Welspun Living Limited (514162) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Welspun India Q2 FY '22 Conference Call hosted by Edelweiss Securities Limited. Before we proceed to the call, let me remind you that the discussion may contain forward-looking statements that may involve known or unknown risks, uncertainties, and other factors. It must be viewed in conjunction with our business risk that could cause further result performance or achievement to differ significantly from what it expressed or implied by such forward-looking statements. [Operator Instructions] I now hand the conference over to Mr. Nihal Mahesh Jham from Edelweiss Securities. Thank you, and over to you, sir.

Yes. Thank you, Bilal, and good evening. I would like to welcome you all to the Q2 FY '22 results update for Welspun India. From the management today, we have Mr. Rajesh Mandawewala, Managing Director; Ms. Dipali Goenka, CEO and Joint MD; Mr. Sanjay Gupta, Chief Financial Officer; 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. Thank you, Nihal. Good afternoon, ladies and gentlemen. I would like to welcome you all to our quarter 2 H1 FY '22 results conference, and thank you for taking the time out in joining us here today. On demand side, we continue to witness highest ever global growth across geographies with increasing consumer spending. Both the U.S. and the Eurozone have grown in high double digits. On the back of increasing consumption levels. In the backdrop of this, we continue to see unprecedented levels of order flows, way above the pre-pandemic level, indicating a continued global recovery. We recorded our highest quarterly revenues at INR 2,501 crores at a growth of 26% year-on-year and 12% quarter-on-quarter and highest half yearly revenues at INR 4,728 crores at a growth of 47% year-on-year. Compared to pre-pandemic levels of H1 FY '20 revenues of INR 3,568 crores. Revenues are up by 33% in H1 FY '22. On export sales, grew by 28% year-on-year and 16% quarter-on-quarter as demand for home textiles continues to be buoyant due to growth trend driven by homebody economy, continued increase in online spending and focus on environment-friendly products. The structural shift in retailer sourcing strategy has resulted in exports from India growing to 44% in towels and 59% in sheets as compared to 42% and 51%, respectively, a year back. I'm proud to share that today, every fourth towel and every seventh sheet sold in the U.S. now is being made by Welspun. We're also delighted to share that in the list of top 13 towels published by Ideal Home, U.K., Christy towels top the list and accompanied by 4 other Welspun made towels. This resilient business performance has, however, been accompanied by sequentially increasing commodity price inflation and logistical challenges. Supply chain constraints are still throttling back manufacturing activity worldwide. . Additionally, we are seeing increased cost pressures due to commodity price increases, be it cotton, coal for energy, crude oil-based products or dyes and chemicals. With cotton prices touching a 10-year high level in October, coal prices moving from about $55 to more than $170, increasing threefold on year-on-year basis, surging of warehousing costs and increased supply chain lead time of 60 to 90 days has now had an adverse impact on our revenues and profitability. We have started receiving the first tranche of price increase in the past few months, which has offset the cost pressures partially. Our discussions for second round of price increases are underway as the commodities play havoc. We are hopeful of getting the increase, but it will still have a time lag of a couple of quarters. We are, however, continuing to focus on our growth strategy through our innovation products, B2C initiatives, in brands and e-commerce and emerging businesses on one hand and continue our commitment towards ESG and sustainable growth on the other. Overall, our B2C and emerging businesses grew 45% year-on-year and contributed 22% to our quarterly revenue. Innovation, during the quarter, we launched one of the largest traceability and ESG transparency rollouts in the textile industry with Wel-Trak 2.0 which would help all stakeholders to track raw materials throughout the supply chain back to its original through blockchain and AI-based technology. We have started capturing major ESG-related data points, including water usage, fair pay, power consumption, gender equality among others, to further our ESG agenda. World Economic Forum selected Welspun as 1 top 100 global corporate ready social enterprise. We received a Clarivate Innovation Award for the second year in row, only textile company to do so. We have been recognized an ET-Futurescape as 1 of the top 100 companies in India for sustainability and CSR. Our innovation product sales during the quarter were INR 573 crores, registering a growth of 52% year-on-year and contributing 26% of the sales. Welspun will continue to differentiate itself with more and more innovation products offering in future quarters. B2C brands and e-commerce. Our B2C portfolio continues to strengthen with following specific highlights. Successful launch of 2 brands in the U.S. in the second quarter, Welspun Basics and Martha Stewart everyday across marketplace and omnichannel retailers. Amazon recognized Welspun amongst top 5 players in home textile category during the prime day in U.S. where the towels ranked 1 and 3. We saw about 1 billion impressions in Amazon U.S. in H1 FY '22 with 150,000 unique customers. In U.K. with 100 million impressions, 1.2 million traffic and about 1 million unique users we are today seeing about 17% of these customers, which bears testimony to the brand pool, Christy has been able to create. Our e-commerce and branded business at INR 356 crores, grew by over 42% year-on-year and 19% quarter-on-quarter, accounting for 14% of our revenues. We are committed to grow both e-commerce and branded business to $100 million, each by FY '23 and '24, respectively. Domestic rating. It is a matter of great pride for Welspun that for Nielsen's recent retail audit, Welspun is now the highest distributed brand in its category in the country. Despite headwinds from the beginning of FY '22, brand Welspun was able to reach 200 cities, towns and 5,200 stores. We saw our domestic home textile reporting its highest ever quarterly revenues of INR 91 crores, up 104% year-on-year and 89% quarter-on-quarter. Basis the latest brand survey, we saw 100% growth in awareness from 6% to 12% and usage increased from 7% to 12% for Brand W. As [indiscernible] we are currently looking at over 15 crore monthly impressions on the back of live outdoor campaigns in all leading cities across the country. Advanced Textile. Our Advanced Textile business revenue during the quarter stood at INR 67 crores, registering growth of 8% quarter-on-quarter. Spunlace business continued to face challenges in consuming market owing to overstocking and logistical issues. However, the business or gains in [indiscernible] segment. We have commenced sheet [ mask sales ] for a leading wellness brand in India. The industrial filtration demand continued to be strong in quarter 2. During the quarter, we became one of the first Indian companies to receive U.S. FDA approval for its 3-ply surgical masks. Upon this cause, Capacity at Telangana is underway and is expected to start commercial production by Q4 FY '22. Flooring business. Overall, Flooring business stood at INR 160 crores in quarter 2 FY '22, growing by 107% year-on-year, and 32% quarter-on-quarter and contributing 6.5% to the top line. With the ease of COVID-induced restrictions in quarter 2, especially in U.S.A. and Middle East markets, we have started getting more traction and inquiries in SPC flooring business. Carpet tiles business is showing phenomenal improvement, and we are receiving large orders from U.K., Middle East, U.S.A., Canada and New Zealand, including repeat orders. The domestic flooring business has seen a healthy quarter-on-quarter recovery after the second wave impact in quarter 1 FY '22. Commercial and hospitality channels are witnessing a resurgence in inquiries. Added to this, the focus on residential channels would drive the growth in the coming quarters. Our first campaign on Click N Lock Tiles featuring Amitabh Bachchan has performed very well with a total reach of 10.1 million customers. With both of our home textile plants situated in Vapi and Anjar continue to operate at near full capacities of more than 95%. During the quarter, the incremental 7% duty capacity Anjar was operationalized with majority benefits to accrue with effect in the next quarter. As for the additional capacity expansion is underway. 20% enhancement in bedlinen should happen towards the end of quarter 3 FY '22. 80% in gross benefits should start accruing from Q4 FY '22 onwards and additional TT capacity of 46 metric tons per day being installed in Anjar will be operational by Q4 FY '23. Now I would like to hand over the call to Sanjay to provide the updates on financial numbers. Thank you. Over to you, Sanjay.

Thank you, Dipa. Good afternoon, ladies and gentlemen. Many thanks for joining the quarter 2 financial year '22 India earnings con call. I'll give a brief overview of the financial numbers for the quarter before we open for Q&A. I'm delighted to share that during quarter 2, the total income grew by 26% year-on-year and 18% quarter-on-quarter on a like-to-like basis, and it stood at our quarterly best at INR 2,501 crores. YTD first half revenue grew by 47% year-on-year to reach INR 4,728 crores. We earned EBITDA of INR 424 crores in quarter 2, growing by 5% year-on-year and 19% quarter-on-quarter on a like-to-like basis that is after adjusting for quarter 4 financial year '21 RoSCTL rebate of INR 105 crores accounted for in quarter 1 financial year '22. And the EBITDA margin stood at 17% as compared to like-to-like margin of 16.7% last quarter. YTD first half EBITDA stood at INR 884 crores, that is 18.7%, growing by 37% year-on-year. Pursuant to the scheme of remission of duties and taxes on exported products, RoDTEP, notified by Ministry of commerce and industries. The company has recognized the benefit of RoSCTL of INR 11.7 crores during the half year ended September 30, 2021, and the quarter ended September 20, '21. Out of which, INR 7.6 crores pertains to eligible export sales for the period from January 1, 2021 to June 30, 2021. We provide a 360-degree capabilities to our customers for logistical support, planning and stocking, specifically to our U.S. customers. As already mentioned by Dipali, we continue to face challenges on the logistics front, which also led to incurring higher costs. This had an impact on the revenue and EBITDA of the current quarter. These exceptional costs on higher freight leverage and inventory calling costs had an unfavorable EBITDA impact of 1.8% and YTD impact is 2%. Going forward, we don't see the situation easing. Had these onetime costs and provisions not hit us, EBITDA would have still been higher. Quarter 2 profit after tax after minority interest stood at INR 199 crores, up 11% year-on-year and 38% quarter-on-quarter on a like-to-like basis. Our consolidated EPS for quarter 2 stood at INR 2.01 as compared to INR 1.79 year-on-year, growing by 12%. First half financial year '22 EPS is INR 4.22 as compared to INR 2.28 last year, growing by 85% YTD. On the ForEx front, as a practice and as mandated by both, we continue to hedge about 65% of our future receivable currently. Our average exchange realization for this quarter was 75.83 versus 73.6 in the corresponding quarter last year. Net debt of the company stood at INR 2,537 crores, an increase of INR 157 crores over September '20 and INR 288 crores over June '21. We have, however, in hand over INR 310 crores of RoSCTL scripts receivable and still to be encashed. Along with this, we would have been lower in net debt position as in September '21. Coming to segmental results. Quarter 2 financial year '22 core business of home textile revenues stood at INR 2,375 crores versus INR 1,924 crores during the same period last year, growing by 23% year-on-year and 17% quarter-on-quarter on a like-to-like basis. YTD first half corresponding revenue was INR 4,503 crores, growing by 45%. Quarter 2 EBITDA home textile stood at INR 413 crores at 17.4% as compared to INR 375 crores like-to-like in Q1 at 18.6%, growing by 10%. Year-to-date, home textile EBITDA grew by 31% to reach INR 894 crores. EBITDA margin being 19.9%. During the quarter, Advanced Textile business clocked revenues of INR 67 crores, up 8% quarter-on-quarter. Demand has muted to some extent in advanced textile due to overstocking in buyers and high logistical costs, which is expected to continue in quarter 3. During the quarter, revenue from Flooring business were INR 160 crores, up 107% year-on-year and 32% quarter-on-quarter. YTD first half, flooring revenues were at INR 281 crores, up 174% year-on-year. EBITDA loss till first half is at INR 22 crores as compared to INR 56 crores last year. The business is also witnessing significant increase in input raw material costs and higher freight costs. But we are passing on the cost increase to the customers, which has a lag time of a couple of quarters. We are enthused with the growth momentum in the emerging businesses, and it reaffirms the confidence in our strategy. Emerging growth businesses, which include branded business, e-commerce business, flooring and advanced textile cumulatively grew by 45% year-on-year and contributed 22% to the top line during the quarter versus 19% contribution in the financial year '21. The expansion projects of flooring, advanced textile and home textile businesses, which were started last year are in different stages of progress, and they will get completed by end of financial year '22. CapEx spend in financial year '22 on projects is expected to be around INR 750 crores, out of which, INR 343 crores is already spent in the first half. We are now seeing an unprecedented cost inflation pressure from all commodities, as earlier mentioned by Dipali. Over the last 2 quarters, input costs have been increasing significantly and are expected to remain firm in the coming quarters. This, coupled with uncertainty on logistics and higher related costs have put further pressure on revenues and margins. However, we are confident of getting further price increases from our customers and restoring our operating margins, which may take a couple of quarters. With this, I'll leave to open the floor open for Q&A. Thank you.

[Operator Instructions] We have a first question from the line of Vikas Jain from Equirus Securities.

Sir, my first question, starting from your last point, as you mentioned that there is an unprecedented cost inflation that we are currently seeing. So 2 questions here. Could you quantify in major categories that is terry towels and bed linen, what is the percentage price hikes that you have taken? And what more that you need to take in order to like return back to earlier levels if any?

So I will just start. We are looking at a cotton price of all-time high, 10 years high. It is at landed 63,000. The coal prices are high up at $180. And dyes and chemicals are -- and the packaging is at 30% high. So definitely, the impact is in the tune of around 20%. As we spoke about that we've already had the first round of price increase in the earlier quarter. But we are going back to our customers for the second round of price increase. And we definitely will see that coming through. I wouldn't be able to quantify, but definitely, the customers are partnering with us. And we will be able to restore the margins whatever we have committed to the tune of 20% in the quarter 4 or later.

Sure, sure. Okay. Okay. And for the price hike that you have already taken any number that you can attach?

So look, this is a continuing process, and it is hard, let's say, to put a number to this. And to be honest, this commodity prices, if somebody was to tell me where cotton is going to stop or coal is going to stop this we could put a number to, let's say, the price increase. So right now, it's a dynamic scenario. As Dipali said, all the customers are receptive and there's a complete commitment from their side to partner. Look, when we get a tailwind on cost, our margins increase, and we get a couple of quarters of extra margin. So I'm afraid this will take some time to pass this on, but there is absolutely no doubt that this we will pass on all the cost increases. And it might take instead of 1, maybe 2 rounds for us to do that, but this will certainly restore our margins to our historic these levels of 20% or thereabouts. It might take us a quarter or 2, but we will get there, and we are getting good response from our customers. So there is absolutely no exception on that.

Sure, sure. And just for the number per se, if you can like break up the revenue growth that we got this quarter, what would be the volume growth and the realization growth of that?

Yes. So the volume growth would be about 60% to 65%, and the balance would be the rate increase.

Okay. And my last question is with respect to -- I'm sorry if I missed in the opening remarks, the reason for the rise in the net borrowings and your outlook on the same?

Okay. So the reason for it is we had a payout of buyback of shares and dividends during this quarter of about INR 265 crores. So that has increased the net debt. However, as I mentioned, we have over INR 310 crores of RoSCTL scripts receivable in hand. And that when in cash, will bring down the net debt to below June '21 level.

[Operator Instructions] The next question is from the line of Alpesh Thacker from Antique Stock Broking.

So first thing and congratulations for gaining market share in both the terry towels and bedsheet. So the first 1 -- first question is on that front only. So as we have already gained market share in the terry towel and bedsheet both categories. So just want to understand, is it because of increase in wallet share from the existing customers of ours? Or have we signed any new customers in that front? So just any color on that would be very helpful.

So I'll tell you 1 thing here. Thank you for this question. During the COVID time, the wallet share of home textiles increased to 13%. Usually, it is around 5% in the average circumstances. But now going towards where everybody is going towards health and wellness, it is moving to a wallet share of around 7% for sure. So that definitely is since the hybrid model is coming -- the homebody economy is growing. The hybrid model is what the corporates are encouraging. So people are staying more at -- they are working actually at home as well. So the home -- the share of home products is definitely going to rise. And that is going to be a part of it as well. For us, apart from that, as I spoke about, our licensed brands in the United States of America, like the Martha and the Scott and plus our D2C brands like Welspun that you launched and Christy in India. I think that is where we are seeing the share going up as well. So it's not just a private label. It is also the branded share that is also finding that wave. So just to sum it up, the homebody economy definitely is on the rise. It will be at 7% to the wallet share. Second is for Welspun, it is the branded share that is also going to be privy to the kind of increase in the share that we see because we're also getting a different shelf space apart from the existing shelf space of the retailers, along with that, the retailer.coms and the pure play as well.

Okay. Okay. That was helpful. And the second question from my end would be on the flooring business. So I just want to understand how much of our capacity is tied up to exports business currently? And have we added any client in this quarter, in that segment, both for soft and hard flooring, if you can give the breakup that would be helpful. That's it.

Rajesh. So yes, look, most of our revenues on the flooring side have come from the international business. And for obvious reasons, last quarter, this you saw a significant impact of COVID in India. And so there's a good traction there and both on the soft and hard flooring and exports are looking pretty robust for the company. And we also see that the China plus one is also playing out. And which on all sides, we have seen very robust demand on the flooring products. And to having said that, the domestic side is coming back now. So with opening up of everything in India. So this we are seeing now, this enthused with what is going on in the domestic market as well. So hopefully, this coming quarter or maybe quarter 4, we should see significant improvement in the domestic business as well.

Okay. Got it. Just 1 clarification on the longer-term side, like from 2, 3 years down the line. How does this -- how will this number look like segregation between the domestic versus exports in the floating business? Just a rough cut of ballpark either would work.

Pretty early stages. Look, we are invested in our plant. So our first goal is to use the capacity in the plant and get operating leverage. So if you ask me, the first 5 years will be heavy on exports as we build the domestic business, but the heart of the business is in the domestic market. And over a period of time, we see this settling down at half and half and it might take 5 years, it might take 7 years. But eventually, it will settle on to half and half, we believe we'll get a significant share of the domestic market as our channel this improves and our penetration improves and also the product is better understood through our communications by the customers.

The next question is from the line of Shaleen Kumar from UBS.

Yes. Just 1 question on global supply-demand scenario. So is there any disruption at the China export front because of the energy crisis?

Can you clarify? Shaleen, can you be more clearer, we couldn't hear you properly.

Can you hear me now? Can you hear me?

Yes. Yes.

Sorry for that. So I was just saying that because of this energy crisis in China, are you hearing anything in terms of the supply chain disruption at [ year end ]? Or if you're hearing anything or any sense you're getting from your customer. So just I'm trying to understand global supply-demand scenario.

So I think the global supply anywhere is disrupted regarding coal. I think everywhere, I mean, whether it's India or whether it's China, I think, everywhere. I think the whole thing is at play. I mean, we're seeing that whole supply chain disrupted from Australia to -- and so I think -- I mean, I would just say there is, and I think I will hold on this. I think definitely, there is a disruption. And definitely, coal is under pressure, hence the price increase. And the quality of coal is again also the issue.

We've heard some shutdowns in China and even in the textile segment as well. But the same wasn't there, at least in India, right? So probably the supply chain disruption would be more in China, actually, again, it's difficult to say because getting something out of China is difficult. So I wanted to get your views, if you're hearing anything -- general supply chain constraint specific to China.

I'm sure there is some impact. And the fact is that there is an impact out of India as well, but it is a little more out of China. Having said that -- so the real impact of it will be felt on the shell, perhaps a quarter or 2 down the road because there is this inventory in the pipeline. So we will know better in the next quarter or 2. But as of now, we don't see anything very significant, to be honest. And except that we are seeing very robust demand on our products and our company. So we can't do enough. And so we are seeing that. But to quantify the impact in China, it's too early and very honestly, because we don't have those specific information and nor are we specifically hearing a number from our clients as well.

[Operator Instructions] The next question is from the line of Rishabh Shah from Ares Capital.

I just want to understand, since given that home textile exporters are in a structural dream run for the next 3, 4 years, what are the major risk you see here? And if you could assign a probability of them occurring given everything has been going well for industries.

Okay. So this -- I'm afraid the risk is already surfaced. So it is the commodity prices, and it's been going on for a few quarters now. So it's been a relentless one-way traffic of this raw material energy prices going up. So that was -- that is the risk, and that will continue to remain the risk going forward. Having said that, look, we've been around for 25 years now, and we've seen the cycles before. And we have gone through it before. So we know that things have settled down. And finally, if these raw material prices are here to stay, we will pass down this whatever the negative effects on the margin, eventually, they'll get passed on to the customer. So they are all part of the business. And unfortunately, it impacts a quarter or 2, but eventually, they settle down. And as Dipali said, that all our customers are very, very supportive at this point of time, and they will continue to support our business. So we mitigate that risk as well.

And 1 more thing. Since cotton availability is a major more factor for India. And the last, I was just seeing the total production rate of cotton price has been in a mostly 350, 360 like base for the last 4, 5 years. And the cotton yield is among the lowest even comparing it to neighboring countries. So is there any on-ground happening to how to increase cotton yield because that is the main factor in competitiveness for home textile exporters. If you share any thoughts on this?

So look, India's yields on cotton are still half the global average, right? So we had at about 600, 650 kilos. Global average is at 1,200, 1,250. So there's still a long way to go. So I'm sure that with land reforms and a renewed focus from the government to improve yields over the next this 8, 10 years one should expect India to catch up to the global yield. So this I think crop in India, hopefully should grow, if not this anywhere else in the world. So -- and even now, let's say this our crop, we are surplus. So this -- whatever we grow, we are not consuming -- of the crop is getting exported. Likewise, it's about 20%, 25% of our yarns are getting exported. So I think from that perspective, while the supplies might tighten, but the India position looks pretty solid. And hopefully, for the next 8, 10 years, we should be okay.

The next question is from the line of Venkat Samala from Tata AMG.

Just 1 question from my side is that we are seeing a very good order book, right? And this is something that even some of your peers are reporting. So this could be, again, driven by confluence of actual rate. I think 1 point that Dipali did mention is that the wallet share towards home textiles is increasing and at the same time China plus one is also helping us sort of increase India's market share. So among the 2 factors, is it possible for you to sort of qualitatively help us understand which is the bigger factor, which is helping us in the growth?

So the overall, I think the whole demand has been point, and I definitely think the opportunity for India becoming the heart of the whole supply has been a very important part. India actually has taken a center stage. As we spoke about earlier, that cotton supply India will be leading the path there. And India will be the heart of the whole cotton global exports, whether it's the cotton home textile products as well. So definitely, that is a very big opportunity for India. And of course, that the whole homebody economy is also a very important aspect to what we see. And definitely, the China plus one is, again, a very big one as well.

Right, right, right. Sure. I mean, I was just trying to understand which one is the large factor which is helping us in terms of there's a positive demand outlook that we are seeing, which of the 2?

Can't say anything, yes, but I think.

Okay.

But maybe we will take it as the homework and try and find you an answer the next time around. So good question. We will try and do some research on this.

Okay. Okay. Okay. Fair enough. And the next thing is that, obviously, you seem pretty confident that despite the unprecedented RM prices that we are seeing in the next couple of quarters, you are hopeful of passing that on to the customers. So I just wanted to understand because of the higher demand at the customer end, are they also able to take those price hikes so that -- to ensure that at least they are not squeezed on the margin front, right?

So the consumer, definitely, the customers will also have a cap to what they can pay. So there is definitely going to be a kind of a leverage that's going to happen. There's going to be somewhere we will see that the demand might not decrease, but there will be kind of a leveler that will happen here for sure. And I mean, we have seen in India that the CPGs here in India and globally as well they are hiked up their prices. So I think the same thing will happen. But to that extent, the consumers won't be able to pay that much because their wallet share to the kind of category, they have a cap to that as well. So definitely, there would be a little bit of leveler in the terms of supply and demand as well.

Just to add to that, see in a time like this, what also happens that this on almost on a period basis, the retail prices move up a little bit. But over a period of a year or so, the products, let's say, gets adjusted. So this you reinspect the product to fit the historical price points in the marketplace. So that becomes a 1-year process. So the product also gets adjusted. So finally, the retail prices come down to where the consumer is comfortable. So the product gets adjusted to the market requirement.

Understood. Understood. Right. And my last question is that obviously, you expect in the next 2 quarters, the margins to sort of move closer to the average level that we've seen. But what could it look like in the next quarter? So will it further reduce before improving? Or it will be a gradual improvement from here on?

So first thing is let me just clarify. The next 2 quarters, this -- we don't -- I don't think that as we said we will get to 20% in the next 2 quarters. We may or may not. So things could -- they will take a little time to improve. So this I can -- we will be more confident to say this next year for this is more certainty that we will get to these levels. But yes, next [Foreign Language] or it will take us some time. So right now, we are in discussions, we are already end of October. So the price increases for them to materialize. So this will start, hopefully, by December, January. And so we'll slowly start getting reflected this in quarter 4, the quarter 3 is going to be tough for us. And quarter 4 onwards, we believe some improvements should start happening. And next year, we will -- this hopefully come to our most -- the desired levels of margins.

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

I have just 1 question on flooring business. This quarter, we've seen flooring business reporting a profit of -- at EBITDA level of around INR 45 crores. Is this the turnaround? And is this sustainable? Or the input cost pressures in the flooring business could also lead to a reversal in this position?

I wish we had an INR 45 crore EBITDA in this quarter, Prerna but it's INR 45...

Sorry, 2.5 crores. sorry.

So no, this -- and so we are not -- to be honest, we've had some tailwinds in this quarter and which is why we have reported a positive EBITDA. We are close to breaking even. And hopefully, we will stay there. But look, the cost pressures are the same. This like we have in the home business, the cost pressures remain the same here also. So here we use PVC and oil derivatives. So -- but the process of passing on the cost increase is a little faster with the flooring products. So hopefully, we should be able to pass it on faster in the flooring business as compared to the home business. So it's just that the nature of the business, we are able to do it a little faster.

So the flooring business, export business, what are the nature of contracts like, for example, in home textiles you have 6 to 12 months contracts with the customers. In flooring, how does it work?

So look, the contracts is historically were the same. But off late this we don't commit beyond the quarter and this is -- and we've been very, very emphatic and specific on this. So irrespective of what this -- and we keep customers informed in terms of how our costs are moving so that they are prepared as towards the end of quarter when, let's say, these prices need to get discussed with them again. So we don't go beyond 3-month commitments. And if the price increases are sharper, we don't even wait for 3 months, to be honest, and we'll get back to them for discussing these prices.

Okay. And how do we see this business for this year? What kind of revenues are we looking at based on the order book for the flooring business?

Thankfully, on the top line, we look pretty decent we had. We have still have some challenges let's say this on the operational fronts where some new equipment that has arrived in the current year, unfortunately, the erectors and the technicians are unable to visit us. So we still have some equipment, which is not performing to potential. Having said that, I think we should be about INR 650 crores or thereabouts. And in top line, it's not lack of demand. It's actually, let's say, this from the supply side on the -- on part of our business. And on the soft flooring side, we have been soft in terms of demand for obvious reasons because of COVID. But to be honest, we are looking this very healthy traction on that side as well. So hopefully, next year, we should see robust growth on the soft flooring side as well. So for current year, there's about INR 650 crores, if you ask me or thereabouts, but the business is looking pretty robust for the future.

[Operator Instructions] Next question is from the line of 8 Sumant Kumar from Motilal Oswal.

So we will talk about the flooring business. Initially, we had a target of 50% domestic business and 50% export business. We got a better opportunity and now most of the business is coming from the export business. And due to pandemic, we are not scaling up the domestic business in the flooring side. So now what are we doing to scale up this business in domestic market? And in the next couple of years, what are the contribution you are expecting in the domestic market?

Right, right. Sumant, so this our aspiration still remains the same. So we will -- we want to make the domestic business 50% of our business. But at this moment, with, let's say, this INR 1,000 crore plus invested in the business. So we have to find a home for our products. So which is why, let's say, the surge in the export business. So having said that, there's a lot of this good work, so our team is absolutely ready and there's a lot of good work that is happening on the domestic front as well. And we've seen customers from all the channels returning back for discussions, so whether it is carpet tiles for the offices, wall to wall for hotels and also residential customers. So I guess, in this quarter, we should be back to pre-COVID levels. So October to December, we should be back to pre-COVID levels. And from there on, we should not look back hoping there's no third wave. So from there on, we should not look back and see quarterly improvement in the domestic business. So we're still very hopeful. I think the value proposition of the product is driven home. So this change of flooring in a day, which is resonating very well with the clients. I think even the price points in the marketplace are settled, I think there's our online engagement with the customer is telling us that this -- the customer really loves this change of floor and replacement of the floor concept. And as things normalize with COVID, I think we should see surge in sales and also -- just on the -- we need -- very honestly, we couldn't do much work on the channel for the last 18 months. Our team is on the road now and to build the channel just appoint the right distributors, dealers for our product, get into this meaningful this channel partners. And so the work has already begun. And hopefully, this -- we will see this from here on, I think you should see quarter-on-quarter improvement in our domestic business. So the value proposition is intact. Our belief is intact. And I believe over the next 5, 7 years, we will get to 40%, 50% of our business in the domestic market. So -- and I'm sure Dipali wants to add, she is deeply involved with the business. So she certainly want to add how to [ brace ] to this.

No, no. Domestic market is picking up. I think as you spoke, the whole capacity that we've invested in, so export became the first one to take that on. But I think India is going to be the demand. And I think we have seen that happening. So October has been a decent month, and our whole institution and the hospitality segment has seen that kind of a demand coming back into force in October itself. So definitely, the next 2 quarters, we look good in the domestic flooring as well. So -- and definitely, that 50% is our goal. And we will see that coming through in the next 2 years, for sure.

So can you discuss about the CapEx of the segment-wise over 2 years?

Hi, Sumant. So as we had guided last time, so we are going to have INR 750 crores of CapEx in this year and about INR 550 crores next year.

So to answer your question, Sumant, I think this we have about INR 250 crores, INR 300 crores of CapEx left for the flooring business, about INR 250 crores. And there's -- on the advanced textiles, we have, by and large, done about INR 25 crores, INR 30 crores of CapEx remains. And the rest of it is around the core business. So we will be at growing capacity on towels, sheets, rugs everything because all these areas we are working now almost full throttle, so we need to grow capacity. So the rest of it for the current year as well as the rest of the next year would be for the core business, and that should be around the INR 700 crores, INR 750 crore mark over, spread over the next 18 to 24 months.

The home textile capacity addition is only for processing or we are doing better...

No, we are doing some looms as well. So we need to add, particularly for towels, we will need to add looms. And the rest of it is, of course, dyeing, finishing, cutting and sewing. And also, there's a lot of investment that we are making towards automation so that we are able to make headless growth and create a more reliable supply chain.

So with this capacity addition and you were talking about you putting looms also, what is the backward integration for our home textile business in terms of yarn and fabric?

Look, yarn, we are still -- so there's no yarn discussion within this CapEx that I have told you. So by and large, this say about 50% of the yarn -- of our yarn will need to come from outside. So maybe between 40% and 50%. But fabric, again, for the bedlinen side, we are investing a little bit to make more fabric and that is because of the traceability and the source to origin from mandate from our clients. So on the fabric side, we will be about 65% to 75% over the next 2 years. On towels, we are more than 90%. So we are almost 100%, let's say, on fabric on the towel side, and we would like to be that way. So by and large, that is the level of integration. Having said that, Sumant, this from what we are hearing from our clients. At some stage, we will need to look at spinning. So our project team is working on things, and we are also deeply engaged with our clients at some stage. I believe that this we will have to put -- this, we need to get into more spinning or let's say, through ancillarisation, we have more control on the supply chain on the spinning side. So as of now, we are tying up capacities with ancillaries and it has worked well for us until now. But if our engagement with our client tells that we need to add some spinning capacity, we will need to find a way of either aligning more outsourcing partners, ancillary partners or this also maybe just invest a little bit in that area as well. But as of now, this whatever numbers that we are discussing is around -- there's no spinning involved in that.

How much towel you say for fabric?

Towel is almost 100% of weaving and now and it will stay that way. So look, there's a lot of technology there, and there's a lot of innovation there. So this we would like to make sure that, that stays inside the company and which is why this we have chosen to remain 100% or close to 100% of weaving on the towel side.

Thank you very much.

Yes. We'll take last question.

We'll take our last question. That is from the line of Naushad Chaudhary from Systematix.

A couple of questions and clarification. Firstly, on the brand business, if I'm reading it correctly, we are now doing around INR 350 crores quarterly from the branded business. If this number is correct, it implies around I think INR 1,400 crores, INR 1,500 crores of annually, which comes to around 20% of our total business. I just wanted to reconfirm with you if these numbers are -- am I reading it correctly?

INR 350 crores is our...

Yes. And what could be the mix of this between domestic and international market?

About 80/20.

So 80% from the international market and 20% from domestic?

Yes.

However, we are looking at our numbers to be intact of $100 million by '23 for branded business. And...

$100 million would be annually or quarterly run rate?

No, no. So $100 million is yearly, and that is for branded and $100 million for e-commerce branded credit. So total $200 million, which would be about INR 1500 crores by financial year '24.

Yes. But looking at this quarterly run rate, we are already at INR 1,500 crores. So INR 350 this quarter, we reported from the branded business. If I multiply it by 4, then INR 1,400 crores, we are still -- at INR 1,400 crores run rate, we are currently on the branded business.

We will -- this is the season time. I think let's also look at the numbers because this is actually the time where you have Diwali and the maximum sales happen this time. For the global demand as well, this is the time where the holiday season sales happen, so there's an upside. But overlooking at -- I mean, if I look at definitely our demand looks robust. Our strategy on brands is completely on track. So it could be earlier than later, for sure.

But if you are pushing us for a faster growth than your message is well taken.

All right, sir. Secondly, on the European market, I understand the dynamics of European market is completely different than U.S. market. But if I look at our revenue run rate from the European market, we have been at around INR 1,000 crores of annually. Is there any strategy which we are discussing or having a thought on to how to scale it up from the European market, excluding whatever the FTA and other stuff has been -- other talk has been in the market. So if -- let's assume if those things doesn't come in our favor, is there any strategy we have planned to scale up in the European market?

So irrespective of the FTA because that's not come through. Our strategy has been intact regarding our towels and our towels are the highest -- we -- I think highest selling in U.K. despite the FTA that is there. So -- and our strategy towards U.K., Europe, rest of the world is intact. And apart from what we are doing in America, as we spoke about the D2C brand launch in Welspun and Welhome in America. We'll be launching a D2C play even in U.K. and Europe. So definitely, the omnichannel will also be a plane that we see happening here. And our category also optimizing. So right now, we were talking about towels and sheets of bedding. I think the whole category flow will also be something that we have to optimize as well. So definitely, our strategy is intact in the terms of what we are doing in U.K., Europe. And our D2C play will also be very, very strong here, and that will be in the terms of omnichannel as well.

Okay. So doubling it from the European market from 1,000 to 2,000, hypothetically, how much time should it take for us to double the size?

I think we can talk about it later, but I think fundamentally, I think the opportunity here is to say that how does the business evolve into D2C in omnichannel because the business dynamics are different. We've seen the acceleration of e-commerce go up dramatically over 35%. So I think that's the mix that you'll see. So the whole business and the product mix and the whole thing is changing here for sure. So they'll be more of a brand play. And I think that will be something that we will see both.

Thank you very much. That was the last question for today. I would now like to hand the conference over to Ms. Dipali Goenka for closing comments.

So many thanks for joining the call today. I'd like to share my closing thoughts on the company's performance and our outlook for the future. We continue to see strong growth momentum in our core as well as emerging businesses and all macro indicators for top line growth are very positive. The current hiccups, we are witnessing in commodity prices and logistics issues are unprecedented in nature, but we are optimistic that they should be short-lived and transitory. We are very buoyant on the medium- and long-term sustainable growth on both revenue and margin and for all our businesses. I thank you all and wish you a very happy Diwali. And any more questions, please reach out to Sanjay. Thank you.

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