Welspun Living Limited (514162) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Welspun India's Q4 FY '21 Earnings Conference Call hosted by Edelweiss Securities Limited. [Operator Instructions]Please note that this conference is being recorded. I now hand the conference over to Mr. Nihal Mahesh Jham from Edelweiss Securities Limited. Thank you, and over to you, sir.

Thank you, Steven. On behalf of Edelweiss, I would like to welcome you all for the Q4 FY '21 Earnings Call of Welspun India. From the management today, we have Mr. Rajesh Mandawewala, Managing Director; Ms. Dipali Goenka, CEO and joint MD; Mr. Sanjeev Sancheti, President, Finance and CFO; and Mr. Akhil Jindal, Group CFO. I would now like to hand over the call to Ms. Dipali Goenka for her opening remarks. Over to you, ma'am, and thank you.

Thank you, Nihal. A very warm welcome to all of you to Welspun India Quarter 4 FY '21 and FY '21 earnings conference call. I hope that you and your families are keeping well and taking adequate care. As we continue to sail through these unprecedented times, I believe that it is our spirit of we as one family that we help us -- that will help us emerge stronger than ever before. We're all in this together and at Welspun, we are leaving no stone unturned to help our employees fight this battle. I'm thankful to all of our colleagues for rising to this challenge and ensuring business continuity. These times will bring along new learnings and would shape us to emerge as a stronger and more resilient organization. The company remains committed in its long-term aspiration of delivering sustainable and profitable volume-led growth, building on strong brand equity and gradually driving and scaling up new pillars of growth. The global economy is exhibiting emerging signs of recovery as countries renewed their interest with growth, supported by monetary and fiscal stimulus. Economic activities remain uneven across countries and sectors with outlook varying from region to region. Let me discuss the key business highlights. And later, Sanjeev will cover the key financial highlights. We concluded the year on a positive note with Q4 year-on-year revenue and EBITDA growth of 31% and 21%, respectively. I'm delighted to report that in FY '21, we have delivered highest ever annual revenue with growth of 8% year-on-year. This has resulted in the highest ever bed linen, bath linen and rugs and carpet sales volume in a year. We are also very proud to state that the company has crossed $1 billion income for the first time. Recent U.S. economic indicators show that the economy is on firm footing and is expected to grow fastest in the other 3 decades. Vaccinations, economic stimulus payments and tax refunds are combining to provide a substantial increase in personal income and thus purchasing power. Increased spending intentions and comfort are resuming pre-pandemic behaviors, like shopping in stores, travel and family gatherings, is likely to translate into higher levels of household spending. Globally, the home body economy with focus on hygiene will continue to drive demand for home textiles. Big box retailers, supermarkets and marketplaces are expected to continue doing well across geographies. As you can see in our earnings presentation, during the year, under consideration, our home textile plants situated in Vapi and Anjar operated at more than peak capacities. The capital-light expansion at both the plants, which we had announced in Q3, is on track, and the benefits from this investment will start accruing in phases from Q2 FY '22. On the back of expanded capacity and with customer demand remaining to be buoyant, we believe we'll be able to grow our top line significantly over the next few years. During the quarter, we have partnered with leading European retailer for the textile blockchain globally. The challenge was not only to secure the supply of organic cotton without GMO, but also to enable the consumers to get the full visibility of entire supply chain. Welspun India has been named one of the best firms for data scientists to work for by Analytics India Magazine 2021. Innovation is an integral part of Welspun's DNA and the foundation on which our customer-centric solutions are built. We are adding sustainable product range and increasing product portfolio, keeping health and wellness in mind. Our innovation-driven approach has helped us to get 32 patented technology in various jurisdictions like India and Western Europe. Our innovation product sales during the year was INR 1,929 crores, registering a growth of 6% year-on-year and contributing 20% to the top line. Due to ideology, from farm to shelf, we partnered with the farming communities to provide access to the best agronomic practices and technologies to improve the quality and yield of organic cotton and [ DCi ]. We are encouraged by successful collaboration that we have formed with leading technology and [ global ] funding partners in this area. More than 12,000 farmers have benefited in FY '21, and we aim to reach 20,000 by FY '25. To give the furtherance to the company's initiatives towards sustainability, it has included all aspects of ESG, that is, environment, social and governance, and aligned it to its business strategies. The company's newly formed board, ESG Committee, will review the ESG activities progress and provide appropriate direction. We have refined our mid- and long-term goals to further strengthen on ambitious ESG strategy explained more elaborately in the earnings date. China's shares in the U.S. market continues to be under pressure. As for our textile data in the last 3 years, we have seen India's market share in towels and bed sheets increase by 4% and reach up to 42% and 53%, respectively. The pandemic has reshaped our world and more consumers have begun shopping online, increasing numbers and frequency. In U.S. alone, consumers spent more than $850 billion online in 2020, up 44% year-on-year as per industry data. Online spending represented about 21% of total retail sales as compared to 15% in the year prior. Our e-commerce business also witnessed similar trend and heightened demand, with growth of 84% year-on-year, contributing $34 million to the top line of FY '21. And the e-commerce channel is well set to cross $100 million by '22. Licensed brand brings to us new opportunity focus by opening up new channels and shelf space without cannibalizing our existing businesses. This business through licensed brands has enabled us to deepen our connect with consumers across markets and aspirational categories. Martha Stewart brand saw expansion in both online as well as off-line and has clocked the annual turnover of around $14 million in FY '21. And we continue to see strong performance in FY '22 with increased customer base. Prospects of Scott Living brand, which we have signed up during the year, also looks very promising. We expect annualized revenue from licensed brands to cross $100 million by FY '24. With surge in cotton and other input costs, we are witnessing pressure on margins, and we are seeking price increase from customers, which will reflect with a lag of 3 to 4 months. However, input prices [ as of late ] softened from its peak, and this should help reduce pressures in margins. Emerging businesses. The company continued to witness strong business momentum as the COVID impact on the consumer sentiment seemed to fade in the second half of this financial year. Domestic retail business again recorded a very strong revenue of INR 73 crores, growing by 77% year-on-year with positive EBITDA in quarter 4. Despite headwinds, we ended the year with 3,400 outlets in 66 towns for [indiscernible]. And we plan to be in 100 towns and 6,550-plus outlets with a distributor in every town we are present in. We've also added 22 towns and 307 outlets for brand spaces during this year. We are extremely enthused with the significant turnaround seen in the retail demand over the last few months, and it gives us confidence of crossing annualized revenue of INR 1,000 crores by FY '25. But the recent surge of COVID wave in India and government imposing localized lockdowns, we could see normal demand conditions returning with the delay of a quarter. The Advanced Textile website business saw commercial engagement with 2 large global MNCs for the hygiene segment. Demand for baby segment like wet wipes in domestic markets remain buoyant, while globally, the demand remains muted. Commercial activation of wet wipes at a large Japanese baby care giant, who are consistently growing in the Indian market, was also achieved in Q4. Industrial segment demand [ dipped off Q3 ], saw a correction in Q4, supported by growth in safety wear and special applications. Product development and pipeline for the commercialization remains healthy. Greenfield spun lace capacity addition project in Telangana is on course, and we expect commercial operations to commence from H2 FY '22. Revenue during the quarter from Advanced Textile business stood at INR 85 crores, registering 40% growth year-on-year. New disinfection wipes line at Anjar, an expansion of spun lace capacity at Telangana, could help this business achieve top line of over INR 600 crores by FY '23. In Q4, as the lockdown eased out in multiple international geographies, we have entirely booked in our flooring business, especially in hard flooring segment, with repeat orders with higher ticket size from our large clients from U.S. and Middle East regions. We received trial orders from regions like U.K. and Southeast Asia to show our capabilities and services for long-term association. We could also generate and supply trial orders for a few big clients of U.S. region. The company has a healthy pipeline of orders for the hard flooring segment. On the soft flooring side, business started taking shape with strong inquiries from U.S. and Middle East regions. The business added new clients with high ticket size to our pipeline for supplies; in quarter 1, FY '22 from Canada and Middle East regions; and positive to generate business from ROW regions in the latter part of the year. These geographies are expected to contribute significantly to the overall business going forward. Coming to our domestic flooring business. Q4 witnessed highest ever expansion of a retail footprint, adding 128 dealers to our channel. We concluded the year with a total of 572 dealers in our network across 192 towns and cities. Digital customer acquisition has been really going strong, clocking a robust 24% contribution to our month-on-month sales. During the quarter, we have continued adding business from a large list of marquee brands across both commercial and hospitality channels. Robust growth outlook for building materials segment in India for the near to long term also augurs well for growth of a product line. During the quarter, flooring business grew more than 3x year-on-year and contributed 5% to the top line in FY '21. During the quarter, flooring-branded business grew 90% year-on-year. With business looking very strong in the hard flooring segment and as soft flooring starting to gain traction, we are confident that we should be able to achieve EBITDA breakeven in the second half of '22 and breakeven during FY '23. Now I would like to hand over the call to Sanjeev to provide updates on financial numbers. Thank you so much.

Thank you, Dipali. Good afternoon, ladies and gentlemen. Many thanks for joining the Q4 and 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. Just to mention that from Q4, we have only started disseminating volume numbers for each of our businesses, but have also sent -- also shared granular statistics, which will help you track the company's progress with clear lens. I'm delighted to share that during the quarter, the company achieved highest ever sales volume in bath linen, bed linen and rugs and carpets. Bath linen sales volume grew by 19% Y-o-Y. Bed linen sales volume grew by 52% Y-o-Y. And rugs and carpets sales volume grew by 41% Y-o-Y. During Q4, the total income grew by 31% from INR 1,664 crores to INR 2,174 crores. And full year total income grew by 8% from INR 6,836 crores to INR 7,408 crores. EBITDA in Q4 grew by 21% to INR 358 crores versus INR 296 crores with an EBITDA margin of 16.5%. In FY '21, EBITDA margin grew by 8% to INR 1,420 crores versus INR 1,310 crores with an EBITDA margin of 19.2%. As you are aware, clients are not running in the initial period of the current financial year because of the government imposed lockdown on account of COVID. Further, the existing incentive scheme for export goods, RoSTCL was replaced by RoDTEP with effect from 1st of January 2021. However, the rates of RoDTEP are yet to be notified. And hence, we have not accrued any income on this account in Q4 FY '21. In spite of these, we have still been able to achieve revenue and EBITDA growth towards financial year 2020. Had COVID-induced shutdown not happened in the initial weeks of FY '21, we could have achieved double-digit top line growth. Higher minimum support prices and 10% basic custom duty on custom cotton imports have led to increase in cotton prices of around 30% Y-o-Y, with the prevailing second COVID wave, we expect cotton demand to drop and prices to stay stable or drop marginally. The increase in other expenses is mainly volume-linked expenses with stores and spares, dyes and chemicals, job work in part from increase in logistic costs due to global increase in thread rates as well as due to increase in volume. All around increase in input prices and global thread costs could keep the margins under pressure in the coming quarters. And hence, we have already started discussion with the key customers for price increase. Q4 profit after tax, after minority interest, stood at INR 130 crores, up 52% Y-o-Y. And FY '21 profit after tax, after minority interest, stood at INR 540 crores, up 6% Y-o-Y. FY '21 EPS stood at INR 5.37 versus INR 5.05 in the same period last year. We have been consistent in hedging a large portion of our exports and hence, our average exchange realization for this quarter has been a very healthy INR 60 -- INR 76.14 versus INR 74.08 in the corresponding quarter last year. The company has prepaid term loans of INR 374 crores as on March 31, 2021, along with other installments, which were due as on the year-end. The weighted average interest rate of loans prepaid was 8.48% per annum. Net debt of the company stood at INR 2,333 crores, a reduction of INR 629 crores over March 2020. Over the last 4 years, our net debt by equity has gone down to 0.64x as on March 31, 2021 versus 1.27x as on 31st March 2017, and there is a continuous improvement in ROC in spite of adding additional capacities in various businesses, which will yield significant cash flows in future. Net debt of the core business was reduced by INR 702 crores in the last 12 months. In FY '21, we have spent INR 453 crores in CapEx. In spite of investment in the growth businesses, net debt has remained below INR 2,400 crores as on 31st March 2021. Coming to segmental result. Q4 FY '21 Home textile revenue stood at INR 2,052 crores versus INR 1,585 crores during the same period last year, growing by 30% Y-o-Y. FY '21 Home textile revenues stood at INR 7,128 crores versus INR 6,663 crores during the same period last year, growing by 7% Y-o-Y. Q4 EBITDA margins stood at 18%, and FY '21 EBITDA margin stood at 20.9%. During the quarter, revenue from flooring business was INR 119 crores, up INR 182 crores Y-o-Y and 21% Q-on-Q. EBITDA loss reduced to INR 19 crores versus loss of INR 24 crores in Q3 FY '21. During the year, revenue from flooring business was INR 319 crores, up 265% Y-o-Y. EBITDA loss during the year was INR 100 crores versus loss of INR 142 crores in FY '20. In the flooring business, we are seeing improvement Q-on-Q, and we expect the top line of around INR 800 crores in FY '22. During the quarter, advanced textile business clocked revenue of INR 85 crores and in FY '21, clocked INR 309 crores, up 24% Y-o-Y. Emerging growth businesses, which includes branded business, e-com business, flooring and Advance Textile, cumulatively grew 87% Y-o-Y and contributed 15% to top line during the year. The Board of Directors at its meeting held today has approved buyback of equity shares of the company for an amount of INR 200 crores at a price of INR 1.20 per share. The promoters will be tendering only 70% of their eligibility under the buyback. Apart from this, the Board has also approved dividend of INR 0.15 per share. The company's outflow for the buyback and dividend would be INR 265 crores, which includes the tax outflow, and this is close to 50% payout against the policy of 25% payout. Further, the Board has also agreed to consider buyback options on a regular basis. The expansion projects of flooring, advanced textile and home textile businesses, which were in different stages of progress in FY '21, will get completed in FY '22. CapEx spend in FY '22 to complete these projects -- these projects is expected to be around INR 600 crores. In spite of the CapEx and higher outflow due to buyback and dividend, the company will continue to prepare the high-cost debt as evidenced over the last 2 financial years. Consequently, the net debt of the company is expected to be around INR 2,400 crores in March 2022. Since bulk of the CapEx is skewed towards the first half, the net debt could be higher than the guidance in the first 2 quarters. The net debt guidance is without considering incentive dues from Telangana government. The total due on this account would be around INR 200 crores by the end of FY '22, and any amount received on this account would further reduce the net debt. On the back of expanded capacities and with customer demand remaining to be buoyant, the company is well set to achieve a top line of INR 12,500 crores by FY '25, with a CAGR of over 14%. During this period, home textile business is expected to grow by over 10%, flooring business by over 50% and advanced textile by over 25%. The top line of the company is expected to grow upwards of 15% in FY '22, home textile over 10%, flooring over 125% and advanced textile, over 50%. Over the last few months, input costs have increased significantly. This, coupled with uncertainty on RoDTEP rates has put pressure on margins. In spite of these headwinds, 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 achieve annual EBITDA margin between 17% to 18% in FY '22, depending on the RoDTEP rates, which are yet to be notified. However, quarterly margin may vary depending on the cost between -- may vary depending upon the cost pressure and corresponding price revisions. We continue to remain focused on our strategic priorities in growth pillars. We continue to lay emphasis on our long-term goal of sustainable growth and profitability and deleveraging 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 Riddhesh Gandhi from Discovery Capital.

Congratulations on your numbers. Just a couple of questions. Any sense on when they expect to notify RoSTCL because it's slightly strange to be able to be running a couple of quarters and not knowing what your incentives are. And is there any expectations that you guys have internally on if it's going to be higher and/or lower than the earlier incentives?

Riddhesh, hope you are well. So this would -- for the obvious reason that we have are -- in a nearly lockdown situation, so things are actually working a little slower than all of us expected with the policymakers. Nonetheless, through our industry associations, we have been actively engaged with them. Our expectation is for the RoDTEP rates to be between 2% and 4%. And so let's hope, hopefully, over the next 45 days, or at least before the first quarter earnings are announced, that we should have clarity on this. But indications are between 2% and 4%. And also, I think this will have to wait and see, this -- how the exact numbers pan out. But these are the indications that we get as an industry.

And how much was it earlier? It was about 6%, 6.5% [indiscernible]?

Yes, yes, yes. The product is a little different because like different product to product, but yes, it was around 6%.

And so the numbers this quarter, effectively, you haven't included any of these incentives and still been able to do a 20%-plus margin?

Yes, yes. The March quarter results, there is no RoDTEP incentive. So since the rates have not been announced, as a prudent accounting practice, we have not taken credit of anything.

Got it. And so in the event that they are slightly lower and given where the RM prices and the transportation prices are, et cetera, would you -- would it be possible to pass on some of this to the customers? Or they would say that already the profit margins are reasonably high despite not having it and therefore, it being harder to actually pass on to the customers?

Dipali, please?

So, usually, the practices of the commodity pricing that we pass on, and that's where it is. So the RoDTEP doesn't get passed on. But the whole commodity definitely is a conversation. And that already is happening. And we have seen a steep price in cotton and yarn and the other commodities as well. So that conversation is on. And as we shared, we definitely would be looking at price increase coming in the latter, in the kind of 3 to 4 months.

And this is actually the last question, is that we've obviously seen a reasonable amount of, I mean, tailwinds as you had indicated because of the work from home. Are you continuing to see the same level of orders, et cetera, given that America is actually opening up now? Or has that slowed down in any way? And how should we be looking at it over the next few years?

So I'll just tell you a few things here. I think COVID -- post COVID the world has changed. I think we all know that it's never going to be 100% office going to be a trend. People will be still working from home. And the home will be the place where people will be continuing to work. And we see that happening this year absolutely very, very strongly. And next year, too, it will be not to the extent this year, but practically to the extent of 60% to 70%. So this is -- the home will be an integral part of people's lives more and more so, actually. I mean, we have seen the homebody economy grow up dramatically, I mean, to the extent of 30% to 40% more this year.

The next question is from the line of Kaustubh Pawaskar from Sharekhan by BNP Paribas.

Yes. My question is again on the home textile business. So if you consider this quarter, the growth was very robust. It was around 35%. And we have seen a good year considering the fact that first quarter was [ loss at date ]. So now things are opening up in your -- as you said that even markets are opening, people would start visiting the retail shop. So in practice, don't you think 10% growth in the home textile assumption is a little conservative?

I think we are looking at these complete years at a view. And we are very comfortable with 10% on the base of around what we have achieved, over INR 7,000 crores. So I think it is pretty robust. And I think we have taken quite an aggressive target here. And we even actually saw a growth in bath linen, bed linen and rugs and carpets. Rugs will also see a very big upside here, and also so will our fashion bedding and TOB since our brand mix will increase. And so will in our e-commerce mix because less -- I mean digitization has accelerated tremendously. So we will see a mega impact in there as well.

And congratulations that you have, again, [ year-on-year ] panel with one of your most important clients. So with that, what exactly are the current deal structure with the new plant? What kind of revenues you are expecting? Because if we consider FY '16, these revenues were around INR 460 crores if we consider 10% of the business. So what kind of revenues you are expecting from the [ retail element ]?

So I'll tell you one thing. We have continued to do well this year also. And I think with the product mix that we have, we definitely are confident to achieve our numbers. So far as this retail -- so far as you talked about, I think I'm just actually going to just say, fundamentally, we have complied with our statutory disclosure requirements. So I cannot say anything further at this stage. So that's where I rest my case to date.

The next question is from the line of Resham Jain from DSP Investment Managers.

So just a couple of questions. So first is when we look at the U.S. retail market per se, we are consistently keep hearing the news on more and more retailers getting impacted and more store closures and all. From that perspective, obviously, we have grown in the last year, maybe a few of the large retailers. How do you see the retail environment in U.S. panning out with whatever we have seen in the last 1 year, specifically?

So I think I'll tell you -- I'll give you an insight. Definitely, the departmental stores have been challenged, and they have been struggling. But the big box retailers, mass retailers, discounters have grown. And I think if you would have seen our deck, e-commerce would be something that we have seen a massive upside. Massive digitization acceleration has happened in U.S., and that's where we see our mega upside happening. And it's going to be contributed by our brands like Martha Stewart, Scott Living, online and off-line, and also our D2C brands like Welspun and Welhome. So definitely, we see a very, very big potential there. And we see a robust growth that side.

Okay. So no major impact because of some of the departmental stores not doing that well. Obviously, this year, we have not seen any impact. But no major impact [indiscernible]?

Absolutely. Absolutely. We'll see the impact is on the mass retailers, big box, e-commerce players. And more and more focus on the online and omnichannel, for sure, and a focus on brands. Because if you look at the highlights, I mean, 84% growth on e-commerce, 21% year-on-year growth on brand business and 6% growth on innovation. I think that's going to be the way forward for Welspun India because it gets different channels of growth.

Yes. Okay. And just 1 final question on financials. Over the last 2 quarters, the interest cost has almost more than doubled actually, INR 36 crores to INR 64 crores. You mentioned something on interest subsidy not being received from Telangana government. Is that the only reason? Or is there anything else? Because your interest cost, which was anywhere between, whatever it -- 4%, 5%, it's moved to almost like 7.5% now. [ Just a few thoughts on that ].

I will take the question. And thanks for asking. Yes. So basically, if you look at, there are 2 reasons for this increase in cost. One is that, if you would remember in the last call -- in the last quarter, we had redeemed preference shares of one of our subsidiary companies, which is the [indiscernible] company. And there is an accounting impact when the ending happens. Because we redeemed it before the due -- I mean we pre-redeemed it. And that had an impact of INR 16 crores. And then this quarter, we get subsidies, which is a part of -- well, a part of -- a large part of that is the interest subsidy. Now some of these interest subsidies, based on our reassessment, we kind of wrote off about INR 12 crores to INR 13 crores of that subsidy. So overall, these 2 are the major reasons. And third thing is, when you compare it with last year, last year's flooring business was -- what just started and now this -- and the interest were getting capitalized. And this year, they are not getting capitalized because the flooring business has started the business operations. So that also is about a INR 10 crores of impact. So all put together, this is an impact which is impacting the increase. But the core business, the core business interests have actually gone down significantly. So there are 2 onetime exceptional item of almost about INR 28 crores, which has caused this variance. I hope I'm able to answer your query.

Yes. And all that impact has come in this quarter, is it? Quarter 4?

No, no. Two quarters, this quarter and the previous quarter. So if you look at this quarter, this quarter, my interest cost, finance cost has only gone up INR 3 crores. It's an impact in the last 2 quarters, this quarter and the previous quarter, both together.

Well, because your overall gross borrowing has come down. Even if I adjust for INR 28 crores, you're -- the interest cost has gone up actually.

The borrowing -- we have prepaid significant loans in the end of the year, so that impact will come next year. But my borrowing cost, net borrowing cost, has gone up by only INR 20 crores for the full year. And as I said, that the last part of it is preference shares and reversal of the [ tough benefit ], which is INR 28 crores. And the whole year, if you look at it, INR 16 crores is the flooring business impact because it was getting capitalized last year through most of the year, and this is the reason why. And the core business, my textile business, if I remove this exceptional item, that actually have reduced my borrowing cost by INR 24 crores.

Okay. Understood, sir. Sir, so is there any risk on the interest subsidy, which we earlier promised from Telangana government?

No. So most -- so I think it's not -- there are no [ risk advantages on the ] Telangana government reversal. These are some old news. What happens is a very large amount of the subsidiaries that have received and some of them, very small amounts, have not received, so we just took a call there. But Telangana subsidiary, there is no risk. It's just the timing issue as to when we are going to get it. And because due to pandemic, I think the disbursement have been slow. And RRM may add more on that if he would like to.

Yes, yes. There's nothing beyond what Sanjeev said. So because, let's say, it's a new business. So from a process perspective also, there's work to be done. So the incentive will come, but for obvious reasons due to COVID, the government's, for the first half, half of the previous year and now again, so that the whole machineries involved fighting the situation. So we'll wait and see, it's a new state for us. Having said that, the monies are due to us. So there's no dispute on that. It's that from a timing perspective, this -- as and when -- when is it going to come. So I think things need to settle down, and this will have a fairer picture.

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

Congratulations to the entire management for excellent performance all around -- overall on the operational front as it is on the financial front. A few questions on the project and the guidance given. First, on the guidance for next year, operating margin guidance of 16% to 17%. Is it without assuming RoDTEP rates? Or have you factored in some RoDTEP rates in that? Because that will obviously impact overall margins. So just a clarification on the same.

The guidance we have given is 17% to 18%. What we have considered in the guidance is 2% RoDTEP.

2% RoDTEP, right. Okay. And I'm assuming in some guidance, you have already assumed some price hike from customers. So that would already be factored in, right?

Yes, some of it in bath linen, yes.

Yes. And does...

Because business continues to be in discussion with customers, and obviously, they were trying [ to optimize ].

Sure. Sure. Yes. Yes. I think your margin guidance looks conservative because already reported around 17-odd percent in quarter 4 and which includes RoDTEP of 0 and we are looking strong growth in affected growth anyway. But the conservative guidance is good enough [ for a start ]. Second question would be on the advanced textile business. What was the absolute number of advanced textile in FY '21? And what kind of operating margins we are at now in that business? I think INR 85 crores was quarter 4. So it's [indiscernible].

Yes, yes, yes. So we were north of INR 300 crores, Bhavin, and it was a good year for us last year for this -- for the business. And obviously, bulk of the revenues come from the health and hygiene side. So for obvious reasons, the business did well. We are going to -- we are in the middle of now expanding our spun lace capacities. Hopefully, by September, we should start our Telangana facility where the new spun lace line will come about. So from INR 300-odd crores, we should be looking north of INR 400 crores in the current year. And the business, of course, last year, there were tailwinds on the margin. So the margins will come back to where they were around the 20% mark. So the last 4 or 5 years, we have been around that margin level, and we'll continue to clock the same level of margins.

Sure, sir. And sir, last question. There have been press reports a couple of weeks back where EU is considering taking away the advantage enjoyed by Pakistan for imports of Pakistan garments into EU. So what are further developments? And what are you hearing? And will -- is EU a big opportunity for Indian home textiles? And well, what's your current EU component of overall sales? And what's our strategy for expanding our sales in new region for future years? As of now, I think there's a duty disadvantage of 9%. So what's the management hearing? And what's the view on that?

So I'll take this question. So in the policy or any kind of announcement, we really have no future takeaways right now, so there it is. However, for us, U.K. and Europe have shown very promising growth. And so definitely, and we continue to be a very prominent part of the shelf space of the retailer there. For example, for us, U.K. took in around 13% of the growth, and so did EU also grew tremendously as well. So we are pretty confident about the market share there. Because the contribution comes in strongly from innovation and the products that we gave in the portfolio of towel sheets, fashion bedding and rugs. So definitely, we'll continue to take on that share and grow.

The next question is from the line of Kirthi Jain from Sundaram Mutual Fund.

My question is with regard to the CapEx plan. What will be our CapEx plan for the next year, sir?

So I give guidance [ doing INR 100 crores ] there is no new project. These are all completion of the existing projects we have announced during the course of last year, which is the completion of the balance portion of the flooring business that sell capacity increase, which will get commissioned in H2, early H2. And the home textile, it's the capital-light expansion which we announced last quarter.

Sir, then with regard to this PLI scheme, the production-linked incentive scheme which is going to come. Anything we will be able to participate in that scheme, sir?

No, it's not this relevant to us. And this for greenfield anyways. It is not such a big -- this incentive. So this -- we will not be participating in the PLI scheme. Because with PLI, as we understand it, things like RoDTEP and all have to be foregone. So it doesn't make this any merit for us to go into PLI. So I'm afraid we will have no advantage of that.

Okay. Sir, given the low rates of our debt, which we are projecting, so the duty on imported cotton should not be an issue, right, sir, given that broad debt is 2% and if we use duty-free license, we will get 0%? So imported cotton should not be issue, right, sir? That central government has put a duty?

Yes, yes, yes. Look, there's any bump this -- when you pay duty, it is worse than not paying duty, right? So having said that, the margin guidance that we have given has factored all that into account. So -- and at the company, we make sure that on transaction to transaction, whatever is beneficial, whether it is advanced licensing or drawbacks, so we take this transaction to transaction call and accordingly try and optimize it. So the guidance is taking cognizance of that as well.

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

So my question is regarding target. So can you talk about in the past, we have a 10% of the overall business. And whatever the business we lost after the signing, can we -- how many years it will take to reach that level?

I think we've said enough right now. And I mean I can again just repeat that we'll not be able to share any further comments on this. We've already complied with the disclosure requirements. So that is it right now from our end.

Okay. Now talking about the license brand, we are targeting next 2 to 3 years of USD 100 million, right? So the current existing brand, whatever license we have, are we getting more license brand to reach that level or existing brand is going to reach USD 100 million level in just 2 to 3 years?

So I tell you, like when we talk about Martha Stewart, the licensed brand, this year, we did around $14 million. We would have actually done $27 million. But because of the whole logistics issue, we couldn't achieve that number in March. So our forecast for Martha itself is very robust for next year. It's over $37 million, $40 million. Then you have another portfolio of Scott Living, which again will be another $10 million, $15 million. And above all, we also have our portfolio of our D2C brands, Welspun and Welhome Basics and Christi living as well, which is also contributing very, very strongly to this. And definitely, there are some opportunities we are considering in more licensing opportunities. That will be also a very important part of this $100 million. We are very confident of achieving these numbers.

So currently, what we are as talking about the, key growth driver, that we have a B2B, now we have a D2C own brand, then years of targeting license brands, the third pillar. The first one, we were targeting earlier the hospitality and all. So can you talk about the -- overall, the margin dynamics of inching into license brand and increasing D2C contribution? Is the -- how the margin dynamics going forward?

So I must just share that when you talk about brands, the margins will definitely be better. It also gives us the shelf space in not just the existing retailers, but different retailers as well. And so that's where we have seen our growth happening. So our margin guidance will be stronger and our mix will be better because more brand mix, more D2C brands, like what we are talking about, Welspun and Welhome. Christy, which also is a digital brand in the portfolio mix which actually has shown a very tremendous impactive this year actually. So definitely, the mix will be very, very strong here. And we definitely will see an upside in that.

So the last one, can you talk about the competitive landscape of the home textile currently?

Can you come back again? I didn't get your question.

Can you talk about the competitive landscape of home textile industry?

You're talking the competitive landscape?

Yes. I would say how the other countries and -- are competing with China and how we are gaining market share, the outlook on that.

So I think we definitely are seeing China under pressure. And new textile data has shown that India has definitely taken some shares, and we have seen around a growth of around 2% or 3% this year in both the categories, towels and sheets. So that has something -- definitely have -- we can see that. However, if I look at India as a position, we definitely are strong in our cotton supply chain. And we see India in a right position and very robust in the terms of our kind of a promise going forward. Pakistan, Bangladesh and Vietnam definitely are there in the opening price points. But India will take the share in the middle to the upper price points, for sure.

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

Congratulations on a very strong set of FY '21. Just a couple of questions from my end. One, in your branded business, the $100 million franchise that you're trying to build. What would be the realization difference there versus your maybe B2B business, net of licenses royalty? That's number one. And the second, we heard something about some Xinjiang, China cotton ban. So does it impact home textiles as much? Or is it only restricted to fashion industry? And are there any implications for it for Indian exporters and exporters other than China?

Yes. So I'll take the branded question first. So definitely, our prospects are better. And I can tell you, when we talk about branded business, the margins definitely are better. And they -- since right now, it's $100 million, so definitely, the contribution to our product mix and the volume will be that much only that we are talking about. But I can say that it looks very, very promising to us. And when you talk about Xinjiang cotton, it's not just about apparel. I think Xinjiang actually is -- contribute around 20% of the supply chain of China. And what it did actually, it laid stress on the whole supply chain of yarn. And that you can see in the price upside that we see right now in the commodities. So definitely, that has actually created a pressure on the whole supply chain as well.

Okay. Ma'am, can you probably give some sort of sense, numerical or quantitative sense, in terms of how -- what will be the gross margin differential between branded and B2B?

It'll be around -- you know what? I actually can't give you a consolidated thing right now. But it definitely is upside of around 10% to 15% from the regular B2B.

The next question is from the line of [ Aejas Lakhani ] from Unifi Capital.

So congratulations to the management and kudos to you for putting out the ESG data, that extremely helpful side to that. A couple of questions.

Mr. Lakhani, if you can take the phone off speaker, please.

Just a second. Is this better?

Yes, sir.

Yes. So my first question is that if you look at the increase in the home textile that year-on-year, that growth has been 7%, but the capital employed has gone up by almost 17%. Could you explain me the aberration?

Sanjeev?

Can you please repeat the question?

Yes. Sir, basically, if you look at your capital employed in the home textile segment, your assets less liabilities, there has been an absolute increase of close to INR 500 crores in that home textile business. If you look at the Y-o-Y increase in the capital employed, it's been 17%, whereas sales has increased by 7%. Could you explain me why that has happened?

Let me just check this.

In the meanwhile, may I ask my next question?

Yes, please. No, let me address this. Let me address this. So this, as you would know, we have this the first quarter. Because of the lockdown situation, the revenues were not adequate. So we lost not only revenue, we lost these margins as well. So because of the inadequacy of that, these numbers look slightly different. And this better way of looking that would perhaps be the last quarter or maybe the second half of the year, where this business operations were restored, and you will see healthier numbers there.

Noted. Second, sir, could you tell me what are the distribution channels for the flooring business? And are they more different for the soft and hard flooring? And would it significantly differ for the textile business?

Yes, yes, yes. So the channel is different. And the dealerships that we are setting up, these are kind of 300-, 400-square foot stores within stores who sell these stone products and the ceramic products. So these are different dealers. And also, just as we are setting up our own gateways, showrooms, as you might want to call them, about 1,200 square foot to about 1,800 square foot each. So they sell a little differently than home textiles. But our intent over this current year is to actually bring out some synergy and make a consolidated offer and just be more meaningful and more holistic to our customers, particularly on the digital side. So we are very enthused with the digital response to our flooring business. And so we want to leverage that engagement with the digital customer who actually just put forward a very comprehensive whole home offer. And mind you this with the flooring business, we have a huge connect with the interior designers, architects and designers. So we want to leverage that and as I said, put up a comprehensive all softened, this flooring -- soft home as well as flooring offer together. So we'll be attempting that, and we are very excited with it. So we'll be attempting that in the current year.

Got it. And sir, one last thing is that if you look at your total subsidy income, which is the VAT as well as the scheme income, that was [ INR 66 crores ] in FY '20. Could you share what is that equivalent number for FY -- for the 9 months of FY '21?

Very difficult to bring it out this online here. So you might as well connect with Sanjeev off-line, and he will be happy to address that, yes.

Yes, I'll do that. I'll do that.

We can take it off-line, yes.

Yes so. And one last follow-up, sir. The scheme was roughly 7% of our sales. That, you have mentioned, is going to now come down to anywhere between 2% to 4%, right? Is that understanding correct?

Yes. So it is around 6%. What -- until December, it was around 6%. So yes, that will go down to 2% to 4%.

Thank you. I would now like to hand the conference back to the management for closing comments.

So I would really thank each one of you to be here, and thank you. Thank you, everyone, and stay safe. And thank you, Edelweiss, as well.

Thank you.