Welspun Living Limited (514162) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Welspun Living Limited Q1 FY '25 Conference Call hosted by JM Financial. [Operator Instructions] Please note that this conference is being recorded. I will now hand the conference over to Mr. Ashutosh Somani. Thank you, and over to you, sir.

Yes. Thanks, operator, and welcome, everyone, to the call. I will first thank Welspun Group for giving JM Financial the opportunity to host today's call. I'll hand over the call now to Mr. Salil Bawa, Head, Investor Relations, Welspun Group, to introduce the management. Over to you, Salil.

Thank you very much, Ashutosh. Good morning to all of you. On behalf of Welspun Living Limited, I welcome all of you to the company's Q1 FY '25 Earnings Call. Along with me, we have with us today Ms. Dipali Goenka, Managing Director and CEO. I have Mr. Sanjay Gupta, Chief Financial Officer. We hope you have had a chance to review the investor presentation that we filed with the exchanges yesterday. The same is also available on our website. During today's discussion, we may be making references to this presentation. Kindly do take a moment to review the safe harbor statement in the presentation. As usual, we will start the forum with opening remarks by our leadership team. Post that, we'll open the floor for your questions. Once the call gets over, should you have any further queries that remains unanswered, please feel free to reach out to anyone of us. With that, I would now like to hand over the floor to Ms. Dipali Goenka, Managing Director and CEO. Over to you, ma'am.

Thank you, Salil. Good morning, everyone, and thank you for taking the time to join us today for our Q1 FY '25 analyst call. I would like to share some highlights of our operating performance as well as some achievements during the quarter under review, after which Sanjay would share highlights from our financial metrics. We are happy to share that the revenue growth we have witnessed during the last FY '24 continued in Q1 FY '25 with the revenues up by 17% Y-on-Y to reach INR 2,588 crores. All our businesses have contributed to this performance strongly in global markets as well as in India. We continue to have sustained EBITDA achieving INR 393 crores, clocking 15.2% in Q1, growing at 15% Y-on-Y. Hence, we are well on our way to achieve the top line and bottom line guidance we had achieved for FY '25. The growth that we have seen in Q1 revenues could have been more better if the challenges that the global economy is facing, in the terms of ship liners and containers availability owing to the Red Sea issues, were not there. Similar to the challenges we witnessed during FY '22, '23, we are seeing not only hardening of the container rates to 3x of last financial year, but also in space and timely availability of vessels. With our major distribution presence in U.S., we have been able to ensure minimum disruption in revenue, but delays in FOB shipments due to nonavailability of containers, ships have affected revenues of our different businesses to some extent. At the same time, our long-term relations with liners have seen us in good stead, leading to minimal impact in cost in Q1. We continue to keep a close watch on this dynamic situation to ensure minimum disruption to the business. Core exports. U.S. GDP continued to grow at a decent rate of 2.9% Y-on-Y. Retail spending is up 2.5% Y-on-Y in April to June quarter as customers take advantage of these and begin to spend more as inflation cools for the third straight month of 3% Y-on-Y in June, marking the lowest reading since June 2023, [ boats ] in case were sooner than expected [ Fed weight cut ]. Consumer has retained the ability to spend and are driving these solid economics. India continues to be the leading supplier of terry towels and bed sheets to U.S.A. And as per the OTEXA data, India continued to enjoy dominant market share in exports to U.S. for June 2023, May 2024 period, both at terry towels at 44% and in bedsheets at 61% in value terms. India has strengthened its share in bedsheets by 10% and stayed flat in terry towels as compared to last year in the same period. Though the overall exports to U.S. in value terms during this period remained at the same level in terry towels and grew by 5% in bedsheets due to geopolitical issues during quarter 1 FY '25. WLL, however, witnessed a growth of 10% and 40%, respectively, solidifying our leadership in U.S. exports further. EU, U.K. and rest of the world have also shown a double-digit growth. Exports of Home Textiles has seen a tremendous growth due to our unwavering commitment in providing unparalleled quality, both in products as well as in services, growing by 19% in quarter 1 FY '25 and maintaining a healthy EBITDA of 17%. Innovation is the heart of everything that we do. Our innovation products continued to be the major contributor to the revenues of 30%, growing by 13%. Emerging businesses. Our emerging businesses of domestic consumer business, global brands, advanced textile and flooring businesses, grew 7% Y-on-Y in Q1 FY '25 and contributed close to 30% of the total revenue of the company. Our licensed global brands like Martha Stewart and Disney continued [indiscernible] journey and have given us an edge in U.S. and European markets by opening up additional shelf space with the key retailers as well as in creating new avenues. Our own global brands, Welhome and Christy, have grown over 10% during the quarter. Domestic retail. India continues to outshine with an expected GDP growth of 7.1% in Q1, vis-a-vis, 7.8% in Q4 and inflation hovering around 5% during the quarter. The retail sector demand, however, continued to remain muted during Q1 through April to June 2024, mainly due to lower consumer spending, especially in discretionary categories, which is at the trough of the seasonal cycle. Nevertheless, we showed a lot of resilience despite subdued operating conditions in consumer markets, which continue to subsist in Q1 as well. Our domestic business remained flat in line with the national retail sales growth and clocked a revenue of INR 123 crores with a muted 3% growth despite the challenging retail market in the country. In order to navigate through challenging market conditions, we've expanded into new categories, channels and hopeful to witness increased tertiary offtakes once the demand opens up with the festive season, which is right under way. Welspun brand continued to be the most widely distributed home textile brand in the country with presence in 500-plus towns and 21,154-plus outlets, up by 972 in quarter 1, a reach not hitherto achieved by any home textile player in India. Brand recall for Spaces & Welspun has jumped substantially to 80% from 72% and 50% from 40%, respectively, for our target audience, thereby leading in premium and mass home textile category. Brand Welspun growth has witnessed a healthy 12% Y-on-Y growth in Q1. Brand Spaces has outdoor category in the modern trade channel, emerging as a leading brand within the category and gaining the market share. The home textile consumer business continued investment in marketing to the tune of 10%. We remain committed to continued investment in our brands for improving the brand visibility and [ sale-ins ] as well as a focus to profitable business growth in the domestic consumer business. Flooring. Our flooring business continued to perform well, recording a revenue of INR 228 crores plus Y-on-Y, the dispatches in Q1 impacted to some extent due to Red Sea issues with increase in capacity utilization to 64%. EBITDA margin of the business has improved to 9%. We had added a big ticket customer in U.S.A. for wall-to-wall carpets and carpet tiles. And have strengthened our position in Middle East and ANZ. Similarly, we are getting great traction from large retailers and big ticket distributors in U.S. and U.K. in hard flooring and does look forward to a good start in flooring in Q1 FY '25. On domestic market front, we continue to see growth in hospitality and commercial segments in all our key markets in India. Domestic flooring revenue grew by 15% Y-on-Y. In order to capitalize on the market opportunities, we continue our work on making inputs, an entire value chain more and more [indiscernible]. The advanced textile business witnessed a 26% growth Y-on-Y in Q1 FY '25 with a revenue of INR 132 crores, capacity utilization of a new Telangana [indiscernible] facility has reached 63%. As funded sales have continued to be strong in all our key global markets, forging new partnerships in U.S., Europe and India, with the innovative and sustainable nonwoven. ESG is embedded in every aspect of operations at Welspun, keeping us ahead of our peers globally in sustainable practices. We are well on our journey towards achieving 100% R&D by 2030 And in this regard, the Board has approved setting up of 18-megawatt solar plant at Vapi, which could meet about 30% of the powered requirement at Vapi. We're also happy to announce that Welspun is now part of the World Economic Forum, lead an alliance of CEO Climate Leaders, India, which is a higher-level platform for business leaders to support concrete plans in India and ideas to step up India's climate action and green transition efforts. In addition to that, Welspun also joined the Reuters VISION 2045 campaign to drive sustainable change by making India the sustainable loom for the world. While the global economy exhibits mix sentiment, the positive sign, the cooling inflation and expected rate cuts in the U.S. are encouraging, acknowledging the potential volatility from geopolitical issues, the resi situation and elections in various regions. We stay alert and proactive. Our strategy focuses on navigating these challenges and seizing opportunities effectively. With this, I would now like to hand over to Sanjay, who will take you through the financial highlights.

Thank you, Dipali, and greetings, everyone. I'll give a brief overview of the financial numbers for quarter 1 financial year '25 before we open for question-and-answer. During quarter 1 financial year '25, reported revenue of INR 25,588 crores (sic) [ INR 2,588 crores ], up 17% year-on-year and which remains in the same level as quarter-on-quarter. EBITDA margin for the quarter 1 stood at INR 393 crores, that is 15.2%, growing by 15% year-on-year. Profit after tax after minority interest for the quarter is at INR 186 crores, vis-a-vis, INR 162 crores year-on-year, growing by 15% year-on-year and 27% quarter-on-quarter. Consequently, our consolidated EPS for quarter 1, '25 stood at INR 1.93 per share as compared to INR 1.66 per share in quarter 1 of financial year '24. On the ForEx front, our average exchange realization for U.S. dollar during quarter 1 was INR 84.05 compared to INR 82.16 in the corresponding quarter last year. Net debt stood at INR 1,562 crores versus INR 1,815 crores as of June '93 (sic) [ June '23 ], which is lower by INR 253 crores and versus INR 1,354 crores as of March '24, increased by INR 208 crores due to CapEx spending and increased investment in working capital during quarter 1. The interest cost, hence, is also due to the higher borrowings for working capital. And because RBI's report, it has remained unchanged in last 3, 4 quarters, it has slightly gone up by INR 243 crores from INR 26 crores year-on-year. However, with reduction in working capital in ensuing quarter, this cost is expected to come down. Coming to segmental results, quarter 1 of financial year '25 core business Home Textiles revenue stood at INR 2,387 crores versus INR 2,028 crores in quarter 1, '24, up by 17% year-on-year. Quarter 1 EBITDA of Home Textiles stood at INR 342 crores at 14.7% as compared to 15.3% year-on-year. During quarter 1 '25, revenue from flooring business was INR 228 crores, up by 1%. EBITDA is at INR 21 crores, which is 9.2% as compared to 8.1% year-on-year. In quarter 1 '25, we spent INR 206 crores towards CapEx, majorly towards Towel project at Anjar and pillow project in U.S. The Board of Directors have, in its meeting held yesterday, approved buyback of equity shares of the company for an amount of up to INR 278 crores at a price of INR 220 per share. The promoters will be sensing 100% of their eligibility under the buyback. Apart from this, the Board had also approved dividend of 10% in financial year '24 in quarter 4 of '24 meeting. The company's outflow for the buyback and dividend, hence, would be totaling to INR 353 crores, which includes the tax outflow in this. Over the last 4 years, hence, the company has distributed 40% of its free cash flow on an average to the shareholder with cumulative INR 880 crores distribution out of free cash flow generation of INR 2,200-odd crores during the same period. Financial year '24 total distribution also works out to 81% of our free cash flow. During the same period, we have continued reduction in the net debt from INR 2,333 crores in financial year '21 to INR 1,354 crores by the end of financial year '24. With this, I will now leave the floor open for question-and-answer. Thank you.

[Operator Instructions] The first question is from the line of Rajeev from JM Financial.

Rajvi. Rajvi?

Dipali, if you can give some color on the order book demand retail growth in the U.S. markets. How is that second half of '25 shaping out to be? Do we see a sharp recovery in the second half demand? And what sort of revenue growth is possible in FY '25, given your current assessment?

So I think, for us, the demand remains good as it is right now, as you've seen in quarter 1. We see a good visibility because you know that United States gets ready for the holiday season, and that's been the trend. So we definitely see that demand being at a steady state here, Rajvi. And when we talk about our growth, we have given a commitment of around 12% growth, and we remain cautiously optimistic about it, and we will top it up as we go forward, as we have done in the quarter 1 as well.

The next question is from the line of Biplab Debbarma from Antique Stockbroking.

So my first question is on the growth, 15% year-on-year growth. So ma'am, which segments contributed to this 15% growth? And is it at high because of volume or price growth? Or what is the contribution of volume growth in this?

Biplab, it has primarily been the sales. And it has also been an impact of the exports primarily. As you have seen that the emerging markets have been a little subdued competitively as well. So while we see the exports growing at a rate of 17%, and that's what has actually contributed to it, our emerging businesses actually were a little subdued also because if you look at flooring, with the kind of 64% at the factory it is running, at capacity, we could have done better if the resi issues would have been a little more not that challenging. So it has been a mixed year. When you talk about the margins, I think I would say that the exports have contributed to the margins as well, primarily.

So the growth has mainly come from volumes, as you had asked. So price, there has not been any major change. So the growth is basically volume growth.

Okay. Great. So the second question is, I missed the funding part, sir, how you are funding the distribution of the cash outflow for distribution of dividend and buyback?

So this is, yes, internal resources. So we have earned free cash flows earlier and which is available with the company, and it will be paid out of that.

Sir, since you have debt and it has also grow -- this quarter, I think that has grown a bit. So I'm just wondering, could we not have used the monthly debt repayment or because how the capital structure you want to be?

So our capital allocation demand that we pay out to our shareholders as well, some percentage of our profit. And hence, which we have been doing year-on-year, so that we have done. Despite that, as I was telling you in my speech that we have been reducing our net debt from INR 2,300-odd crores to INR 1,300-odd crores. And this year, despite all these payments, we would be in the same ball pack range for financial year '24 net debt. So net debt is not an issue.

Okay. Okay. And my final question, with quarter 1 seeing strong growth and outlook on exports looking positive, shall we maintain the same guidance on top line in that? Or we would like to change our guidance?

So as Dipali mentioned, we are cautiously optimistic because we are seeing the Red Sea issues and other economic issues, which is gripping the world. However, as we have maintained, we will top the 12% growth that we have already guided to us and we will meet our bottom line guidance of EBITDA at 15% to 15.5%, as we have guided.

[Operator Instructions] The next question is from the line of Anushka Chitnis from Arihant Capital.

My question is about the -- related to the buyback. I wanted to know if the promoter entity will be participating in this?

Yes. As we mentioned in our speech, yes, we will be -- promoter entity will be participating 100%.

The next question is from the line of Prerna Jhunjhunwala from Elara Capital.

Congratulations on strong set of numbers. Ma'am, I wanted to understand more on flooring, why resi is impacting that segment more than other categories, which are also export-driven.

So it's a little different here, Prerna. And you must -- I mean, when we talk about Home Textiles, it's mainly primarily FOB. Here, you have CIS and you also have the DDP shipments. And hence, the challenges were there and where we actually got challenged to get the containers for the flooring, Prerna.

Okay. And ma'am, how would be the volume versus price growth in this segment, in this 1% growth? Because utilization levels have improved. So just wanted to understand whether there is some price correction? Or is it inventory line in the system?

So as I mentioned, more or less, this is volume growth. However, there have been some mix change as compared to hard and soft breakup. So hence, that small impact might occur, but mainly it is volume growth and volume, though we have manufactured during the quarter at 64% utilization, we have not been able to ship it because of the issues that we are facing for blank sailing and containers not being available. You will see those impacts in the current quarter when we will ship it. Hence, there is no price erosion.

So what kind of growth can we expect in flooring business in this year, given the visibility on demand that we have today?

We had given a guidance of about 20% to 25% growth in flooring for this year and which we will achieve.

Prerna, we'll achieve that. And in fact, if you see in the domestic flooring also, it has grown 15% year-on-year. And we definitely are on that trajectory.

Okay. Does the demand scenario remains decent? I mean there's no challenge over there?

No, not at all.

Great. Great, ma'am. Ma'am, what are this HD -- in HD, the e-commerce segment has seen a significant degrowth. What would be the reason behind it? And what is not included? I mean I'm just trying to understand HD e-commerce and HD brands, how do you bifurcate also between the 2?

So I think they're very different. One thing is that when you talk about a global one, it is primarily, we talk about omnichannel. And omnichannel, it is quite -- sometimes gets seasoned. But I think we are on the -- we basically are on track because the retailers buy it and then we sell it. And while we do that, I think I must tell, Prerna, you must go on spaces dot in and see because that's our brand dot-com, christy.co.uk, to see our brand dot-com sites. And you should see because if you look at Christy, they are growing at a rate of around 20%. Spaces is also on that path and do give us the feedback. Omnichannel is something, is a behavior of the customers. And it is a little seasonal. As you know, it is summertime, people are far more outside rather than buying online more, right? And it's more -- so discretionary needs an experience. So people are basically buying off-line. And that has been the kind of a thing.

Yes. Prerna, the difference that you see in quarter 1 of last year and quarter 1 of this year is mainly, as Dipali said, our sales to the omnichannels. And omnichannels, they buy more in some quarters, they buy less in some quarters. But overall, our growth will be there in this sector. But this quarter, we have seen a dip because in the last year same quarter, some high purchase was done by omnichannels together, which will now spread to maybe quarter 2 or quarter 3.

Okay. So it is because of the base effect and nothing to worry about it?

No, nothing at all.

Okay. Because you saw Amazon sales, I mean, they have an increase in [indiscernible]. What is leading to this commerce?

Sales from those omnichannels are happening as it is happening. So there is no -- if the stock built up, which happened. So there was a smaller stock built up, some stock, we could not sell because of the Red Sea issue. So all these issues in stocking are right now taking place. So you shouldn't read so much into it. You should give some time for more quarters to see the real growth level.

Perfect. No problem. And my last question is on margins. Given the correction in raw material prices, and challenges on maybe freight front, what is the guidance that you are giving for home textile and flooring separately?

So Prerna, as we said, we are keeping a close watch in this situation. We have contacts with the liner. So we are -- we will not allow our force to go over board in this. The only challenge could be timely sending the goods -- delivery of the goods. So we don't see any impact on the cost side coming in a major way because of this. Might be 0.2%, 0.3% here or there, but not much.

That's not major at all? Okay. Great, ma'am. And last on expansion status, if it's on schedule or...

Yes.