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Earnings Call Analysis
Q2-2024 Analysis
Welspun India Ltd
As we observe the company's performance in the second quarter of FY24, a story of triumph unfolds with record-high quarterly revenues of INR 2,542 crores, marking a robust year-on-year growth of 19% and a 15% increase from the previous quarter. The fiscal half-yearly revenue echoes this success, standing at INR 4,754 crores, up by 16% compared to the previous year.
The EBITDA margin demonstrated an impressive leap to 15.4%, reaching INR 391 crores. This is notably the highest EBITDA margin recorded in the last eight quarters, signifying an astronomical year-on-year surge of 158%. Profit After Tax (PAT) and Earnings Per Share (EPS) figures resonated with similar success, witnessing an increase of over 22 times year-on-year to INR 197 crores and an EPS increment to INR 2.04 per share from INR 0.8 in the same quarter of the prior year. Meanwhile, net debt position improved considerably, reducing by INR 425 crores year-on-year, attesting to the company's effective financial management and strategic capital deployment.
Digging deeper into the core and emerging segments, revenue for the company's fundamental home textiles business grew by 17% year-on-year to INR 2,352 crores, with EBITDA for the segment rising dramatically by over 7 percentage points. Furthermore, the flooring business, a newer venture, has seen impressive growth with revenue and EBITDA percentages jumping by 52% and 570 basis points year-on-year, respectively. Such staggering growth across varied business segments demonstrates the company's adaptability and capability to successfully capitalize on market opportunities.
The company prides itself on not merely sustaining but also expanding its market foothold with over 200 sales staff and a network of 125 distributors nationwide, harnessing technology to maximize reach and penetration. Further boosting its market position is the potential seen in the recently ratified UK Free Trade Agreement, which is projected to significantly benefit the company's home textiles business within a 6-month timeframe after the FTA comes into effect.
Despite confronting global economic headwinds and industry-specific challenges, the company remains steadfast in its financial trajectory, aiming for a top-line growth of about 10% to 12%. Moreover, the emphasis on product shelf-share and brand strength through a diversified portfolio underlines a strategy designed for resilience and longevity. Alongside this, an ongoing commitment to a substantial top-line growth complements the projected EBITDA of 15%, an aspiration grounded in their replenishment program and robust order portfolio.
Executives displayed confidence in the company's revenue and profitability, underpinned by its comprehensive customer collaboration and stable cotton prices. Even in the face of global commodity price volatility, the company's long-term customer relationships shield it against margin erosion, allowing it to maintain a steady course of progress. This collaboration, paired with the company's positioning in a large global market for its flooring business, underlies future growth prospects that put the company in an advantageous position to capture more market share and optimize its product offerings.
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Ladies and gentlemen, good day, and welcome to the Welspun Living Earnings Conference Call, hosted by Elara Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Prerna Jhunjhunwala from Elara Securities Private Limited. Thank you, and over to you, ma'am.
Thank you, Rohit. Good evening, everyone. On behalf of Elara Securities Private Limited, I would like to welcome you all to Q2 and H1 FY'24 Post-Results Conference Call of Welspun Living Limited. Today, we have with us the senior management of the company, including Mr. Dipali Goenka, Managing Director and CEO; Mr. Sanjay Gupta, CFO; and Mr. Salil Bawa, Group Investor Relations Head.
I would now like to hand over the call to Mr. Salil Bawa for initial remarks, post which we can start the Q&A session. Thank you, and over to you, Salil.
Thank you, Prerna. Good afternoon to all of you. On behalf of Welspun Living, erstwhile Welspun India Limited, I welcome all of you to the company's Q2 FY 2024 earnings call. Along with me, we have -- with us today, Mr. Dipali Goenka, Managing Director and CEO; and Mr. Sanjay Gupta, Chief Financial Officer.
We hope you have had a chance to review the investor presentation that we filed with exchanges today. It is also available on our website. During the discussion, we may be making references to this presentation. Please do take a moment to review the safe harbor statement in our presentation.
As usual, we'll start the forum with opening remarks by our leadership team and then we'll open the floor for your questions. Once the call gets over, should you have any further queries that remain unanswered post the earnings call, please feel free to reach out to us. With that, I would now like to hand over the floor to Mr. Dipali Goenka, Managing Director and CEO. Over to you, ma'am.
Thank you, Salil. Good afternoon, everyone, and thank you for taking the time to join us today for our Q2 FY'24 analyst call. I would like to share some perspectives on the operating highlights of our performance during the quarter under review. After which, Sanjay would share some highlights from our financial metrics.
Firstly, as informed, last quarter, the process for change of our name Welspun Living Limited is now complete. The move resonates with our intent to transform from a pure B2B to also a B2C-oriented company.
The new brand identity, Welspun Living not only reflects the current business verticals, but opportunity to grow in related areas as a complete home solution provider. We are pleased to share that we have seen our revenues jump to an ever quarterly high of INR 2,542 crores, growing by 19% Y-o-Y and 15% Q-on-Q.
The upcoming holiday season in U.S. has led to increased buying from all major retailers. Consequently, we witnessed higher capacity utilization on the back of season rollout at 80% to 90% for our terry towel, bedsheet and rug units. We've also achieved highest EBITDA of INR 391 crores in the last 8 quarters, clocking 15.4% in Q2, growing 158% Y-on-Y and 15% Q-on-Q.
Annualized ROCE has improved substantially to 14.6% from 5.7% last year. As for the OTEXA data, India has gained back its market share in exports to U.S. for the Jan to August 2023 period from both in TT from 40% to 45% and bedsheets from 51% to 58%.
We are keeping a close work on all the 3 Cs, cotton, coal, container. As we know, post COVID commodities have remained dynamic. We have strengthened our internal governance to ensure that we are minimizing impact due to any untoward price volatility, both in short term and medium term.
We continue to be cautiously optimistic on the operating performance for the remaining part of FY'24. Though the global slowdown estimates and [indiscernible] still persist, we are committed towards meeting our directed revenue growth of 10% to 12% for the year and 15% EBITDA. I would like to shed some light on the updates for major business segments starting with the exports market.
Globally, the growth has moderated to 2.6% in Q3 and 3.3% in 2022. USA is, however, a market showing resilience with GDP in Q3 is expected to expand at 4% despite banking crisis and rate hikes. U.S. retail sales show resilience in Q3, it grew 3.8% Y-on-Y in September '23, 0.7% MOM in September '23. Inflation, though has affected consumer purchasing power to some extent, inflation is at 3.7% as compared to 3% last quarter.
For the upcoming holiday season in U.S., we have witnessed increase in flow of orders during the quarter. Export revenues of Welspun saw a growth of 22% year-on-year with innovation products growing at 67% Y-on-Y. Our deeper customer connect across major international retailers is reflected in the increased share of shelves as compared to pre-pandemic levels, both in bed and bath categories.
The global economic scenario is expected to be volatile. With the recent Israel-Palestine conflict, it has added to the overall complexity, though our direct impact is minimal, but that it may potentially affect global economic sentiment, which is something we are keeping a close watch on.
Closer home, the Indian markets have been resilient during the recent global turmoil with expected GDP growth of 6.5% and inflation at 5%. However, recently, there has been volatility in inflation owing to huge price hikes and different essentials leading to a dampening of retail sentiment. In Q2, as in Q1, at the retail level, we have witnessed relatively lower footfalls and offtakes within the consumer, general merchandise and apparel space. In this time of inflation volatility, the consumer is prioritizing essentials rather than the secondary products. Despite the transient challenges in the market, Welspun's domestic consumer business sales remained flat for Q2, while Welspun continues to spend in its leadership position and is mostly widely distributed home textile brand in the country with presence in 600-plus towns and 15,511 outlets, up by 2,246 in Q2 -- a reach not hitherto achieved by any home textile player in India.
Brand spaces has outgrown the category in modern freight channel, emerging as a leading brand within the category and gaining market. Despite the continuing investment in marketing and relatively weaker retail market sentiments, the Home Textiles Consumer business continues with a streak of positive EBITDA in Q2.
We remain committed to continued investments in our brands for improving brand visibility and salience, which shall be prominent in the upcoming festive season. With the consumer sentiments improving, we expect B2C segment posting a good growth during the coming months. We remain committed towards our focus to build profitable business growth in the domestic consumer business.
Our emerging businesses of the domestic consumer business, global brands, advanced textile, flooring businesses grew 28% in Q2 Y-on-Y and 15% Q-on-Q. Our global brands include licensed Martha Stewart, Creative CO/Lab and Disney and own brand Christy its continued upward trajectory and grew 27% Y-on-Y.
License brands have given us an edge in U.S. and European markets by opening up new avenues and total brand share, our sales has jumped up to 17% as compared to 12% in 2021. In Flooring business, we have witnessed big ticket orders for soft flooring in U.K. with a bulk order inflow coming in from USA. In hard flooring in Q2, we have witnessed good order flow from U.S. and Middle East markets and have made inroads into African market.
Overall, our flooring plant reached a capacity utilization of 63% during the quarter with record revenues of INR 243 crores, growing by 52% Y-on-Y. EBITDA Also continues to grow, reaching 8.3% in Q2 on the back of increased revenues and better operating leverage. As shared in the last quarter as well, we are witnessing a push towards the China Plus One strategy in major global markets and with a focus on complete traceability of the supply chain. In order to capitalize on the market opportunities, we are working on indigenization of a complete value chain.
On domestic markets front, in flooring, we continue to see growth in commercial and institutional segments. We have executed one of the largest wall-to-wall order in India for Bharat Mandapam, which hosted the recently concluded G20 Summit. Residential segment continues to pick up traction in all our key markets. The Advanced Textiles business witnessed a 15% growth Y-on-Y and Q2 FY'24.
We have expanded into newer territories and customers despite large scale offloading by Chinese and Turkish competition. Welspun's fundraise is now also approved for innovative medical applications, which has opened newer avenues. On the ESG front, we are glad to inform that the solar power JV with CleanMax has started operations in Vapi. The 30-megawatt solar plant at Anjar is also nearing completion and shall be operational soon.
We are also taking steps to further our agenda of our renewable energy goals by 2030 through JVs to set up more solar and hybrid power plants. ESG is embedded in every aspect of operations at Welspun, keeping us ahead of our peers globally in sustainable practices. With this, I would now like to hand over to Sanjay, who will take you through the financial highlights. Thank you.
Thank you, Dipali, and greetings, everyone. I will give a brief overview of financial numbers for quarter 2 financial year '24 before we open for question-and-answer. During quarter 2 of financial year '24, we reported highest-ever quarterly revenues of INR 2,542 crores, up 19% year-on-year and 15% quarter-on-quarter. For H1 of financial year '24, revenue is at INR 4,754 crores, which is up 16% year-on-year. EBITDA margin for quarter 2 stood at INR 391 crores, that is 15.4%, highest in last 8 quarters, is up by 158% year-on-year, that is 829 basis points and 15% up quarter-on-quarter.
For H1 financial year '24, EBITDA is at INR 733 crores, 15.4%. It's up by 125% year-on-year, which is 751 basis points. Cotton being the major input cost, has become relatively stable, albeit at a new higher level. The consistent profitability reflects the work that the company has done across all operating areas, be it cost specialization, value engineering, developing new innovative products or winning new marquee programs from customers.
Profit after tax after minority interest for the quarter is at INR 197 crores vis-a-vis INR 9 crore year-on-year and INR 162 crores last quarter, increased by more than 22x year-on-year. For H1, PAT is at INR 357 crores versus INR 31 crores of H1 financial year '23, up by almost 12x. Consequently, our consolidated EPS for quarter 2 stood at INR 2.04 per share as compared to INR 0.8 per share in quarter 2 of financial year '23 and INR 1.66 per share in quarter 1. For H1 of '24, EPS is INR 3.70 as compared to INR 0.31 of H1 in the previous year.
On the ForEx front, our average exchange realization for the U.S. dollar during quarter 2 was 83.35 compared to 80.79 in the corresponding quarter last year. At the end of quarter 2 of financial year '24, our net debt stood at INR 1,573 crores, INR 425 crores lower than INR 1,998 crores a year ago, and INR 242 crores lower than INR 1,815 crores in quarter 1.
It is slightly up by INR 40 crores from 31st March end due to slightly elevated working capital requirement. In first half of financial year '24, we have spent INR 168 crores towards CapEx, majorly towards the setup of 30-megawatt solar power plant at our Anjar facility. We have a stated objective to be 100% renewable energy by the year 2030. In this direction, we are pleased to share that the Board of Directors in their meeting held today has approved after due evaluation of various proposals presented an investment of INR 56.4 crores in a special purpose vehicle for supply of 47 megawatts of renewable energy around the clock RE-RTC basis for Anjar operations, which will make the company's Anjar unit about 80% renewable energy by 2026, and would be a significant step towards our journey to reach 100% RE by 2030.
The company will hold about 27% equity share capital of SPV, which will set up 150-megawatt of solar plus wind plant to supply the said RE-RTC. This arrangement is at the most competitive rates to the company and is also appropriate from a capital allocation point of view. Coming to segmental results.
Quarter 2 core business, Home Textiles revenues stood at INR 2,352 crores versus INR 2,011 crores in quarter 2 of '23, up by 17% year-on-year and 15% quarter-on-quarter. For first half of '24, revenue for core business was at INR 4,390 crores, up by 14% year-on-year. Quarter 2 EBITDA of Home Textiles stood at INR 359 crores at 15.3% as compared to 6.3% year-on-year and same as quarter-on-quarter.
For H1 EBITDA for Home Textiles stood at INR 672 crores at 15.3%, up by 756 basis points year-on-year. During quarter 2 of financial year '24, revenue from Flooring business was INR 243 crores up by 52% year-on-year and 8% quarter-on-quarter. EBITDA is at INR 20 crores, that is 8.3%, which is the highest ever quarterly EBITDA for Flooring as compared to 2.6% last year.
For first half, Flooring revenue was INR 468 crores, which is also up 42% and EBITDA is at INR 38 crores, which is also at 8.2%, which is up 628 basis points year-on-year. With this, I will leave the floor open for question and answer. Thank you.
[Operator Instructions]
The first question is from the line of Bhavin Chheda from Enam Holdings.
Congrats on record results, mainly on the top line front and very good performance on the flooring front. A few questions. If I see the capacity utilization, it has been increasing dramatically for last 2 quarters. And in the September quarter, bath linen has crossed [ 90 ], rugs and carpets [ 98 ] and bed linen was [ 81 ], so considering the current balance seen in the U.S. market, should we expect second half to be at a similar level? Or what's the outlook?
So the outlook -- thank you, Bhavin,, for the question. And the outlook, we will say that we are cautiously optimistic, and we are committed to the growth of 10% to 12% on the topline and 15% EBITDA and the capacity utilization will be the same. However, we are -- we might look at some kind of debottlenecking of our capacity. So that is something we would be exploring as we go forward.
How much time this would take, debottleneck -- so debottlenecking mainly looking on the bath linen side, right?
So we would be exploring it -- looking at the demand, but we will explore and there could be an opportunity for little investments that could be explored and that could be on the card, but -- we are just exploring that -- but looking at the prudence on ROC and IRR.
Second, on the flooring side, you mentioned in the opening remarks, there were some orders, I think mostly from U.S. or U.K., you mentioned. So were these one-off type of orders or we are going to continue going forward, and we'll see the sales momentum going up as well as margin sustaining?
So the question was -- these were not short-term orders, like only in the quarter, the same run rate continue going forward?
Yes. The run rate will continue. In fact, we are going to be looking at kind of our capacities maintained as the same. And it is also on the back of the China Plus One strategy. I think we are seeing an opportunity there. The whole traceability and being the most modern plant in this part of the world actually gives us that advantage. And definitely, that is something owing to that, we will continue to see this kind of capacity utilization and orders. And this is not one-off. This will be consistent.
And the last one on the balance sheet side. There were some receivables outstanding from government on the incentive part and other. How much has been received in the quarter? And as on the closing balance sheet date, how much receivables are pending now?
So we have been consistently getting, Bhavin, the incentives due from the government. So -- and it is at the same level that we had in quarter 1 or quarter 4 of last year. So there has not been any increase.
[Operator Instructions] The next question is from the line of Tarang Agrawal from Old Bridge Asset Management.
A couple of questions from my side. One on the flooring and the second one on the domestic B2C textiles business. So on the flooring business, your unit realization seems to have fallen substantially. Is it -- I mean, what's driving this? Is it a conscious effort to gain market share to utilize the benefits of traditional operating leverage? So that's one. And the second one on the domestic B2C business. I'm not sure, but did I hear it correctly, is this business burning any cash on a quarterly basis? That's number one. And number two, how are you managing the supply chain to fill your MBOs?
So flooring business, no. So the UVR is a factor of anything. So we have hard flooring, soft flooring. And then within that also, there are various categories. So it is a mix change that may have been seen. There has been higher capacity and higher sales. So of course, there has been a mix change. And that might have impacted it slightly, not to a large extent. So the UVR is not issue. On domestic B2C, as Dipali mentioned, we are into positive EBITDA. So we are not burning cash. We are investing in marketing consistently each quarter, about 9% to 10%, which we are continuing to do, but we are not burning cash there. On supply chain...
Yes, I'll take this up. So for the supply chain for the MBOs, we have a distribution network that we have across the country. And we have over 200 sales staff across the country that help the distributor to reach to the dealers. So that's the way we work with the MBO network. Along with that, we have a technology support as to reach out on the beat plan and the whole reach-out plan as well. So from Kashmir to Kanyakumari, from west to the east, we have a complete network plan, and it is all supported by technology here, Tarang.
Okay. Just, ma'am, if I may. You spoke about the distribution. What's the number of distributors right now, which are helping their MBOs?
We have around 125 distributors here, Tarang, right now, and they are growing stronger.
Super. And just a follow-up on the flooring business here. So you did mention that we haven't seen a realization but -- if I look at the March '23 quarters, we were at about 1.5 million square meter, which gave us about INR 210 crores of revenue. And if I look at September '23, we are at about 2.8 million square meters, and the revenues moved up from INR 208 crores to INR 240 crores. So that was the source of my question. I understand mix change -- Yes. please go ahead, sir.
Yes. So as I said, so mix has changed. So in March '23 quarter, the mix was different and in this quarter, the mix is different in terms of hard and soft tiles. We can give more details offline to you.
The next question is from the line of Biplab Debbarma from Antique Stockbroking.
Congratulations on the excellent performance, ma'am. My first question is on FTA. So how do you see the impact of U.K. FTA on home textiles, especially on Welspun India. And typically, what do you think -- from ratification of FTA to finally getting orders from U.K. Typically, how long will it take? And do you see this U.K. FTA extending to EU FTA? Yes, that's my first question.
Okay. And any other thing? You can continue and then I can answer.
No, no. Thank you, ma'am. This is my question on FTA, yes.
So FTA, I think U.K. FTA is a great opportunity. And as you know, U.K. contributes around 10% of the home textiles demand. And definitely, this opportunity is going to be good for us in terms of not only just towels but sheets. And I think that's going to be a kind of a clear upside. And when you talk about the orders kicking in, it is a matter of when it kicks in and the FTA is approved. We will see a matter of 6 months when this starts coming in.
And do you see EU FTA following -- like -- or this 2 would be 2 different ballgame altogether?
The EU -- is not something that we see right now, but I think U.K. is something that we are seeing. And that is something definitely is kind of top on the cards. And also, it consumes the highest consumption after United states of America.
Okay. And my second question is, in the beginning, you mentioned you maintained 11%, 12% growth guidance. Now if I see the number, operating revenue is already INR 4,693 crores. And if you assume the second half would do as same as first half, then automatically the growth will be more than 15%, if my calculation is correct. So are you seeing a second half degrowth? Or if the second half is better than first half, then the growth should be -- operative revenue would be more than 15% -- Am I missing something here?
No, no. I actually will still maintain the growth target that we're talking about 10% to 12% and the EBITDA of 15%. Let's be looking at the kind of overall global scenarios here. And you don't know with the kind of the Israel-Palestine conflicts and the other conflicts that are happening, what comes on staring at our face. But amidst all this kind of scenario that we are, we are going to maintain what we have committed, that is 10% to 12% top line and 15% EBITDA.
Okay. Okay. Okay. And the third thing is, ma'am, if it doesn't have direct impact from Middle East war, and if FTA comes through, your capacity utilization is at what level? And if you maintain the same kind of growth, say 14%, 15%, let's be optimistic and say 14%, 15%, do you think we may have to put up incremental CapEx? Or what would be that key trigger when you will take that decision whether to increase CapEx? And if it is to increase CapEx, how do you increase CapEx, your own or you use some [indiscernible] associate CapEx? That was my second question.
So there's 3 things on this. I just -- so one is debottlenecking. Second is optimizing our ancillary network that we have near our factories. Third is, as we see the growth kicking in and the utilization kicking in over 95%, we definitely see that we are exploring CapEx. But yes, that's something that we are very, very clear about. The prudence on IRR and the ROCE. And if there are opportunities because there are opportunities owing to the displacement of different countries across where India will hold a very good opportunity here. So definitely, that could be something on the cards. We are definitely exploring that. And we will look at the movements of ROC and IRR here.
The next question is from the line of Prathamesh Sawant from Axis Securities Limited.
So congratulations on a good set of numbers. So my first question would be with respect to the existing Australian FTA? Do we have any advantages from them? And are we pursuing anything happening over there?
Yes. Australia has been a very interesting market. The 2 things that are worked for Australia and India: one is the FTA. The other is the relationship of Australia and China. So that actually has put India at an advantage. And for Welspun, of course, we have seen an opportunity here, not only in home textiles -- in the retail segment but also in the hospitality segment and also in the flooring segment. So yes, there is something which we see as an upside there.
Okay. And do you have any demand traction or plant -- any leads over there working...
Yes, absolutely. We have our retail relationships that we have. We have hospitality relationships and the flooring relationships also that are there. And Australia will be an advantage for the -- and the FTA has been an opportunity for us and as well as India.
Okay, okay. Absolutely. Secondly, ma'am, with the current flooring segment doing really well. So just wanted to understand on the granularity of the U.S. orders. Is it from like 2 or 3 big customers or it is more granular than that?
So it is a mix of all, actually. So the opportunities, first of all, the mix is hard flooring and soft flooring. And it is a mix of the distributors and now also the retail channel that we're talking about. So -- and that is going to continue to evolve and also owing to the whole China opportunity, we definitely see an upside here.
No, no. My question was with respect to the current significant ramp-up in the U.S. export revenue, especially in the flooring. So was it particular to 1 or 2 big players or was it more granular?
Yes, it is owing not just 1 or 2 play players, it is a mixed bag, and it is more granular here. It is not just 1 or 2 who are contributing to the -- and also going forward, there'll be more newer customers adding to our kitty.
Okay. Okay. And are we focusing B2C over there for flooring?
No, not yet. The B2C will not be something. It will be purely B2B that we are going to be focusing. And actually, let's face it flooring is basically primarily a B2B kind of a segment, yes.
Okay. Okay. And lastly, 1 last question for me. There's -- your outlook on the cotton prices -- are we expecting any margins -- gross margins to remain stable over here?
So we are maintaining our margins that we've already spoken about. And cotton prices -- looking at where we are today, they are going to be around INR 61,000, INR 62,000, and that's what we are looking as an outlook at the moment.
Because there were talks meanwhile there -- the prices were climbing to INR 85,000. We are not experiencing that?
No, no, no. Not at all. Not right now. So definitely, the -- see, we are seeing the weather has been a little inclemental . There has been [indiscernible] that we've seen. But it is also the supply and the demand. And we are looking at an outlook which is looking at around INR 61,000, INR 62,000.
Also, Prathamesh, we have cotton in stock with us for the next 4 months. We are keeping a close watch on the cotton prices we have systems in place to take steps necessary to ensure that we are not caught on off-guard on this. So we have no worries on that front as of now.
The next question is from the line of Iqbal Khan from Nuvama.
Firstly, congratulations for a very good set of results. Just 1 question I have on the export front. I wanted to know how is your export mix between U.S. and Europe. I mean, obviously, your large chunk of the export goes to these 2 countries. Just wanted to know the mix of it. And also, currently, I think you are catering to Australia. So Australia is also a part of the export mix. So how would you divide your export mix in these 3 geographies?
So let's face it here. U.S.A. still continues to be a bigger chunk and it will be because USA consumes 34%, 34% of the global home textiles. So for Welspun Living Limited, it is around 70%. Now when we come to U.K. and Europe, we will say -- the next 20% will be -- next 20% will be from U.K. and Europe. And it will -- and U.K. consumes around 10% of the global consumption of home textiles. Australia, New Zealand and Rest of the World will be say around 5% to 7%.
The next question from the line of [ Saket Kapoor ] from [ Kapoor and Company ].
Yes. Ma'am, what would be our net debt number for FY'24? What should be the closing number? And currently, what is our cost of funds?
So we closed quarter 2 at INR 1,573 crores. We have stated our objective to reach less than INR 1,000 crores by financial year '24 end. And our cost of debt is currently in the range of 6.5%.
Sir, in the cash flow, we have found that INR 158 crores is attributable towards government grant. So how should this number shape up for the second half? And what should be specifically for the year as a whole? What factors attribute to this number, sir?
So it will remain in the same ballpark number. That doesn't change much.
So for a year as a whole to be closer to INR 300 crores, INR 310 crores, the government grant. Is it the RoDTEP, sir, or any other category?
Yes, RoDTEP and Duty Drawback -- yes.
Okay. Sir. And for the flooring segment, we found that the H1, our utilization levels have reached 63%. So what should we exit on...
H1 is -- quarter 2 is 63%. H1 is about 54%. We should be in the -- overall year should be around 60%.
And what should be, sir, for the next financial year?
So we will continue to grow capacity utilization. I can't give you a number at the moment, but...
Sir, it will grow from here?
Yes.
it will only -- growing from here. And -- 1 more point I mentioned for asset held for sale. So if you could throw some more light what are those and when are we going to realize or what should we value?
Yes. So we are moving more and more away from traditional energy -- and hence, we are offloading those assets. So we have sold our 12-megawatt power plant, and we have sold our boiler for the plant. So this will be done within this year. Because some approvals are required from the government whoever purchases it. So those approvals are pending. So once those approvals are in place, we will affect the sales. So we have taken the Board approval for it.
Ma'am, in you opening remark and also to your reply to earlier participant, you did mention about a cautious outlook, but still maintaining a top line growth of 10% and with the EBITDA number at 15%. So if you could just outline to us what are the factors that give you the confidence when we look at the U.S. economy as a whole, the inflationary trend, the [ age ] at 5%, the top of liquidity crunch. So what are the key factors that are attributing to this growth and the continuity of the sale, if you could throw some more light?
So here, I think for us, we have seen that the retail has been a little resilient here and also owing to our replenishment program. So for Welspun Living Limited, our 70% to 75% businesses are replenishment businesses. So that gives us the confidence here. And with the order portfolio that we have, -- we will maintain a commitment that we have put across.
So with interest rate scenario remaining at, say, 5% or at higher levels, would this lead to a dent in demand and going ahead has made a lower demand output even for the replenishment segment. But how should this higher interest rate scenario going to affect the segment as a whole? What should we be perceiving it going there?
So the challenges are there. We have already seen the economy the way it is. But I can just tell you for Welspun Living Limited, the opportunities that we have seen is that we have worked very, very focused last year on getting the share of shelves. So whether it's in terms of private label, in the terms of a licensed brands as well, along with the kind of a mix of a deep product, whether it is a towel, sheet, bedding and rugs. So that is the opportunity that we have and also the different channels of growth that we're talking about here. So whether it's a discounter -- so we have -- we see an opportunity here in that terms to look at our top line growth of around 10% to 12% and an EBITDA of 15%.
Ma'am, for the answer, and we look commendable on the set of numbers and the guidance which provided by the team and all the best and congratulations. And Happy Diwali to the team...
The next question is from the line of Prerna Jhunjhunwala from Elara Securities Private Limited.
Yes. So ma'am, I wanted to understand the flooring business outlook -- with respect to markets with -- especially in terms of export and domestic and B2B domestic. How things are shaping up? And in the branded space, how flooring business should shape up going forward? How -- what is the kind of traction we are getting in this segment on the branded front as well?
So first of all, when I look at the global landscape, in the terms of private label and branded. So America is going to be the private label one. And when you talk about branded, it is going to the Middle East and India, right? And it is primarily B2B, okay? Now when I talk about U.S.A., the opportunity definitely is there. And that, again, I will reinstate that we -- looking at the opportunity that Welspun has, it is one of the green facilities and one of the most modern plants this part of the world, which actually is a great opportunity for us, along with the indigenization of the supply chain for Welspun will be a great criteria to get the businesses in America. And the businesses will be a mix of soft and hard flooring. And the whole traceability is something that Welspun has an advantage against the other countries, which actually are challenged because of that. Now when I come to India, India is something that we are seeing a great opportunity in the terms of the B2B businesses. That is -- that means the -- more than the residential right now, we are looking at the institutional and the hospitality segment. That, again, is a great opportunity, and we'll see that growth going forward as well. And that's where it is, Prerna, at the moment.
Okay. And when do you think we should be -- we've already reached a run rate of around INR 1,000 crores. Do we see this run rate reaching INR 1,500 crores to INR 1,600 crores in the next 2 years?
See, I'll tell you 1 thing. Let me now -- let's share this with you. I think we have a great opportunity in the flooring business. Having said that, I mean, the INR 1,000 crores is the first stop and then INR 1,500 crores. And I think sky is the limit for the flooring business because I think India has a great opportunity towards growing this. So yes, definitely, Prerna, we are exploring a very ambitious goal towards which we'll share when we need to...
Okay. Okay. And in terms of festive season sales that we would have seen during e-commerce sale period and Navaratri. Any color that you're getting in domestic market? How home textiles branded demand is moving in India?
So I'll tell you 1 thing here. So until August end and September [ end ], the businesses had been very -- they were running at a very tepid pace. The [ charades ] were on. And the interesting thing, Prerna, this time has happened, that Diwali is coming a month later. Usually, we would say that the quarter 2 would actually have the sales because of Diwali would have been in October, right? Now this time, the Diwali is 1 month later. So now the sales have picked up. And we are seeing -- the weekends now giving a growth of over 50% here. So yes, now the momentum has come in and the festive season has started kicking in. Earlier it was slow.
The next question is from the line of Resham Jain from DSP Asset Managers.
Yes. Resham Jain here. So I have just 1 question. So if I look at the numbers historically. You have -- it seems that the OpEx has been controlled quite well. But if I look at the gross margin profile, it used to be 50% plus/minus in good times, it has gone above 50% as well. But now let say, last 2 quarters, we are seeing your gross margin anywhere between 46%, 47%, which is 300, 400 basis points lower than what you used to do before COVID. Obviously, it has improved compared to last year because last year had a lot of challenges. So how should one look at your gross margin profile going forward? Because 18%, 20% used to be the gross margin profile earlier -- there is a mix of kind of flooring also coming in. But even if adjust your gross margin -- your overall EBITDA margin seems to be lower than what you used to do earlier.
So, yes -- so you think more and more our emerging businesses are growing. And -- so this is a blended margin of our Home Textiles core business and the emerging business. So as the emerging businesses will reach a certain size and profile, the margin will, of course, increase. So currently, they are giving lesser than the core Home Textiles margin, and hence, the consolidated margin is coming lower. But as they start contributing more and more as we have seen in flooring as well as in domestic, this margin profile will go up, yes.
And the Home Textiles will maintain a number of around 17% -- 17% to 18%, yes.
Okay. And Home Textiles business because it has a contribution from the domestic piece as well, which I think it is in the building phase, so probably margins must be lower there. So if one looks at the export Home Textiles business, would the margin be similar to what you might be doing, let's say, 3, 4 years back 18%, 20% range?
Almost in the same range. So about 17%, 18% currently because as I said, the cotton is at an elevated level. We had cotton at INR 40,000, INR 45,000 earlier, now it is at INR 60,000. So of course, with cotton at such an elevated level, the margin -- on the denominator-numerator basis, it gets slightly affected, but we are in the same ballpark.
The next question is from the line of Nirav Savai from Abakkus.
My question is regarding the flooring business. So just wanted to understand what's the addressable market size which U.S. has right now? And when you look at the global supply chain, how much China would be contributing in flooring part of it?
Yes. Nirav, so flooring -- see, the total size of flooring of -- in the U.S. is $90 billion, but our addressable market is about $10 billion. Out of that $10 billion, China would have a 50%, 60% market share currently. We have just started. So we are relatively smaller, but we will continue to eat into the other share. And hence, we are seeing that the market opportunity is very large.
And second question is when you look at cotton prices, the last 6 months they have come down. So do we see price cuts coming from a customer -- negotiating lower prices for forward contracts?
No, no. So the cotton price has remained now stable to some extent, and so the prices with customers are also stable. So on a cotton basis, there is no price change happening at the moment.
The next question is from the line of Iqbal Khan from Nuvama.
So just want to understand the sensitivity part. So current cotton prices around INR 61,000 and INR 62,000, right? So what is the fluctuation or what is the pricing where now you take decision on the price cuts or price hike? And how does it impact your volume as well? So just wanted to understand the sensitivity part of this.
Iqbal, it's not a simple cut-and-dry. So a lot of discussion, we -- it's keep on happening with the customers, and customers are also in the know of what is happening. So it's not that...
So here, I'll tell you one thing, Iqbal. I think this is a very clear visibility the way we work with customers in collaboration. And the cotton prices are absolutely visible to everybody here. And that's what we work very closely with our customers. So the cotton prices are around INR 61,000, INR 62,000. And I think this is what we are seeing even going forward. And there's also -- there's a way that we work where we constantly are in touch with our customers on a regular basis on -- anything, in the commodities, whatever it is.
So at times of higher cotton prices, the negotiation power of the customer increases and because of which there is some kind of price cuts that can take place and which can potentially impact our margins. Is this -- this is what I want to understand. What kind of negotiation takes place? I mean to what extent the negotiation takes place?
Iqbal, we work on a long-term basis with customers and customers also understand that what is the profitability, what is cost -- what is cotton cost. So we work as a partner and there is no undercutting by the customer. So there is no chance of a margin loss because of this.
This was the last question. And I now hand the conference over to the management for closing comments.
So thank you, everyone. It's heartening to see the fruits of our hard work reflected through the highest ever quarterly revenues and increased market share in all our business verticals, home textile exports to U.S., flooring exports, domestic and advanced textiles. New and increased order flows from marquee retailers shows the trust and confidence in us, which is further strengthened.
Our global brands continue to give us an edge through innovative products and alliances. Flooring business has started pulling its weight slowly but steadily. Domestic business continues to scale newer peaks through cementing its leadership in reach, distribution and brand identity, which augurs very well for opening up doors for a high sustainable growth in market share.
In ESG, our commitment is unparalleled and a move towards achieving renewable energy targets by 2030 would further strengthen our leadership in this area, along with substantial cost savings. We continue to be cautiously optimistic on the back of the disturbed global economic sentiments that we are witnessing and are committed towards the revenue and profit guidance we have already provided for FY'24.
Welspun is also committed to us reaching a healthier, sustainable ROCE to create substantial value for our stakeholders. Thank you for your continued interest in Welspun Living. For any other queries, please feel free to connect with Salil and Sanjay.
Thank you. On behalf of Elara Securities Private Limited, that concludes the conference. Thank you for joining us, and you may now disconnect your lines.