, aided by, let's say, this, hopefully, this significantly reduced or eliminated losses coming from the flooring business. So -- and let's say, this is the continuing demand push coming from this homebody economy and the China plus 1 factor. So we believe that all these things, along with our ability to move these prices upwards with the customers. So we believe our business is still good to go for the kind of margins that we've been promising over the last several years, which is, let's say, this 20% or thereabouts, so plus/minus a couple of points here and there.

Sir, thank you. That answers my first question. Second question is largely on the Advanced Textile portion. So you've deferred a part of it. Could you just help us understand what part of it is deferred and why? And how -- will it definitely come back into the system maybe in FY '23 or beyond or it is deferred for good? Any reason for that?

So look, so we have been -- if you have looked at this our net debt profile, so this over the last 5 or 6 years, we have tried to remain a free cash flow plus company and this year, in fact, this significant amount of debt is getting reduced. So we believe that the part. So what first thing is what we are deferring is the cotton bleaching project which was a part of the advance textile business. So we are deferring that out. But with no immediate strategic impact on the business. So what we've decided to do is wait for this capital expenditure for some more time. And in the meanwhile, we will source this bleach cotton from the outside. And we need to use this bleach cotton for our spunlacing business. So instead of producing it, this will source it from outside, build up the business, and this bring back the investment at an appropriate time. And in the meanwhile, this calibrates the capital expenditure in the way that this -- we continue to remain this cash -- free cash flow positive and also continue to reduce the debt in the company.

Okay. Understood. So it was a cost reduction measure, which you have postponed for some time. Okay.

Yes. And very honestly, look, the business is in very good health right now. And so this -- the margins will continue this for the moment with or without the bleach cotton this our own producing of bleach cotton. So we will continue to have robust margins. So we just want to defer it out for some time, and we can live without it, and there's no, let's say, this immediate strategic impact to our business.

So understood, sir. Market capture versus this vertical integration. So market capture makes sense.

Correct. Correct.

Next question is from the line of Ankit Gor from Systematix.

Sir, I'm just trying to understand a broad breakup between soft and hard flooring because despite rise in PVC resin prices, we have done really well on the EBITDA margin front, EBITDA -- absolute EBITDA front. So still, there is a lesser loss or probably loss on that front. So -- and going ahead, how do you see this trends out? Will it impact us or will not -- it will not? That's my first question.

Look, this I can't answer your question. If you ask me what is going to happen in the next quarter. But what I can say is see these are global movement and in costs. So the cotton or, let's say, the PVC, it just doesn't impact us as a company. This is a global commodity. It impacts every single, let's say, this supplier factory in the world. And when things like these happen, there is this tendency to -- for all these costs to get passed on to the customers. So we believe that we will be able to pass this on. Yes, this on a given quarter, I don't believe there is much impact that has come in the December quarter. There might be some impact in the quarters going forward. But right now, the capacity ramp-up is happening so significantly that it'll perhaps get mitigated by, let's say, this much higher operating leverages. But the business is good enough boss for us this to -- for us to say that this over a period of 4, 5 years, we'll build a INR 2,000 crore business. And the margin profile will be similar to the Home Textile business. And then we have already started let's say, passing on our cost increases to our clients. There will be some orders in the system at old prices, which -- where we might need to take some hit and which we will so -- and we are an honorable company. We will honor every single commitment that we have made. But we have the confidence to pass on, let's say, all these cost increases to our clients, and we are already passing them on and with most of them, we've also gotten price increases with some fully with some not so -- not as much as we would desire. We will this bring those price changes about in more than 1 tranche. So but everybody's receptive. Look, these cost increases have been so disruptive in the recent past, but there's no way that you don't pass on cost increases like this to client. So we believe and we are confident enough, and we've done enough conversations with our clients also on the flooring business to understand that we will be able to move them on. Yes, 1 or 2 quarters here and there. But this, we will definitely pass these things on to our clients. And look, this we are still new to the business. So there's still a lot of product improvements that will happen. There will still be a lot of innovation that will come about in the business. And in the future, they will all go to contribute, let's say, this better margins in the business. So look, you look at our Home Textile business, the HygroCotton came let's say, this almost 15 years after we were -- we got into the business. But we learned from it. And once that came, let's say, the margin started improving. And likewise, in this business, now, we have, let's say, this is a much more matured company as Welspun India. So we have kick started our innovation process even before we started our plant. And we will see over the next 2, 3, 4 years that some incredible products will get rolled out of our flooring business as well. And as you mature as a business, so if you get to the middle end of the market to the upper end of the market, and that starts driving this better margins in the future. But 1 thing at a time. Right now, it's about gaining market share and passing on cost increases. So the next 12 months will be about that. And then, let's say, this -- the improved -- margin improvement tickers will start flowing in as we mature as a flooring business.

My second and last question would be, sir, we announced some debottlenecking of about INR 225 crores. So it's phenomenal to see that this will give us about 5.5x of set in, since it is a debottlenecking. When there will be a need of sizable CapEx in our Home Textile business, for example, setting up a 30 million, 40 million meters capacity in a bedsheet or something like that, sir. Will there be any pressing need or for the next 2, 3 years, you will see some debottlenecking and will it continue to do in the business?

So look, this -- so right now, we believe we are doing enough for us that we need, at least for the next financial. And beyond that, also, for example, we are significantly growing the Rugs capacity and we are significantly growing our Bed Linen capacity also. Towels is about 7%, 8%. But then, let's say, we have -- we are sitting on a huge capacity there. And what we don't want to do is this invest in capacities and then wait for the business to come. You know this over the last 4, 5 years, we have not done that. And we will not do that this going forward in the future as well. So we'll build capacities as we need them. And look, this we have 2 sizable sites in operation, both in Vapi as well as Anjar. So now nothing greenfield needs to get done for our Home Textile business, and they will be, let's say, this debottlenecking, so on and so forth. So this -- and as I said, this, we will continue to calibrate our capital expenditure and calibrated to the needs of the business and the requirements of the business. But we do believe that right now, what we are doing should be enough. And this -- and we'll see as things go by. And this market dynamics change, nobody anticipated where this cotton prices will move the way they are moving now that the yarn prices will move the way they have moved now. So -- and we believe that whatever these yarn price movements are not going to sustain. So they will come back to normal levels over the next few months. But if they don't, so you have to take -- as a company you have to react, and you have to do the right things to protect your margins and to protect your business for future insulation. But right now, we believe that what we are doing is enough and this -- hopefully, this should stand us in good stead for the next coming year. And we'll keep coming back to you quarter-on-quarter if there are major changes in our thought process. But right now, we believe we are doing enough.

Sir, one follow-up on this INR 1,200 crore revenue from this debottlenecking. It is expected to come in, in probably 1 year, 1.5 years? Or what is the time line we should expect, sir, here?

Dipali will be -- Dipali, you want to take that?

Yes. Yes, yes. Thank you, RM. So first of all, even to your point of the expansion that you spoke about, I'll just add on, our focus is on value-added products or brands and licenses. And also with joint partnerships with vendors ancillaries OMs, so that will actually give us that expense if we need that. And secondly, your question, what you spoke about, can you just repeat it? I'm sorry, I just missed it.

That debottlenecking, which we are expecting to do.

Yes. No, I think the debottlenecking...

Yes, Please, Dipali, please, sorry, go ahead.

So debottlenecking is something that we will be continuing to do. We'll be having partnerships that we can talk about. And the rest, I think we will continue to grow and focus on our brands actually. I think that's where we'll be working towards brands, innovation, licenses. And partnerships. I think that's our focus. So I think we will do that.

So -- yes, I will answer it will be more specifically. So for this plant, the expansion, the debottlenecking is being done in a phase manner. So the first part of this will -- the fruits of this will start coming in towards the end of the first quarter of next year. And towards post the second half towards September to the December quarter, we will be able to complete the entire project. So we'll be able to start getting the 100% fruits of this maybe towards the fourth quarter of next year. So if you ask me, on an annualized basis, the INR 1200 crores would really be FY '23. But next year, also, we will get a significant amount of this because this is happening in a manner where it starts getting implemented from the -- towards the end of the first quarter of next year itself. Does that answers your question?

Yes, in the towels and bed sheets, we will start taking it in the next 6 months itself. So it due to evolve in the next 1 year.

The towels and sheets is actually Q1 FY '22 already, and rugs is happening in 2 parts in Q2 and Q3.

Yes.

The next question is from the line of Pritesh Chheda from Lucky Investment.

Yes. I just want to check on the flooring side and the advanced material side. So advanced material, you have given the investment and the asset turn. Wanted to know what will be the margins at the peak revenue and when it will be achieved? And same way in flooring, what is our investments? And what is the asset turn in that business and the margins that you would achieve at the peak revenue?

Good. No, I'll take that, Sanjeev.

Yes.

So for the advanced materials, the margins are in line with our current business, and we are hoping that they'll continue to remain at those levels going forward in the future as well. Right now, of course, the margins are a little better. So we have the tailwind. But just over a period of time -- and we've been around for 5, 6 years. So this over a period of time, we have delivered margins, which are in line with our core business. So that's where it is likely to be. As I said, the business is doubling or more than doubling capacity on the spunlace side. And in FY '23 from INR 300 crore business, we should look like more like INR 600 crores or thereabouts. And this at peak utilization, this we should get to about INR 800 crores in revenue, but that could happen perhaps in FY '24 or maybe even '25. So INR 800 crores of revenue from the Advanced Textile business with the current -- this expansions that we are doing. On the flooring side, we are currently invested about slightly north of INR 1,000 crores. There's another INR 250-odd crores of CapEx that still remains, and we are spending that money as we need it. So on a INR 1,300 crores -- INR 1,200 crores, INR 1,300 crores kind of a CapEx, at full throttle, this will give us revenue in excess of INR 2,000 crores. And we believe this that we will get to those kinds of revenue levels over the next 4, 5 years. And at those levels, we will make, again, these margins in line with our current business and give us a 15% to 20% kind of return on capital employed. So that's where we started from. And this -- and we maintain that this as the business matures, so even the flooring business will look as our current Home Textile business is looking.

And at what level you should break even in the flooring business?

So our goal -- and we'll come back with more specifics towards the fourth quarter call, gentlemen. But look, we have -- I think this we are seeing now enough traction and positivity to say that back half of the next year, per quarter, we should be breaking even at EBITDA and hopefully, FY '23, we are looking to cash breakeven. So -- but we'll come back is a little more equipped to answer this question as we come into the fourth quarter earnings call. And by that time, this our budgets also would have been drawn up for the next year. So we will take more specifics about the next year and the years beyond as we come into the next earnings call.

Okay. And just lastly, the net working capital cycle. For the company should look like what number considering now all these 3 businesses would be existed?

Sanjeev, you want to take that?

Blended net working capital side?

Yes, yes, yes. So presently, we are at about 90 days. We believe that this could come down over the next 6 months because we are presently in the cotton season, so it's a little heightened but on an average, we would look at something like 80 days of working capital cycle, net working capital cycle. Impacts will be there, yes.

That's the annual year? That's the annual year-end, right?

Yes, absolutely.

This 80 days, will it look different when the flooring and the advanced material business starts increasing?

In fact maybe, so the net working capital in Advanced Textile is, is only negative and flooring also doesn't have a better -- that is very low. So it's actually -- as this business grows public net working capital in the same should improve.

The next question is from the line of Aman Sonthalia from AK Securities.

Sir, I have recently seen the presentation of Trident and attended the con call also in the count. They are quite bullish on fashion and institutional bedding, and they are -- over the next 5 years, they are projecting a very high turnover for the company. So we are also looking for that in that business?

Dipali?

Yes. You're talking about institutional business?

Yes. Institutional and fashion bedding.

In fashion beddings and all.

So I'll just give you a perspective on what Welspun India's focus is on that. So for us, if I -- we spoke about Martha Stewart, and we talked about Scott Living. So these are the brands that are definitely going to have an impetus on a fashion bedding. As you know that when there are brands, the sales of the fashion bedding definitely has a thrust on. Basic bedding will be ruled by our complete vertical integration because with our [ fairytale ] wedding in-house with a technical textile and our innovative products and fabrics. That will enable us to do basic bedding. So in short, we definitely have a thrust. And we have -- we are powered by our brand licenses and our innovations that will give us that growth there.

And madam, how big the opportunity is because of China going forward in the Home Textile and this fashion and institution bedding type side of the business?

So China definitely actually has a bigger majority in microfiber and the CVC. Cotton is India's area of growth. So definitely for basic -- for bedding and you know CVC is something that we see as an opportunity. So that's where the growth could come in, actually. But it has to be really competitive. So let's see how that share comes in here, but yes, definitely, that becomes a big opportunity for India and also for Welspun because we are completely vertically integrated in what we do.

And going forward, madam, whether we should go for only forward integration or we should go for both backward and forward integration?

So if I talk about Welspun India, what has held us together in terms of strength and what we are is our vertical integration from farm to shelf, from cotton to spinning to the whole process. I think that's where we've had the strength. But going forward, now with the brands and our portfolio coming in, we definitely would also be looking at partnerships. That could be also a combination with the vertical integration and the front integration as well.

Okay. And madam, because of this rise in yarn and cotton prices, over the next 2, 3 quarters, how much margin pressure we can see in the Home Textile business?

So as we've already spoken about it, definitely, the cotton and yarn are looking steeper. So -- and freight, of course, I mean, these all are the commodities have all gone by or not, including freight. So definitely, there -- the margins will be under pressure. But of course, we go with the price indexing model to our customers and share wherever the gaps are, and they definitely get addressed. So that's the way it is going to be. And in short, yes, the margins will definitely be under pressure. But yes, we have an opportunity to share that with our customers as well.

Ladies and gentlemen, due to time constraints, that was the last question for today. I would now like to hand the conference over to Ms. Dipali Goenka for closing comments.

So first of all, I want to thank everybody here for being here in Welspun India's earnings. The company, I just want to just end it by saying that the company remains committed in its long-term aspiration of delivering sustainable and profitable volume-led growth and the robust growth in core Home Textile. Domestic business looks very, very strong. Growth and innovation, e-commerce is a way forward, and we'll see a double-digit growth there. Flooring is coming on track and Advanced Textile sales will double FY '23, and our margins for FY '21 will be around 19% to 20%. . So thank you, everybody, for being here today.

Thank you.

Thank you. On behalf of Edelweiss Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.