Welspun Living Ltd

NSE:WELSPUNLIV

Earnings Call Analysis

Welspun Living's Strong Q1 Growth and Future Optimism

Welspun Living reported a robust Q1 FY '25 performance, with revenue increasing by 17% year-on-year to INR 2,588 crores, driven by strong contributions from all business units and key markets. EBITDA rose by 15% to INR 393 crores, maintaining a margin of 15.2%. The company remains on track to meet its guidance of 12% revenue growth and an EBITDA margin between 15% and 15.5% for FY '25. Challenges such as container shortages and economic issues were mitigated. The Board approved a buyback of INR 278 crores and a 10% dividend. Net debt decreased by INR 253 crores compared to the previous year-end.

Strong Revenue Growth Continues

In the first quarter of FY '25, Welspun Living Limited reported a robust revenue increase of 17% year-on-year, bringing total revenues to INR 2,588 crores. This consistent growth mirrors the company’s performance in the preceding fiscal year, indicating solid demand across all segments in both global and Indian markets. Improvements in operational efficiency and market conditions contributed significantly to this uplift.

Sustained EBITDA Despite Supply Chain Challenges

The company's EBITDA stood at INR 393 crores with a margin of 15.2% for the quarter, also reflecting a year-on-year growth of 15%. Although revenues could have been higher, disruptions in global shipping, particularly due to issues in the Red Sea affecting container availability, somewhat hampered operational performance. Nevertheless, Welspun's strong relationships with shipping partners mitigated potential cost impacts.

Market Dynamics and Consumer Behavior

Consumer spending has shown positive trends, supported by a 2.9% year-on-year GDP growth in the U.S. and a similar retail spending increase, which bodes well for future sales. Additionally, India solidified its position as a leading supplier of terry towels and bed sheets to the U.S., maintaining significant market share. These factors indicate a favorable environment for Welspun’s offerings.

Capturing Market Share with Strategic Initiatives

Welspun's management mentioned that even amidst international geopolitical challenges, their strategic focus and brand investments foster growth. They’ve emphasized increasing domestic market penetration through expanded retail presence and enhanced brand visibility. Their initiatives have led to a rise in brand recall, establishing a stronger foothold in consumer segments.

Financial Prudence and Commitment to Shareholders

The company confirmed a buyback program worth INR 278 crores at INR 220 per share, indicating a commitment to returning capital to shareholders. The cumulative payout from the buyback and dividend distribution would reach INR 353 crores. Despite temporary debt increases due to capital expenditures, Welspun is focused on sustaining its healthy free cash flow and optimizing its capital structure while reducing net debt over time.

Sector-Specific Growth and Future Outlook

The Home Textiles segment, a critical revenue driver, reported an increase of 17% in revenue, further showcasing an uptick in demand. The flooring business also recorded a 1% rise in revenue, although constrained by market conditions. Management maintains a cautious yet optimistic outlook for the remainder of FY '25, projecting overall revenue growth to surpass 12% and EBITDA to range between 15% and 15.5%.

Long-Term Strategy Focused on Innovation and Sustainability

Welspun's strategy includes significant investments in sustainability, set to generate competitive power costs through a new solar plant, and enhancing R&D in textiles. With a goal of achieving 100% renewable energy by 2030 and further expanding capacity in innovative product lines, the company reinforces its commitment to long-term profitability and environmental responsibility.

Closing Thoughts

Overall, Welspun Living Limited maintains strong operational performance amidst external challenges with promising growth prospects. Continued emphasis on innovation, market expansion, and strategic shareholder value creation makes it a notable player for investors considering opportunities in the textile industry.

Earnings Call Transcript 2025-Q1

[Operator]

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

[Ashutosh Somani, analyst]

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

[Salil Bawa, executive]

Thank you very much, Ashutosh. Good morning to all of you. On behalf of Welspun Living Limited, I welcome all of you to the company's Q1 FY '25 Earnings Call. Along with me, we have with us today Ms. Dipali Goenka, Managing Director and CEO. I have Mr. Sanjay Gupta, Chief Financial Officer. We hope you have had a chance to review the investor presentation that we filed with the exchanges yesterday. The same is also available on our website.

During today's discussion, we may be making references to this presentation. Kindly do take a moment to review the safe harbor statement in the presentation. As usual, we will start the forum with opening remarks by our leadership team. Post that, we'll open the floor for your questions.

Once the call gets over, should you have any further queries that remains unanswered, please feel free to reach out to anyone of us. With that, I would now like to hand over the floor to Ms. Dipali Goenka, Managing Director and CEO. Over to you, ma'am.

[Dipali Goenka, executive]

Thank you, Salil. Good morning, everyone, and thank you for taking the time to join us today for our Q1 FY '25 analyst call. I would like to share some highlights of our operating performance as well as some achievements during the quarter under review, after which Sanjay would share highlights from our financial metrics. We are happy to share that the revenue growth we have witnessed during the last FY '24 continued in Q1 FY '25 with the revenues up by 17% Y-on-Y to reach INR 2,588 crores. All our businesses have contributed to this performance strongly in global markets as well as in India.

We continue to have sustained EBITDA achieving INR 393 crores, clocking 15.2% in Q1, growing at 15% Y-on-Y. Hence, we are well on our way to achieve the top line and bottom line guidance we had achieved for FY '25.

The growth that we have seen in Q1 revenues could have been more better if the challenges that the global economy is facing, in the terms of ship liners and containers availability owing to the Red Sea issues, were not there. Similar to the challenges we witnessed during FY '22, '23, we are seeing not only hardening of the container rates to 3x of last financial year, but also in space and timely availability of vessels.

With our major distribution presence in U.S., we have been able to ensure minimum disruption in revenue, but delays in FOB shipments due to nonavailability of containers, ships have affected revenues of our different businesses to some extent. At the same time, our long-term relations with liners have seen us in good stead, leading to minimal impact in cost in Q1. We continue to keep a close watch on this dynamic situation to ensure minimum disruption to the business.

Core exports. U.S. GDP continued to grow at a decent rate of 2.9% Y-on-Y. Retail spending is up 2.5% Y-on-Y in April to June quarter as customers take advantage of these and begin to spend more as inflation cools for the third straight month of 3% Y-on-Y in June, marking the lowest reading since June 2023, [ boats ] in case were sooner than expected [ Fed weight cut ].

Consumer has retained the ability to spend and are driving these solid economics. India continues to be the leading supplier of terry towels and bed sheets to U.S.A. And as per the OTEXA data, India continued to enjoy dominant market share in exports to U.S. for June 2023, May 2024 period, both at terry towels at 44% and in bedsheets at 61% in value terms.

India has strengthened its share in bedsheets by 10% and stayed flat in terry towels as compared to last year in the same period. Though the overall exports to U.S. in value terms during this period remained at the same level in terry towels and grew by 5% in bedsheets due to geopolitical issues during quarter 1 FY '25. WLL, however, witnessed a growth of 10% and 40%, respectively, solidifying our leadership in U.S. exports further. EU, U.K. and rest of the world have also shown a double-digit growth.

Exports of Home Textiles has seen a tremendous growth due to our unwavering commitment in providing unparalleled quality, both in products as well as in services, growing by 19% in quarter 1 FY '25 and maintaining a healthy EBITDA of 17%.

Innovation is the heart of everything that we do. Our innovation products continued to be the major contributor to the revenues of 30%, growing by 13%.

Emerging businesses. Our emerging businesses of domestic consumer business, global brands, advanced textile and flooring businesses, grew 7% Y-on-Y in Q1 FY '25 and contributed close to 30% of the total revenue of the company. Our licensed global brands like Martha Stewart and Disney continued [indiscernible] journey and have given us an edge in U.S. and European markets by opening up additional shelf space with the key retailers as well as in creating new avenues.

Our own global brands, Welhome and Christy, have grown over 10% during the quarter. Domestic retail. India continues to outshine with an expected GDP growth of 7.1% in Q1, vis-a-vis, 7.8% in Q4 and inflation hovering around 5% during the quarter. The retail sector demand, however, continued to remain muted during Q1 through April to June 2024, mainly due to lower consumer spending, especially in discretionary categories, which is at the trough of the seasonal cycle. Nevertheless, we showed a lot of resilience despite subdued operating conditions in consumer markets, which continue to subsist in Q1 as well.

Our domestic business remained flat in line with the national retail sales growth and clocked a revenue of INR 123 crores with a muted 3% growth despite the challenging retail market in the country. In order to navigate through challenging market conditions, we've expanded into new categories, channels and hopeful to witness increased tertiary offtakes once the demand opens up with the festive season, which is right under way.

Welspun brand continued to be the most widely distributed home textile brand in the country with presence in 500-plus towns and 21,154-plus outlets, up by 972 in quarter 1, a reach not hitherto achieved by any home textile player in India. Brand recall for Spaces & Welspun has jumped substantially to 80% from 72% and 50% from 40%, respectively, for our target audience, thereby leading in premium and mass home textile category.

Brand Welspun growth has witnessed a healthy 12% Y-on-Y growth in Q1. Brand Spaces has outdoor category in the modern trade channel, emerging as a leading brand within the category and gaining the market share. The home textile consumer business continued investment in marketing to the tune of 10%. We remain committed to continued investment in our brands for improving the brand visibility and [ sale-ins ] as well as a focus to profitable business growth in the domestic consumer business.

Flooring. Our flooring business continued to perform well, recording a revenue of INR 228 crores plus Y-on-Y, the dispatches in Q1 impacted to some extent due to Red Sea issues with increase in capacity utilization to 64%. EBITDA margin of the business has improved to 9%. We had added a big ticket customer in U.S.A. for wall-to-wall carpets and carpet tiles. And have strengthened our position in Middle East and ANZ.

Similarly, we are getting great traction from large retailers and big ticket distributors in U.S. and U.K. in hard flooring and does look forward to a good start in flooring in Q1 FY '25. On domestic market front, we continue to see growth in hospitality and commercial segments in all our key markets in India. Domestic flooring revenue grew by 15% Y-on-Y.

In order to capitalize on the market opportunities, we continue our work on making inputs, an entire value chain more and more [indiscernible]. The advanced textile business witnessed a 26% growth Y-on-Y in Q1 FY '25 with a revenue of INR 132 crores, capacity utilization of a new Telangana [indiscernible] facility has reached 63%. As funded sales have continued to be strong in all our key global markets, forging new partnerships in U.S., Europe and India, with the innovative and sustainable nonwoven.

ESG is embedded in every aspect of operations at Welspun, keeping us ahead of our peers globally in sustainable practices. We are well on our journey towards achieving 100% R&D by 2030 And in this regard, the Board has approved setting up of 18-megawatt solar plant at Vapi, which could meet about 30% of the powered requirement at Vapi. We're also happy to announce that Welspun is now part of the World Economic Forum, lead an alliance of CEO Climate Leaders, India, which is a higher-level platform for business leaders to support concrete plans in India and ideas to step up India's climate action and green transition efforts.

In addition to that, Welspun also joined the Reuters VISION 2045 campaign to drive sustainable change by making India the sustainable loom for the world. While the global economy exhibits mix sentiment, the positive sign, the cooling inflation and expected rate cuts in the U.S. are encouraging, acknowledging the potential volatility from geopolitical issues, the resi situation and elections in various regions. We stay alert and proactive. Our strategy focuses on navigating these challenges and seizing opportunities effectively.

With this, I would now like to hand over to Sanjay, who will take you through the financial highlights.

[Sanjay Gupta, executive]

Thank you, Dipali, and greetings, everyone. I'll give a brief overview of the financial numbers for quarter 1 financial year '25 before we open for question-and-answer. During quarter 1 financial year '25, reported revenue of INR 25,588 crores (sic) [ INR 2,588 crores ], up 17% year-on-year and which remains in the same level as quarter-on-quarter.

EBITDA margin for the quarter 1 stood at INR 393 crores, that is 15.2%, growing by 15% year-on-year. Profit after tax after minority interest for the quarter is at INR 186 crores, vis-a-vis, INR 162 crores year-on-year, growing by 15% year-on-year and 27% quarter-on-quarter.

Consequently, our consolidated EPS for quarter 1, '25 stood at INR 1.93 per share as compared to INR 1.66 per share in quarter 1 of financial year '24. On the ForEx front, our average exchange realization for U.S. dollar during quarter 1 was INR 84.05 compared to INR 82.16 in the corresponding quarter last year.

Net debt stood at INR 1,562 crores versus INR 1,815 crores as of June '93 (sic) [ June '23 ], which is lower by INR 253 crores and versus INR 1,354 crores as of March '24, increased by INR 208 crores due to CapEx spending and increased investment in working capital during quarter 1. The interest cost, hence, is also due to the higher borrowings for working capital. And because RBI's report, it has remained unchanged in last 3, 4 quarters, it has slightly gone up by INR 243 crores from INR 26 crores year-on-year. However, with reduction in working capital in ensuing quarter, this cost is expected to come down.

Coming to segmental results, quarter 1 of financial year '25 core business Home Textiles revenue stood at INR 2,387 crores versus INR 2,028 crores in quarter 1, '24, up by 17% year-on-year. Quarter 1 EBITDA of Home Textiles stood at INR 342 crores at 14.7% as compared to 15.3% year-on-year.

During quarter 1 '25, revenue from flooring business was INR 228 crores, up by 1%. EBITDA is at INR 21 crores, which is 9.2% as compared to 8.1% year-on-year. In quarter 1 '25, we spent INR 206 crores towards CapEx, majorly towards Towel project at Anjar and pillow project in U.S.

The Board of Directors have, in its meeting held yesterday, approved buyback of equity shares of the company for an amount of up to INR 278 crores at a price of INR 220 per share. The promoters will be sensing 100% of their eligibility under the buyback. Apart from this, the Board had also approved dividend of 10% in financial year '24 in quarter 4 of '24 meeting. The company's outflow for the buyback and dividend, hence, would be totaling to INR 353 crores, which includes the tax outflow in this. Over the last 4 years, hence, the company has distributed 40% of its free cash flow on an average to the shareholder with cumulative INR 880 crores distribution out of free cash flow generation of INR 2,200-odd crores during the same period.

Financial year '24 total distribution also works out to 81% of our free cash flow. During the same period, we have continued reduction in the net debt from INR 2,333 crores in financial year '21 to INR 1,354 crores by the end of financial year '24.

With this, I will now leave the floor open for question-and-answer. Thank you.

[Operator]

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

[Salil Bawa, executive]

Rajvi. Rajvi?

[Unknown Analyst]

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

[Dipali Goenka, executive]

So I think, for us, the demand remains good as it is right now, as you've seen in quarter 1. We see a good visibility because you know that United States gets ready for the holiday season, and that's been the trend. So we definitely see that demand being at a steady state here, Rajvi.

And when we talk about our growth, we have given a commitment of around 12% growth, and we remain cautiously optimistic about it, and we will top it up as we go forward, as we have done in the quarter 1 as well.

[Operator]

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

[Biplab Debbarma, analyst]

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

[Dipali Goenka, executive]

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

[Sanjay Gupta, executive]

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

[Biplab Debbarma, analyst]

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

[Sanjay Gupta, executive]

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

[Biplab Debbarma, analyst]

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

[Sanjay Gupta, executive]

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

[Biplab Debbarma, analyst]

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

[Sanjay Gupta, executive]

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

[Operator]

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

[Anushka Chitnis, analyst]

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

[Sanjay Gupta, executive]

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

[Operator]

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

[Prerna Jhunjhunwala, analyst]

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

[Dipali Goenka, executive]

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

[Prerna Jhunjhunwala, analyst]

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

[Sanjay Gupta, executive]

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

[Prerna Jhunjhunwala, analyst]

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

[Sanjay Gupta, executive]

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

[Dipali Goenka, executive]

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

[Prerna Jhunjhunwala, analyst]

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

[Dipali Goenka, executive]

No, not at all.

[Prerna Jhunjhunwala, analyst]

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

[Dipali Goenka, executive]

So I think they're very different. One thing is that when you talk about a global one, it is primarily, we talk about omnichannel. And omnichannel, it is quite -- sometimes gets seasoned. But I think we are on the -- we basically are on track because the retailers buy it and then we sell it. And while we do that, I think I must tell, Prerna, you must go on spaces dot in and see because that's our brand dot-com, christy.co.uk, to see our brand dot-com sites. And you should see because if you look at Christy, they are growing at a rate of around 20%. Spaces is also on that path and do give us the feedback.

Omnichannel is something, is a behavior of the customers. And it is a little seasonal. As you know, it is summertime, people are far more outside rather than buying online more, right? And it's more -- so discretionary needs an experience. So people are basically buying off-line. And that has been the kind of a thing.

[Sanjay Gupta, executive]

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

[Prerna Jhunjhunwala, analyst]

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

[Dipali Goenka, executive]

No, nothing at all.

[Prerna Jhunjhunwala, analyst]

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

[Sanjay Gupta, executive]

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

[Prerna Jhunjhunwala, analyst]

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

[Sanjay Gupta, executive]

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

[Prerna Jhunjhunwala, analyst]

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

[Dipali Goenka, executive]

Yes.

[Sanjay Gupta, executive]

We had said that we will start both the plants in quarter 3 somewhere, sometime. End of quarter 2...

[Dipali Goenka, executive]

End of quarter 2.

[Sanjay Gupta, executive]

Start of quarter 3, we will do that. Yes.

[Operator]

[Operator Instructions] The next question is from the line of Biplab Debbarma from Antique Stockbroking.

[Biplab Debbarma, analyst]

So I have just 1 question on the margin side. Sir, we're seeing volume growth contributing our growth. And assuming that there is no further disruption in supply chain, what kind of EBITDA margin do we expect in FY '25?

[Sanjay Gupta, executive]

So Biplab, we had guided to a 15% to 15.5% EBITDA during this year for the consolidated business. So we will stick to that.

[Biplab Debbarma, analyst]

Okay. So we -- that means this quarter 1 is around 13.5%. So we will see margin expansion if everything remains the same, right?[indiscernible].

[Sanjay Gupta, executive]

Without the other income. So I am talking about is the other income, the total EBITDA for the company should be in the range of 15%.

[Operator]

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

[Bhavin Chheda, analyst]

Congrats on excellent growth across both the businesses. If I see your presentation, your bath linen utilization almost has reached 94%. So what would be the optimum utilization or debottlenecking from the existing 90,000 tons? And secondly, I think you also announced 6,400 tons of jacquard towel expansion. So how many that would take to ramp it up to 100% since the demand looks very strong in U.S. market in this category?

[Dipali Goenka, executive]

No, I think I just will add up here is that our optimum levels are where we are today. But going forward, having said that, with the jacquard facility coming in, which is right under way by August and in September, we'll be up and running on that, that actually will help us to leverage the mix that we have. And it is also very seasonal as well. So the mixes keep on changing here. So definitely, we will see a mix, and we are absolutely on track on that. With jacquard, it will help us to leverage our capacity. And also, as we go forward, debottlenecking is something that we definitely look at and our ancillaries are also there, which help us to -- which contribute to substitute when the demand comes in.

[Bhavin Chheda, analyst]

Sure. Second, on flooring business. It's ramping up well both on top line across markets and margins are improving. So what kind of optimum margins, at what capacity utilization you're looking, you have already reached 9%. I believe at optimal level, it would be 15%, 16% odd. So when is -- when can we see that kind of operating margin in flooring business?

[Sanjay Gupta, executive]

So we have a plan of growth of flooring at about 20% plus CAGR over the next 3, 4 years, which should take us to a capacity utilization in excess of 80% by financial year '27. Once we reach 80% plus capacity utilization, we should hope to reach EBITDA of about 15% to 16%.

[Bhavin Chheda, analyst]

At 80% utilization?

[Sanjay Gupta, executive]

Yes, at 80% utilization.

[Bhavin Chheda, analyst]

Sure. And on Slide 12, when we are saying annual capacity installed and annual capacity effective, you're calculating utilization on effective capacity. What that means?

[Sanjay Gupta, executive]

So we have built the plant for a total capacity of 27 million square meter, while we have fitted the plant with machinery for 18 million square meter. We will need to spend some balancing CapEx to make it from 18 million square meter to 27million square meter when required. Unless we reach a capacity utilization of 18 million square meter, we will not spend in putting additional capacity.

[Bhavin Chheda, analyst]

Sure, sure. And last one, if I missed out on, what's the CapEx outgo in FY '25 and possibly FY '26 if some projects are going into '26?

[Sanjay Gupta, executive]

So we have given a guidance for 2025 for INR 860 crores of CapEx, which includes Anjar towel then pillow in U.S. and then INR 75 crores for our transmission line for the renewable energy plus balance maintenance CapEx. For '26, we have not yet given the guidance, but we can expect to see INR 300 crores to INR 400 crores of the CapEx in next year as well.

[Operator]

The next question is from the line of Resham Jain from DSP Asset Managers.

[Resham Jain, analyst]

Yes. So just on the demand front, when we look at some of the commentary of the retailers in the U.S., the outlook is quite mixed. And in general, we have not seen any material kind of improvement in terms of the retail demand in U.S. So from your perspective, how are you looking at U.S., what will be your strategy, let's say, in the current situation? If you can just give your thoughts around it, that would be very helpful.

[Dipali Goenka, executive]

I'll just give you a perspective here. Walmart, if you look at their commentary, they are giving a positive outlook there. And even Target, they have actually changed their perspective on it. The clubs continue to do well, if you look at their results as well. And departmental stores were the challenges that we saw. But if you look at a few, they are turning around as well.

The discounters continue to be strong. So I can just say that while we've been hearing about mixed perspective, but I think with America, we are very, very positive about the growth that we see coming in because I think America prepares for the holiday season by quarter 3. So we are good right now as we see the demand.

[Resham Jain, analyst]

Okay. And the second question is with respect to the -- all the 3 verticals within the Home Textile. Can you share your outlook, not numbers, but which segment between bedsheet, towels and carpets and rugs will grow faster than the other one? If you can just give your thoughts.

[Dipali Goenka, executive]

So I think it's a mixed bag. Right now, like if you saw like the terry towels, the growth was 10%, bedsheets was around 40% this quarter. And rugs also continue to grow at a steady state. And it's a mix actually, Resham. So we will not be able to tell you where it is, but I think we'll have a steady mix of whatever we have committed as a top line and the growth.

[Resham Jain, analyst]

Understood. And from the -- last question is, from the Indian manufacturers perspective, how do you see the competitive landscape emerging again over the last 3, 4 years. There has been a lot of shifts, which has -- not shifts but the dynamics have little bit changed. And hence, if I look at your, let's say, 3 years back guidance, it used to be 20% to 22% kind of range, used to be the normalized margin, which has come down, obviously, now in the current dynamics. But generally from the manufacturing landscape perspective within India, how do you see the situation?

[Sanjay Gupta, executive]

So we have discussed about it in earlier forums. When we are talking about 20% to 22% margin, we're also talking about cotton rates, which were at INR 40,000 to INR 45,000. Now since cotton rate has now come to a new normal of INR 60,000 to INR 65,000, you cannot have the same level of margin because end consumer doesn't want to pay a price above a certain limit.

And hence, the normal average margins have come down to 15%, 16% level. But still in export business, as we had mentioned, we are getting a 17% to 18% margin, which is a healthy margin for us. As our emerging businesses of flooring, advanced textiles, domestic business starts to gain momentum in not only in sales but also in profit, we should see a range of 16% to 18% EBITDA for the company as a whole in the next couple of years.

[Operator]

The next question is from the line Shradha from Asian Market Charities.

[Shradha Agrawal, analyst]

Congrats on a good quarter. A couple of questions. First is, why the utilization of the bed linen has come down from 79% to 69%. Sorry, I logged in late to the call, so I'm not sure if you answered this.

[Dipali Goenka, executive]

Yes, it is actually a matter of just operations. But we are -- as we saw that, the sheets are around 40%. And when we talk about, it's a mix of fashion bedding and the others. So you would have seen this. But as we go forward, I mean, I think we'll be at around 84%. .

[Shradha Agrawal, analyst]

Right. And on the jacquard and terry towels, so how should the realization differ for both these product mixes? So what should the realization be for jacquard towels, just a ballpark range?

[Sanjay Gupta, executive]

Generally, it would be slightly higher. Because jacquard towels, the cost is higher in making it. So 10% to 15% difference is there in the jacquard towels, would be better than the normal towels.

[Shradha Agrawal, analyst]

An asset turn would be how much in this capacity?

[Sanjay Gupta, executive]

1:1.

[Shradha Agrawal, analyst]

1:1. And sir, secondly, how should we look at the power cost, given the kind of initiatives we are taking on the new incremental agreement as you said? So how should the power cost come down as a percentage of revenue?

[Sanjay Gupta, executive]

So slowly and slowly, as we build up our renewable energy capacity, we should get towards the power cost coming to half of what we have.

[Dipali Goenka, executive]

Yes. It will be the most competitive power cost that we will have because of this.

[Sanjay Gupta, executive]

So we should see it coming from the year '26, '27 fully. .

[Shradha Agrawal, analyst]

So that itself should give us good levy on the margin's front. So we can look at margin improvement of 200 bps plus over the next 2 years?

[Sanjay Gupta, executive]

As I said, yes, we can.

[Dipali Goenka, executive]

Yes.

[Operator]

Ladies and gentlemen, that was the last question for today's conference call. I now hand the conference over to the management for the closing comments.

[Dipali Goenka, executive]

Through stellar performance in all our businesses, core as well as emerging, we have been able to grow at 17% Y-on-Y in Q1 and confident to achieve our guidance for FY '25, as shared earlier. The exceptional growth we have achieved across our businesses in FY '24 is a testament to unwavering commitment to provide to our customers, unparalleled innovative and patented products, actionable insights and solutions driven by our investments in technology and digitization, which truly position us as the FMCG of textiles.

We continue to have greater focus on the India market, which is shining star in the current global economic scenario with deeper penetration in retail segment through increased EBOs, MBOs and higher brand visibility and hence, reinstating Har Ghar Se, Har Dil Tak Welspun.

Domestic flooring is reaching newer heights. And overall, flooring businesses have continued its profitable growth during the quarter. Simultaneously, ESG remains a cornerstone at Welspun, and a commitment to sustainable and responsible business practices continues, [ unabated ] to increasing investment in green energy initiatives. We are committed towards our future growth targets for all our businesses and with sustained growth profitability, we would continue to achieve higher ROCE and ROE, thereby creating substantial value for investors and stakeholders.

Thank you for your continued interest in Welspun Living. For any further queries, please feel free to connect with Salil and Sanjay.

[Operator]

On behalf of JM Financial, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.