Welspun Living Limited (WELSPUNLIV.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Welspun Living Limited Q1 FY '26 Earnings Conference Call hosted by JM Financial Institutional Securities Limited. [Operator Instructions] Please note that this call is being recorded. With this, I now hand the conference over to Mr. Ashutosh Somani. Thank you, and over to you, sir.

Thanks, operator, and welcome, everyone, to the call. I will first thank Welspun Living for giving JM Financial the opportunity to host today's call. Without much ado, I'll hand over the call to Mr. Salil Bawa, Head, Investor Relations, Welspun Group, to introduce the management. Over to you, Salil.

Thank you, Ashutosh, and good evening to all of you. On behalf of Welspun Living Limited, I welcome all of you to the company's Q1 FY 2026 earnings call. Along with me, we have with us today Ms. Dipali Goenka, Managing Director and CEO of Welspun Living; Mr. Sanjay Gupta, Chief Financial Officer. We hope you have had a chance to review the Investor Presentation that was filed with the exchanges today. The presentation is also available on our website. During today's discussion, we may be making references to this presentation. We'll request you to kindly review the safe harbor statement in our presentation. As usual, we will start the forum with opening remarks by the leadership team. Post that, we will open the floor for any questions. Once the call gets over, if you have any further queries, please feel free to connect with any one of us. With that, I would now like to hand over the floor to Ms. Dipali Goenka, Managing Director and CEO of Welspun Living. Over to you, ma'am.

Thank you, Salil. Good evening, everyone, and thank you for joining us today for Welspun Living's Quarter 1 FY '26 Earnings Call. We continue to navigate a world shaped by shifting global trade dynamics, evolving consumer sentiment and persistent tariff uncertainties. Resilience and adaptability remains central to our strategy as we manage near-term challenges while preparing for emerging opportunities. The implementation of reciprocal tariffs between U.S. and India has created unpredictability in trade flows impacting retailer and overall market sentiment and order patterns. While this poses short-term pressures, we believe it will drive structural realignment in global sourcing over the medium- to long-term. We continue to engage closely with our customers to navigate this transition smoothly. The U.S.-India Bilateral Trade Agreement remains under discussion, and we remain hopeful that a constructive policy resolution will restore clarity and stability in trade relations. Meanwhile, the India-UK free trade landmark agreement is expected to provide a strong impetus to India's textile exports, further strengthening our market position. With tariff barriers eliminated in home textile from 12% earlier, Indian textile and apparel exports are well-positioned to scale significantly in the UK market. Strategic product diversification, particularly in the underrepresented segments can help maximize the benefits under this agreement. Decisions around India, EU interim FTA finalization is also a step in the positive direction for India. Highlights of the quarter gone by. The first quarter of FY '26 was marked by uncertain global trade flow. Consolidated revenue declined 11.6% Y-o-Y to INR 2,289 crores and EBITDA margin at 11.1%. This was primarily driven by softness in export business as reciprocal tariff implementation and uncertainty around timeliness created an overhang in the market. Both retailers and suppliers, including us, adopted a cautious stance impacting volumes with retailers, inventory levels witnessing gradual correction. Core exports -- our core home textile export revenue declined 11.8% Y-o-Y to INR 1,885 crores. As uncertainty around trade policy continues, consumers could remain cautious and increasingly selective in their discretionary spending. Recently, the U.S. data indicates retail sales fell for the second straight month in May, while inflation accelerated to 2.7% in June, highest level since February, driven partly by tariff inducted cost increases further weighing on consumer demand. India continues to be the leading supplier of terry towels and bed sheets to the United States, holding a dominant market share of 45% and 59%, respectively. As for textile data for the 12 months ending May 2025, Innovation continues to be at the heart of our strategy, contributing 27% to the revenues this quarter. High potential segments such as pillows, utility and fashion bedding remain focus areas. Our Ohio Pillow plant continues to ramp up efficiently with capacity utilization reaching to 47%, positioning us strongly to capitalize on emerging growth opportunities within the broader sleep ecosystem. We are witnessing strong momentum with increased traction among retailers and greater shelf presence, strengthening our visibility and competitive positioning in the category and expect to nearly double our Pillow business in this year as against USD 15 million in the previous year. We are further strengthening our pillow manufacturing capacity in U.S. with setting up of a new pillow plant at Nevada to supply to customers in the West Coast. The Board has approved today an investment of USD 13 million, INR 112 crores to set up a Pillow and TOB facility at Nevada with an annual capacity of 10.8 million pillows in 2-shift operations. The plant is expected to be operational in quarter 4 and would contribute additional pillow revenues of over USD 60 million at full capacity utilization. We are also actively pursuing geographic diversification and expand our presence in other key regions, including the UK, EU, GCC, ANZ, Japan. Our revenue share from the market outside of U.S. has gone up to 40%. As global trade realigns, we remain optimistic about reinforcing our core leadership while scaling emerging categories through integrated portfolio play and scalable manufacturing. Emerging businesses. Our emerging businesses, including domestic consumer, global brands, advanced textiles and flooring continue to contribute 30% to our overall revenues. Branded businesses account for 18% of our total revenues, underscoring our strategic focus on building strong brands. Licensed global brands like Martha Stewart and Disney Home continue to strengthen our shelf presence with key retailers and open up new avenues. Christy continued to build on its premium positioning, growing in UK and U.S. markets alongside deepening offline presence. Implementation of India UK FTA further strengthens opportunity with our owned and licensed brands to deepen penetration and expand distribution network alongside foraying into category expansion. I will now take you through the Emerging business segments in more detail. Domestic retail. In line with our anticipation of a rebound in consumption, we witnessed visible green shoots in retail activity during the quarter. Our domestic consumer business grew about 10% Y-o-Y to INR 134 crores, reflecting improving consumer sentiment. According to the RBI, private consumption remains healthy with a gradual rise in discretionary spending. Rural demand is steady, while urban demand is improving, supported by expectations of an above-normal Southwest monsoon and sustained buoyancy in services activity. Additionally, CPI inflation moderated to a nearly 6-year low of 3.2% in April 2025, led by a continued decline in food inflation, which should further support consumption trends. We remain focused on strengthening our leadership position in the Indian market by leveraging our global expertise to offer differentiated products and superior brand experiences. The organized home textiles market is expected to outpace overall market growth at a 9.3% CAGR. Brand Welspun continues to play across affordable and aspirational segments, driving the shift from unorganized to organized retail and grew at a strong 15% in Q1 FY '26. Our B2C business performance has been improving over the past 2 to 3 quarters, growing robust 16% Y-o-Y, further strengthening our brand play. During the quarter, we added 3 new FOFO stores, taking the total count of EBOs to 48. On domestic flooring front, we witnessed a robust performance, growing 26% Y-on-Y in Q1 FY '26 on the back of strong growth in residential and hospitality segments. The business is inching towards EBITDA breakeven. We have deepened extraction with existing dealers and added new partnerships into top-tier global accounts. As India's housing market expands, supported by higher GDP urbanization and a preference for premium offerings, demand for innovative and quality flooring solutions is expected to accelerate. Flooring. Overall, Flooring segment clocked a revenue of INR 194 crores, 15% degrowth Y-on-Y in Q1 FY '26. Challenges in the global flooring business were further accelerated as tariff overhang led to order holds and subdued demand. However, strategically, we remain focused on deepening our presence in U.S. home improvement and OM channels, forging strategic partnerships across Middle East and ANZ and leveraging the UK FTA to drive regional diversification and long-term growth. In our Advanced Textile business, we -- our revenues declined by 11.6% Y-on-Y to INR 117 crores in Q1 FY '26, impacted by a broader slowdown in U.S. customer offtake and tariff-related headwinds. We view this as a temporary blip amidst global trade uncertainties and remain confident in the long-term growth potential for this business, supported by strong customer partnerships, leveraging our innovation capabilities with a focused strategy to shifting towards offering value-added differentiated products in global markets. ESG remains a strategic differentiator for us. Our journey towards 100% renewable energy and 100% sustainable cotton by 2030 continues with commissioning of an 18-megawatt solar plant at Vapi and a 4-megawatt plant at Hyderabad this quarter. Additionally, we are targeting 47 megawatts of round-the-clock green power by year-end. Looking ahead, we expect quarter 2 to remain challenging with sustained pressure on both top line and bottom line. Given the continued uncertainty around tariffs and trade policies, we are closely monitoring the evolving landscape. Our priorities remain on prudent cost management, operational agility and deeper customer alignment to navigate these headwinds effectively. At the same time, we are strengthening the foundation for future growth. With this, I would now like to hand over to Sanjay to take you through the detailed financial performance for the quarter.

Thank you, Dipali, and greetings to everyone. I will take you through a brief overview of our financial performance for quarter 1 financial year '26 before we open the floor for questions. During quarter 1 financial year '26, we reported consolidated quarterly revenue of INR 2,289 crores, down by 11.6% year-on-year. Our EBITDA margin for quarter 1 of financial year '26 stood at 11.1%, down by 409 basis points year-on-year. Our margin compression is primarily driven by operating deleverage arising from lower volumes. In response, we have adopted a conservative stance intensifying our cost optimization initiatives across businesses to ensure continued operational efficiency without compromising on our serviceability and quality. Profit after tax after minority interest for the quarter is at INR 88 crores, down 52.8% year-on-year. Consequently, our consolidated EPS for quarter 1 stood at INR 0.92 per share, down 52.3% year-on-year. On the ForEx front, our average exchange realization for the U.S. dollar during quarter 1 was INR 85.09 compared to INR 84.05 in the corresponding quarter last year. We have focused on strengthening our balance sheet. Net debt stood at INR 1,401 crores versus INR 1,603 crores last quarter, lower by INR 202 crores and versus INR 1,562 crores last year same quarter, lower by INR 161 crores. Our cash conversion cycle has improved reflecting better working capital management. During the quarter, we have incurred a CapEx of INR 83 crores out of INR 200 crores guided earlier in the quarter 4 towards various capital expenditures. The Board had further approved a CapEx of USD 13 million, which is about INR 112 crores towards setting up a Pillow and TOB facility at Nevada, USA for the year. Segmental results, quarter 1 financial year '26 core business home textile revenues stood at INR 1,885 crores, down by 11.8% year-on-year and an EBITDA at 12.6% compared to 16.9% last year. During quarter 1 financial year '26, revenues from Flooring business was INR 194 crores down by 15%. EBITDA is at INR 16 crores, which is 8.4% as compared to 9.2% last year. Our domestic consumer business has shown resilience with 9.5% year-on-year. With this, I will now leave the floor open for question and answers. Thank you.

[Operator Instructions] The first question comes from the line of Prerna Jhunjhunwala from Elara Securities.

First question, I just wanted to understand the demand scenario in the U.S. like how the inventory position of the retailers is, how pressed they are to source from their dominant partners? And what is the kind of tariff sharing expectations they have given that the tariff rates are actually very high against expectation after a deal also for various countries.

Thank you for your question. So definitely, there has been a decline in the volume and the retailers this time are correcting the inventories as well. So that is one thing that they're doing. Secondly, everybody has been very cautious. For example, this time, the top line also degrew because a couple of promotions actually got held on by the customers as well. So that's why -- so inventory correction is happening. And the other thing is how we are looking at the tariff situation is what everybody is evaluating. Now the second question that you asked about how the tariff and the whole -- the tariff is high and how it's going to be shared or how it's going to be taken forward. I think let me just tell you that the retail prices in America haven't gone up for the past 20 to 30 years. And now obviously, if there's any kind of a steep thing that happens, we -- it will be between the consumer, it will be passed on to the consumer than the retailer. And of course, there's a partnership that works on. So there could be that kind of a conversation. So however, this is not going to be anything that can be taken by the vendor alone. It will be a shared kind of shared between all the 3 kind of verticals here, Prerna. I hope I've answered your question here. And if you talk about the volumes going forward, it will now depend. See, now also the tariff announcement uncertainty is an overhang. It is just hanging uncertain. There's an uncertainty here. While having said that with U.S.A., we continue to focus on UK, Europe and rest of the world, where our business grew by – our thing -- our share is around 40%. So that's where we're also focusing and seeing how we can increase our share there as well because that clearly will now establish an opportunity for India as well as others.

Okay. And how do we see the margins then? Because this quarter, we've done around 10% of EBITDA margin. And given that there is an expectation that vendors will continue to see -- share the impact of tariff, do we see normalization of margins even by the end of this year or we continue to remain at lower margins for some time till there is reduction in tariff rate?

So Prerna, I'll tell you one thing. The concerns are there in the terms of the uncertainty of the tariff, okay? Let me just put it and table it there. And the top line definitely will be impacted because the customers are going to evaluate what they have to buy very, very -- they will be very -- they'll take very conservative calls there. So that you will see there. And so that top line will also impact the EBITDA indirectly, directly because that definitely will be an impact. So however, I can also tell you this is a blip momentarily. And in the year as we go forward, we will see that come back again, and we are working towards that. So while the tariff situation is getting resolved, we're also working on our cost. We are working on the other measures, other things so that, that gets corrected till then. And these numbers are going to come back. See, I can just tell you one thing. Welspun is not here for today or tomorrow. They're here for the next 100 years, and we are building a legacy of it.

I completely agree, ma'am. But just wanted to -- I mean my question was generally to near-term performance. I mean, how long would it be? Ma'am, my second question on -- with respect to profitability, which I asked you, what are the challenges in servicing newer markets now because we have predominantly focused on U.S. in the past. Now that we are focusing on newer markets, whether these markets can compensate for the growth that we are seeing challenge in the U.S. over a period of year’s time or it will still be impacting our volumes despite focus on newer markets? I mean I'm just trying to understand how much growth and margins that we can really see over the year?

Sure. So Prerna, very good question indeed. So first of all, let me tell you one thing. So even when you're talking about the U.S. tariffs, okay? One thing, let me be clear here, India is in a good position, apart from all the other competitors that India has and the peers that India has, right? So whatever will happen, India will be at a better position there. So the business opportunity still remains for India. So let me clarify that from the terms of U.S.A. and India, right? Now when you're talking about other geographies that we're talking about, Prerna, the opportunities are very good. And for us, we already started a penetration in UK and Europe, and that's where we are seeing more and more opportunities. And Japan. Japan, again, is emerging as well. So it is a reemerging economy. Let me tell you that. So again, that's a very important country that we are focusing on. And of course, there will be ANZ and also the GCC. So while -- see, U.S.A. is the biggest market of consumption. Let me be very clear. Let me not make any qualms about that. However, but this is again a very interesting geography for us. So while right now, we are struggling with the tariffs for U.S.A., where still I maintain that India will be in a good position, but we are continuing to make forays into this part of the world as well.

Okay. And what will be the revenue share of U.S. in our emerging business or I mean, advanced materials and other businesses?

No, I think we don't disclose anything, but I'll tell you one thing. Advanced Textile, of course, America is a good market, so is Europe and UK and rest of the world as well. Yes, this time, we got a little blip from the top line in the advanced textile as well and also flooring owing to the concerns about the whole tariff offtakes as well. So yes, that's an overhang on the tariffs as well, yes.

The next question comes from the line of [ Deepali Kumari ] from Arihant Capital.

The company has low net debt compared to the previous year. So what is the internal range mark or target for FY '26? Should we anticipate any additional prepayment?

So we have given a direction for our net debt, which will be in the range of about INR 1,300 crores to INR 1,400 crores for financial year '26. We have done quite well in first quarter itself, and we have reached INR 1,400 crores. So definitely, we would try to top our guidance [ in this regard ].

Okay. And one more question, like your wet wipes segment have done good from last quarter, but it is only 24% of capacity utilization, even though you have 100 million of pack capacity. So is it due to weak demand, pricing issue or problem in distribution?

No, nothing of that sort, Deepali. The thing here is that with the U.S. where we had an opportunity, where that's the reason the business actually, people were just anticipating and they're holding on for the tariffs. So that's where we are looking at it. Otherwise, the opportunities are not only in the wet wipes for makeup wipes, but baby wipes to the medical wipes, dry wipes. And so there are a lot of opportunities that we're exploring, a lot of innovation is being done here as well. So let me just give you kind of a comfort there that this is a category that we'll see to grow.

Okay. So there is no any seasonal impact?

No, no. The seasonal impact is not there. This is a tariff impact.

Okay. And like your flooring business at what level it will be breakeven?

Flooring business is already -- we are already at about 8% to 8.5% EBITDA margin. So it is already -- breakeven has happened 2 years back.

Okay. So the new facility I'm asking.

Sorry, I didn't get you.

The newer facility you have talked about at what level that will be breakeven?

So there's no newer facility that we're investing in Deepali, I think.

It's in the that we are investing, not in flooring.

[Operator Instructions] The next question comes from the line of [ Param Vora from Trinetra Asset Managers ].

So what I wanted to ask was that with the overall revenue declining, but the domestic flooring showing a strong growth of 26% year-on-year basis, can we expect the flooring business to become a larger revenue contributor in the upcoming quarters?

So I think so domestic flooring will be -- is a great opportunity in India as we see hospitality institutions coming up and the residential opportunity also continues to grow. And so while saying that India will definitely be a good opportunity, but we also will be focusing on the global markets here.

The next question comes from the line of Kunal Shah from Jefferies.

Am I audible? So my question is in the last 15, 20 days, you've seen countries sign trade deals, right? And at least for some countries, I know we don't compete with many of them, start to emerge. So just from a customer standpoint, have there been any change in conversations on how things will pan out in the coming? I know actual orders and volumes and others may take time, but any change in conversation or direction in the last month or so as these trade deals are starting to flow in?

Hi Kunal, so for us as India and the other countries, trade deals you're talking about, I just want to clarify like UK and the other countries. I just wanted to clarify that.

No, no, I mean U.S. signing trade deals with something like Indonesia or Vietnam. I know we don't compete with them, but just from a customer conversation standpoint, any change or any anticipation that they have at their end or what's the next step from their side?

Nothing of that sort, Kunal. Let me also clarify. See, Indonesia's operations are very minimal, and I think that focuses on minerals that side. Vietnam focuses on other categories more than home textiles. So that, again, is a perspective that let me just clarify as well. So India continues to be a very strong sourcing arm. And definitely, we will see how the tariffs pan out, but India will continue to be a very strong sourcing country for them.

Understood. Understood. So it would be fair to say, let's say, half of the issue is also the category itself being weak and the rest is the destocking. And the category weakness is also evident in the branded piece, which has also declined for you. That would be a fair understanding, right?

Yes. Yes, Kunal. Because see, I'll tell you one thing, they are looking at the stocks, they're looking at that as an evaluation, then the tariff overhang is one thing. And the other thing also as we go forward is, again, the economy might also be something that we will see a little slowdown.

Understood. Understood. That's clear. And second bit is on the UK side, any early interest that you are seeing which you can tap in the next one year or so? I mean any large customers that you're looking at? I can understand you can't share the name, but any incremental interest that can help build those revenues out in the next year or 2?

The answer is yes. Absolutely. Those conversations have started and very positive feedback for sure.

The next question comes from the line of Roshan from B&K Securities.

I just wanted to understand when is the new facility likely to be operation?

It will start by quarter 4 of this year in Nevada, yes.

Okay. I understand. And by when do you expect to reach the optimum utilization level?

See, it takes at least 6 months to 8 months to reach the optimum. Yes, the second year will be the optimum optimization that you will start seeing because it takes that much time to scale up as well, right? Because every capacity can do around 10 million -- 10 million to 12 million units of pillows.

Right. Understood. And given what is your outlook on the festive season in the international markets because probably from quarter 2, your exports starts happening for the festive season. So what is the outlook over there? How are the buyers behaving? What is the overall mood? Maybe if you can help me understand that?

So this year, it will -- see, every year, our quarter 2 comparatively to the quarter 1 is a little better. So that is the trend we will also witness. Now to that extent of what it will be in the terms of kind of a better off than the previous year, that is not something I will be able to say. But yes, it will be better than this year -- this quarter as well.

[Operator Instructions] The next question comes from the line of Bhavin Chheda from Enam Holdings.