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

Ladies and gentlemen, good day, and welcome to the Welspun Living Limited Q2 FY '26 Earnings Conference Call hosted by JM Financial Institutional Securities Limited. [Operator Instructions] I now hand the conference over to Mr. Anirudh Nagpal from JM Financial. 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. So 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, Anirudh. Good afternoon to all of you. On behalf of Welspun Living Limited, I welcome all of you to the company's Q2 FY 2026 Earnings Call. Along with me, I have Ms. Dipali Goenka, Managing Director and CEO; and Mr. Manish Bansal, CFO, Welspun USA. I'm pleased to inform that the Board has approved Mr. Manish Bansal's appointment as CFO of Welspun Living Limited with effect from January 1, 2026. I hope you have had a chance to review the investor presentation that we filed with the exchanges today. The same is also available on the company's website. During today's discussion, we may be making references to this presentation. We request you to take a moment to review the safe harbor statement in our presentation. As usual, we'll start the forum with the opening remarks by our leadership team. Post that, we'll open the floor for your Q&A. Once the call gets over, should you have any further queries that remain unanswered, please feel free to reach out to any one 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 evening, everyone, and thank you for joining us today for Welspun Living's Quarter 2 FY '26 Earnings Call. This quarter unfolded against a backdrop of persistent global tariff headwinds and a cautious demand environment, particularly in our key export markets. Amid this volatility, our focus has been care, manage what's within our control, trend in fundamentals, cost controls, efficiency and customer trust and stay future-ready through portfolio and regional diversification, brand-led growth and operational agility. The 50% tariff on Indian exports to the U.S. has disrupted trade flows and retailer buying patterns across the industry, weighing on near-term volumes. Despite these headwinds, our strong customer relationship and competitive moat as a trusted global partner has enabled us to retain customers and sustain market share in the U.S. As per OTEXA, January to July 2025, while the overall exports to the U.S. have declined by 44% in towels and 8% in sheets. Welspun continues to strengthen its market share, underscoring our structural edge in scale, reliability and quality. Our customers are partnering with us to share the tariff burden, the partial absorption of tariffs is weighing on margins. Margins can recover, customers once lost, cannot. We remain hopeful that progress on the Indian U.S. bilateral trade agreement will bring clarity and gradually restore stability to trade flows. The U.K., India FDA and the other upcoming trade agreements will provide a strong impetus to diversifying our footprint in other regions where we already had a 40% share of business. On the domestic front, India's macro fundamentals remain resilient. The recent GST rate rationalization and encouraging development is a structural positive for organized players. We expect this to enhance disposable income, thereby laying a ground for stronger consumption trends. Highlights of the quarter gone by. Amid external turbulence, we delivered consolidated revenue of INR 2,456 crores, down 16.4% year-on-year on a high base last year and up 7.3% sequentially. EBITDA margin stood at 6.8%, reflecting the impact of tariff-led volume pressure, adverse mix and other factors. Despite this, our balance sheet remains strong, cost discipline intact and diversification strategy on track. Consumer sentiment in the U.S., our largest market remains muted heading into the holiday season. According to the Deloitte Holiday Retail Survey, spending on Home categories is expected to decline 20% to 25% this season, reflecting softer discretionary spending and measure retailer inventory. In this backdrop of slowdown our core home textile. Exports business declined 15.4% Y-o-Y to INR 2,043 crores. The recent Federal Reserve rate cut is a welcome development and could gradually have help revive consumption in the coming quarters. We continue to expand our portfolio with high potential and higher realization categories such as fashion travel, fashion and utility bedding and pillows, with the Jacquard plant commencing operations in July 2025, we are the leading terry tower manufacturer globally. Our strategic onshore investments in the Ohio Pillow facility has reached nearly 50% capacity utilization and will continue to grow with the Nevada expansion underway. We expect our Pillow business to nearly double to 30 million this year. Finally, we are deepening our footprint and supply chain capabilities across U.K., Europe, GCC and ANZ and Japan to drive geographic diversification that will fuel long-term growth. While overall home textile exports to EU has grown between January '25 to July '25, Welspun dispatches grew over 2x the market rate, expanding their shares in both sheets and towels. Globally, Christy, our luxury heritage brand showed strong growth momentum of over 40% Y-o-Y, led by U.K. and U.S. performance and healthy gross margins of over 50%. Online segment grew by over 30%, complemented by off-line expansion with 12 doors in Bloomingdale's and bed category expansion in 17 John Lewis stores in London. Our domestic consumer business recorded INR 153 crores, down 3.7% Y-on-Y, reflecting short-term channel adjustment for GST rate rationalization. Nearly 30% of our portfolio now benefits from the 5% GST slab, which will enhance affordability and accelerate the shift towards branded and organized players over time. India continues to be a bright spot globally. Now the fourth largest economy, with rising consumption, world-leading digital payments ecosystem and expanding real estate activity, supporting medium-term optimism. Our brand investment and spaces remain strong across affordable and aspiration segments and are well positioned to lead India's next phase of consumption led and experience-driven growth. Additionally, India is expanding religious tourism and pilgrim infrastructure growing at a CAGR of 18%. It's creating incremental demand for institutional linens, bath textiles and furnishing, providing a new avenue of steady growth for the category. Our domestic flooring business grew 14.3% Y-o-Y, led by strong traction in hospitality with a 13% growth over last year. Globally, the scenario was different. Overall, Flooring segment clocked a revenue of INR 181 crores, 27% degrowth Y-o-Y in Q2 as housing activities and projects started -- they started remain subdued, particularly in U.S. despite the Fed easing stance. Our advance textile business declined by 19% to INR 120 crores, amidst lower global offtake. However, we remain focused on value-added categories such as hygiene, health care and filtration, building a strong innovation pipeline to serve global customers as markets stabilize. ESG continues to be a core pillar and key differentiator for Welspun Living. We are progressing towards our 2030 goal by 100% renewable energy and sustainable cotton use. In Q2, our Hyderabad facility achieved 93% green energy use and in the new fiscal year, Anjar facility will be shifting to the round-the-clock RE power, taking it to RE's adoption to 80%. During the quarter, 97% of our cotton was sustainably sourced. As we move towards the external environment remains fluid, near-term pressures are likely to continue to the second half impacting both top line and bottom line. However, with every challenge comes an opportunity, and we are building a foundation, not just for today but for the next 100 years. Before I conclude, I'm pleased to share that the Board has appointed Mr. Manish Bansal as the new Chief Financial Officer of Welspun Living, effective 1 January 2026. Manish has been with us for over 15 years and has led leadership roles across our Indian retail, U.K. and U.S. businesses. His extensive experience across geographies and deep understanding of operations and financial strategy make it exceptionally well-placed to lead our finance function as we continue to focus on disciplined execution and sustainable growth. We extend our best wishes to Manish, as he takes on this new responsibility. With this, I would like to hand over to Manish to take you through the detailed financial performance for the quarter.

Thank you, Dipali. And good evening, everyone. It's a privilege to address all of you today in my first earning call at Welspun Living. I will take you through a brief overview of our financial performance for Q2 FY '26. We reported consolidated quarterly revenue of INR 2,456 crores, down 16.4% Y-o-Y, while EBITDA margin stood at 6.8%, contracting 748 bps Y-o-Y. Our margin compression is primarily driven by tariff-led volume pressure and adverse mix. Despite higher realization from ForEx at USD 87.14 versus USD 84.29 last year. We continue to tighten overheads, optimizing -- optimize sourcing and improved plant efficiencies to safeguard margins. Profit after tax after minority interest for the quarter is at INR 13 crores, down 93.5% Y-o-Y. We continue to strengthen our balance sheet. Net debt stood INR 1,570 crores versus INR 1,603 crores as at 31st March 2025, which is lower by INR 33 crores. Our cash convertible cycling improved to 88 days, amidst tightening controls reflecting better working capital management. Free cash flow has been improved to INR 158 crores versus March '25 INR 212 crores. CapEx during this quarter was INR 87 crores, primarily towards efficiency enhancement and ongoing hybrid wind and solar power transmission line. These investments are aligned with our long-term strategic priority of operational efficiency and sustainability. As I step into this new role, my focus will be razor-sharp on driving cost realization and improving operational efficiencies through automation and digitalization. We have to focus on market diversification and product strategy along with cost reduction to improve margin. Our goal is to make Welspun Living sharper, more agile and future-ready. With this, I will now leave the floor open for question and answer. Thank you.

[Operator Instructions] The first question comes from the line of [indiscernible] Research.

Investors are slightly disappointed about the disappointing results for the second quarter in succession. Is both contemplating any share buyback to offset the negative results?

No, the Board will decide on this actually.

Whether you are thinking of compensating the shareholders by thinking of share buyback, as you have done in the last three instances?

So this is Manish Bansal here. So at the right time, Board will decide the situation. And based on that, the same will be communicated. And this is a short-term issue. And over the period, these things will get automatically improve as soon as this tariff situation is sorted. And then we will be able to deliver better numbers.

So I think while you are talking about these disappointing numbers, I hope you also understand the 50% tariff is right there and is the reality, sir. And the thing is that we haven't lost any customer and we are continuing to hold on to our market share, while we continue to diversify and hold on our cost leadership and work on the cost controls.

Our next question comes from the line of Shradha Agrawal from Asian Market Securities.

Three, four questions from my side. Firstly, is it possible to quantify the impact of...

Shradha, can you speak a little louder?

Yes, possible to give us the quantum of tariff impact that we saw in the quarter? And adjusted for that, how would have margins been?

Sure. I think, Manish, over to you.

Yes. So it's -- tariff impacts are not in terms of direct numbers, but tariff has actually impacted us in terms of volume and there is very minimal impact in Q2 of tariffs directly.

But it is the impact of the volume because we actually held on until the customer gave us approval in writing to dispatch goods as well. So the lot of impact that you are seeing in this quarter is mainly because of the volume impact. And as we go forward, this will continue in the terms of our tariff impact.

Ma'am, but ideally, you would have also shared some tariff burden in terms of pricing with the customers, so is that impact not...

No, that will come in. That is already actually already on the onset, let me just be very clear on it. And this will continue to actually get even sharper in the quarter 3. Quarter 2 has started showing and reflecting. And even in quarter 3, it will reflect. But having said that, we've worked with our customers to share a 50% they have shared and we have worked as a partnership there with the customers. We work on the first sale with one of the big folds. And also working on the U.S. cotton, that will also mitigate a lot of risk of the tariff as well.

Ma'am, some of your peers, not necessarily in home textile, but in garmenting those that declared results today, indicated almost a 10% to 15% burden sharing with retailers that impacted the revenue. So apart from the volume impact, I was expecting a similar kind of impact from you. So is that a number that we also saw in terms of impact on realization because...

Yes. Yes, absolutely. Absolutely. That was the impact on the realizations as well. And you can also appreciate that we just don't deal in one category. For us, Welspun, we have a diversified portfolio, of bath towels, sheets, bedding, rugs, carpets flooring everything and advanced textiles. So for us, it's a very diversified portfolio. Having said that, as the tariff goes, this will be working to our advantage as we go forward.

Right. And secondly, on the flooring business, this business has been under stress for some time, and the tariff impact has made it even more difficult. So what is our strategy going ahead on this segment? And how -- I mean, I think we are seeing a higher impact on our hard flooring business compared to soft flooring. So what is the strategy that we are undertaking for flooring as a whole and for soft flooring in particular?

So I can tell you that soft flooring is going to continue to grow stronger and will have a growth of around more than 20%. And hard flooring, you are absolutely right, there has been an impact. Having said that, we are actually controlling our fixed cost, working on a very calibrated approach. And you'll also see an upside here also as we go forward. So I just want to tell you, we capped the cost here. We're capping everything so that there will be minimal impact on this as well. So to your point, you will see kind of a positive impact on flooring as we go forward.

And then last question, by when do we expect the Nevada capacity to get operational and expected potential peak revenue from this business?

So our Nevada capacity will start being operational by 1st of February, end of Jan, and that's where we are looking at that to be operational. And if you're looking at Ohio, we are more than 50% utilized. And we'll continue to grow our capacity utilization quarter-on-quarter in Ohio as well and Nevada gets operational end of Jan, 1st February.

[Operator Instructions] Our next participant is -- come from the line Prerna Jhunjhunwala from Elara Securities.

I just wanted to understand the volume impact that could come in going forward as the full impact of tariff comes in. What kind of decline or uptick that we can expect in the second half of this year? [indiscernible] tariff continue?

Quarter 3, we are seeing a visibility which is looking as okay as quarter 2 near around quarter 2 itself Prerna. Quarter 4, we cannot right now have a visibility that clear, because the holiday season is there in the quarter 3. So while I think in the next 1 month, we see a visibility for quarter 4. So quarter 3, we continue to see a clarity, and it is as good as quarter 2. But I can also tell you that Prerna, while -- and U.S. is your biggest market, while the tariff looms, but as the tariff goes, we'll continue to have that market share, which we are not leaving because of the tariff concerns. And we have also diversified our geography. So when I look at 60% U.S.A, 40% is U.K. and Europe and that 20% is U.K. and Europe, 13% is India and 7% is rest of the world. So we see this kind of a mix continue to grow. And also, along with that, our brand portfolio will also grow. So I think there's a huge opportunity here, Prerna. And this is a minor blip that I will say.

Okay. My second question is on this branded business. In your presentation, we see that this branded business is also not done that well. So what could have been the reason behind this brand business in overseas markets not doing well?

Overseas market, I think, Prerna, I think if you would have seen our own brand, Christy has grown. In fact, it has grown by 40% and our online business of Christy has grown by over 23% with a margin of 50%. And we actually opened doors of Bloomingdale's as stores. We actually store in store in Bloomingdale's in more than 9 stores, not from the online. So that footprint has also started along with what we're doing in U.K. And India has been a challenge. Let me also face and tell you that because of GST. Because the GST blip this quarter, Diwali shopping also, they were holding on until there was a clarity of GST. So that actually got procrastinated till first week of October. That's where -- and if you are talking about the other brands that we have, that actually happens matter of seasons and placement that you will see a continuous growth happening on the quarter-on-quarter quarter right now. So I'm not worried about that. That you will see, like as the placement happens, and there are few placements, strong placements that will happen and you will see that growth coming in. So just to sum it up, our Christy brand global, our own brand has grown. Spaces and Welspun will grow post this blip of GST. So you will see that upside also. And our Domestic Flooring, our Welspun Flooring has also grown by 14% this year, this quarter.

Okay. And whether there was any volume -- whether there wasn't a rush before this relative tariffs were implemented and there has been an incurrence of higher cost, maybe through air or something like that, that has been incurred in this quarter, or is it normalized operations that we see, and there was no rush of volume before the implementation of cumulative tariff? Just wanted to get some clarity on this.

No, no. Not at all, Prerna. Because actually, we also didn't want to rush anything. We worked with our customers, with their written approvals were the dispatches done. So there was just very clear clarity from our customers and ourselves mutually that let's have a proper understanding and then only the dispatches were done.

Okay. And you see any demand cautiousness going forward as increase impact of tariff-led goods comes into the system in the U.S.?

So, Prerna, if you have seen the Deloitte report, the consumer report of America, we have clearly said that post the holiday and the holiday season also, they are anticipating a little dip. And going forward also, there's the kind of layoffs that have happened and also the concerns that are there, they might see that dip. Having said that, America is an economy that surprises you. So let's wait and watch and be positive about how the tariff goes off and how we look at the positive demand come back.

Last question is on U.K. FTA. Now that it's signed but yet to be ratified, what kind of inquiries you are seeing from the U.K.? And what is your expectation that this geography could actually bring in when the ratification is already done?

So. We are actually very well placed in U.K. and Europe. And in U.K., also, let me tell you that already the conversations with the top retailers is already happening. The business in the terms of growth, business in terms of strategic partnerships like we work in America has already started. Along with that, let me also tell you how we are working with the hospitality partners in America. One of the biggest chains of hospitality in fact, Europe, which has around 400,000 properties, we already have started our placement. So I can tell you that already we can see that kind of a positive swing there. I mean, one more thing Prerna, let me just clarify. U.K. might have a blip in terms of the kind of economy. But Europe, if you look at it, have seen that kind of an upside. So you will see that kind of an opportunity in Europe as well. So having said that, to sum it up for you, U.K., we are continuing to grow. Partnerships are there. Europe, we are continuing to grow. Japan, we will continue to grow along with Australia, which is again showing very, very -- the green shoots in Australia as well.

And have anything on flooring that is happening in these geographies because that business is continuously seeing some impact of tariff and not seeing any major improvement over there?

So Prerna, very valid point, but I'll tell you, in the terms of soft flooring, we see a very strong upside in the other geographies, where which is like Middle East, U.K. and even in Australia where there are certain JVs that we are working with in Australia, that could be a very positive impact. And in India also, with the kind of commercialization, hospitality, we are seeing a very positive impact. Along with that, our area rugs with very strong innovation are seeing a strong upside. It is only the U.K., U.S., which is because of the tariff, but despite -- without that, we will be able to have a great opportunity there as well.

Our next question comes from the line of Deepali Kumari from Arihant Capital.

I have few questions. [indiscernible] for expectations for working capital cycle improvement, especially in inventory and debtor days where volatility is observed?

Actually, if you see our current working capital is one of the best ever. We are currently monitoring and controlling in terms of our inventory levels our debtors and payables. As of now, if you see our current working cash conversion cycle is 88 days, which is lowest after FY '22. So we are very cautious, and that's one of our key priorities to ensure our balance sheet is very healthy and very -- strict controls are in place to ensure our cash flow and working capital cycle is managed. If you see -- even our free cash flow has been improved. We are INR 152 crores of free cash flow.

Okay. So we can expect like 88 days only. Is there any improvement in by 2026? Can we see that?

There is always a scope of improvement, but it is on an ongoing basis. And as we progress, we can always work on that. But as of now this is what looking more positive.

Okay. And also, can you please share some guidance over margin for FY '26?

We all know that as the tariff goes, there are a couple of things let me tell you. This is like a 50% tariff, which is on the largest market in the world, which is United States of America. While we know this is a short-term blip. And as it goes, -- we will come back to our normal margins that we are going to -- that we have already continued to talk about and forecast. So that's why we will see Deepali, our numbers come back to. It is an interim blip. We are definitely working on costs and the other measures so that we make our balance sheet stronger, have a strong free cash flow. All that measures will be taken here having -- keeping an eye on all this while we maintain our market share in America.

Okay. Yes. At the current annual utilizations, we've seen buckling in bed linen and flooring. What is the optimal target utilization? Is there any something operational bottleneck to achieving it?

So, Deepali, for flooring, I think we are working on a decent optimization of 60% to 70% in the terms of soft flooring. Hard flooring, we are actually capping our capacity to our fixed costs so that we wort it efficiently and also profitably. So this is the way we are taking measures on flooring.

Okay. And for bed and bathroom?