November 06, 2018
2 Welspun India (Welspun) is one of the leading manufacturers of terry towels and bed linen. Market share of towels for the company in the US has grown from 15% in CY13 to 19% in CY20 and for bedsheets, from 7% in CY13 to 12% in CY20. This was primarily on account of favourable macro factors like cheap labour in India, availability of cotton and company-specific factors like strong relationships with leading big-box retailers in the US, introducing innovative products and adopting a mix of offline and online sales.
Flooring business to drive growth
The addressable market for flooring in the US was $20bn market in CY20, where China is the market leader in this segment. However trade war between China and the US has impacted prospects for China. This has resulted in new growth opportunities for India. To capture the advantage, the company has spent Rs.1200cr as capex as of Q1FY22 and foresee a potential of Rs.2,400cr turnover over the medium term.
Strong visibility for revenue growth
Many retail companies in the US are looking for alternative locations, following the China+1 theme in home textiles and flooring as well. Welspun is likely to benefit, given its strong presence and tie-ups with big-box retailers in the segments over the years. The company has ventured into B2C, advanced textiles and flooring, which should further drive the growth, going forward.
Y/E Mar Revenue (Rs. Cr)
EBITDA (Rs. Cr)
PAT (Rs. Cr)
NPM (%)
AEPS (Rs.)
P/E (x)
P/B (x)
ROCE (%)
FY20 6,741.1 1,214.7 471.1 7.0 4.7 34.8 5.5 15.0
FY21 7,340.2 1,352.0 539.6 7.4 5.4 30.4 4.5 17.4
FY22E 8,404.5 1,562.0 676.2 8.0 6.7 24.3 3.8 18.9
FY23E 9,180.0 1,729.8 769.8 8.4 7.7 21.3 3.2 18.7
October 12, 2021
Please refer to the disclosure on last pageOUTLOOK & VALUATION
We forecast Welpsun’s revenue/PAT to grow at 11.8%/19.0% CAGR over FY21-23E. Going forward, we expect the company to deliver an EPS of Rs.7.7 in FY23; assigning a target multiple of 28x, we arrive at a target price of Rs.215, showcasing an upside potential of 31% from current levels with an investment horizon of 18-24 months. We recommend a BUY at current levels.
SHARE HOLDING (%)
Promoters 70.0
FII 6.8
FI/Bank 7.2
Body Corporate 2.9
Public & Others 13.1
RESEARCH ANALYST Umesh Matkar | +91 22 4093 4078 [email protected]
SALES:
Devang Shah | +91 22 4093 6060/61 [email protected]
BUY Reuters Code Bloomberg Code
WLSP.BO WLSI IN BSE Code
NSE Symbol
514162 WELSPUNIND
Face Value 1
Shares Outstanding 100.5 Cr Avg. Daily Vol. (6m) 40,68,693 Price Performance (%)
1M 3M 6M
19 55 92
200 Days EMA Rs. 106
3 Oct. 12, 2021
• Indian companies have grabbed a higher share in US home textiles as compared to others on account of abundant availability of cotton, cheap skilled labour etc. Demand from the US will continue to be high on account of the increase in spending on essentials and home renovation, bounce back in the hospitality sector due to increased spending on travel and holidays recently.
Indian companies focused more on the US, as the duty structure was similar for India and other countries. However imports from India to Europe account for 9-10% of import duty as compared to duty-free access for other countries like Bangladesh and Pakistan.
Source: Company, OTEXA, Sushil Finance Research
4 Oct. 12, 2021
Leading player in Home textiles (2/2)
• Introduction of products that are new to the market, based on the needs of the consumers have augured well for Welspun.
Innovative products such as hygrocotton technology (provides temperature regulation for bed sheets and towels throughout the year), nano care (fabric structure creates a natural allergen barrier), charcoal (charcoal is infused into a special line of textiles that makes it odor free and hygienic). The share of innovative products in the revenue has risen from 36% in FY17 to 40% in FY21.
• In anticipation of an increase in demand for home textiles, the company is enhancing the capacity at Vapi and Anjar plant in bed linen by 20% to 108m mtrs, 80% increase in rugs to 18m sq mtrs by FY22, through de-bottlenecking and rebalancing facilities.
Towel capacity has also been increased by 7% to 85,400 MT in Q1FY22. It is guided by the management that an increase in revenue from this expansion would be ~Rs.1,200 cr (~20% of revenue as of FY22) by spending ~Rs.225cr in FY21 and FY22.
• The company had entered from B2B to B2C in order to increase the sales penetration in the US and Europe. The US consumer reach is getting stronger with licensed brands like Martha and Scott in the portfolio. The company had acquired UK-based
‘Christy’ in 2006 and since then has been constantly scaling its branded products portfolio. UK/Europe getting stronger with the Christy Brand and India consumer reach is getting enhanced with Spaces and Welspun. The addition of brands gives it additional shelf space, opens up new channels and creates incremental volumes, both online and offline.
• We expect that with the adoption of above strategies, the structural shift in spending in home textiles, adding new products in
its portfolio, increasing the capacity should lead to 7.5% CAGR growth by FY21-23E.
5 Oct. 12, 2021
Flooring business to drive growth
The global flooring market size is estimated at $290 bn and is expected to expand at a CAGR of 5.9% from FY20 to FY27. The commercial use dominated the market and the demand is expected to be strong on account of rising construction projects for offices, hospitals, educational institutes, health care facilities. On the domestic front, imports dominate commercial and institutional flooring. Thus existing market dynamics provide a huge opportunity for import substitution. Apart from this, flooring products from China are imposed 25% import duty by the US. China used to supply close to 50% of total flooring imports by the US.
As a result, companies in the US are looking out for alternatives in this segment.
In order to capture the opportunity, the company is incurring a capex to set up a flooring plant in Telangana with a capacity of 27mn sq mtrs to be completed by FY22 (of which 13mn sq mtrs is operational as on 1QFY22). Welspun would be the only brand in the market, offering safety & convenience of one-day installation to the consumers. The management is confident of achieving a turnover of Rs.2,400cr by FY24-25 from Rs.319cr in FY21 and EBITDA break-even by Q3FY22.
.
Source: Company Sushil Finance Research
6 Oct. 12, 2021
Strong visibility for revenue growth
The company has ventured into B2C, advanced textiles and flooring, which should drive higher growth in the future. Advanced textiles business houses a diverse range of products under its portfolio using three major technologies – Spunlace, Needlepunch and Thermobond. In Spunlace the company has a strategic partnership with customers such as P&G & J&J for fem-care products. It entered into the health segment, wherein it makes disposable towels and wet wipes out of non-woven textiles, forayed into disinfectant wipes and surgical masks. It aims to target Rs.600cr of the topline from advanced textiles by FY23E from Rs.285cr in FY21.
Many retail companies in the US are looking for alternatives for China in home textiles and flooring. Welspun is likely to benefit, given its strong presence and tie-up with big box retailers in the segments over the years. We believe capacity expansion in flooring, increase in market share in the US and increase its presence in B2C should result in a topline CAGR of 11.8% for FY21-23E.
Source: Company Sushil Finance Research
7 Oct. 12, 2021
Welspun India Limited is a global leader in home textiles, supplying to top global retailers. It manufactures a wide range of home textile products like towels, bed sheet, rugs and carpets and flooring solutions at vertically integrated plants in Gujarat and Telangana. Over the years, it has transformed from textile manufacturer to home textiles and recently commenced flooring business.
WIL's distribution network is spanning in more than 50 countries, making it the largest exporter of home textile products from India
For the year ended March 31, 2021, the company recorded a turnover of Rs.7,340 cr (8.9% yoy growth) with an EBITDA margin of 18.4%, as compared to 18.0% in FY20. Despite high capex behind incremental capacity, its net D/E level has improved to 0.64x as in FY21 from 1.33x in FY17.
COMPANY OVERVIEW
8 Oct. 12, 2021
BUSINESS OVERVIEW: BED LINEN and BATH LINEN
Source: Company, Sushil Finance Research
9 Oct. 12, 2021
BUSINESS OVERVIEW: FLOORING
Source: Company, Sushil Finance Research
10 Oct. 12, 2021
KEY CUSTOMERS
Source: Company, Sushil Finance Research
11 Oct. 12, 2021
FINANCIAL OVERVIEW
Source: Company, Sushil Finance Research
6,051 6,527 6,741 7,340
8,405 9,180
-8.9
7.9
3.3
8.9
14.5
9.2
-15.0 -10.0 -5.0 0.0 5.0 10.0 15.0 20.0
0 5000 10000
2018 2019 2020 2021 2022E 2023E
Revenue
Revenue (Rs in cr.) % yoy
10.4%
6.4% 6.6% 7.0% 7.4% 8.0% 8.4%
2017 2018 2019 2020 2021 2022e 2023e
PAT margin
12.0% 13.1%
15.0%
17.4% 18.9% 18.7%
2018 2019 2020 2021 2022e 2023e
ROCE
3,188
2,961 2,962
3,179
2,716 1.33
1.14 1.07
1.07
0.75
0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40
2,400 2,500 2,600 2,700 2,800 2,900 3,000 3,100 3,200 3,300
FY17 FY18 FY19 FY20 FY21
Debt and Debt/Equity trend
Debt in crs. D/E
12 Oct. 12, 2021
OUTLOOK & VALUATION
We forecast Welpsun’s revenue/PAT to grow at 11.8%/19.0% CAGR over FY21-23E. Going forward, we expect the company to deliver an EPS of Rs.7.7 in FY23; assigning a target multiple of 28x, we arrive at a target price of Rs.215, showcasing an upside potential of 31% from current levels with an investment horizon of 18-24 months. We recommend a BUY at current levels.
Source: Company, Sushil Finance Research
Price Comparison between Sensex and Welspun India Ltd Price Movement of Welspun India Ltd
Source: Company, Sushil Finance Research , iChart.in
010000 20000 30000 40000 50000 60000 70000
0 20 40 60 80 100 120 140 160 180
10/9/2017 10/9/2018 10/9/2019 10/9/2020 Welspun India BSE Sensex
13 Oct. 12, 2021
RISKS & CONCERNS
• The company passes on the increase in prices of cotton to the customers. Recently apart from the increase in prices of cotton, freight charges have gone up. Management is in talks with customers about price rise. In case, the company is unable to increase prices, margins would be impacted.
• 95-96% of the revenue comes from exports. Any adverse movement in currency may impact the earnings of the company.
• While the current indications are that the second COVID-19 wave may be on the wane, its resurgence or the possibility of a third wave may reverse recovery of macro-economy, domestically as well as globally
Why you should buy?
• Market share gains in the home textile market in the US, pick up in B2C and introduction of new products is likely to drive core home textiles business in the medium term.
• The company expects EBITDA to be at a healthy level of 20-21% in FY22. Rebate of State and Central taxes and Levies (RoSCTL) rate was extended up to March 31, 2024, at 8.2%, which is much higher than expected, 2%. The development is positive for home textile and garment players who derive a sizeable proportion of their profitability via these incentives.
• With the Welspun’s leadership position in the largest exports market (USA) and strong brand recall in the market as well, it is
well placed to benefit from any spillover effect as a result of the ‘China + 1’ strategy and geo-political developments .
14 Oct. 12, 2021
Source: Company, Sushil Finance Research Estimates
PROFIT & LOSS STATEMENT
(Rs.cr)BALANCE SHEET STATEMENT
(Rs.cr)Y/E Mar. FY20 FY21 FY22E FY23E
Net Sales 6,741.1 7,340.2 8,404.5 9,180.0
Raw Material Cost 3,296.3 3,587.3 4,153.1 4,549.3
Employee Cost 778.1 822.8 924.5 1,009.8
Other Expenses 1,452.0 1,578.1 1,764.9 1,891.1
EBITDA 1,214.7 1,352.0 1,562.0 1,729.8
Depreciation 481.1 453.6 479.1 523.3
Interest Cost 177.7 197.5 200.0 200.0
Other Income 95.1 67.8 75.6 82.6
PBT 694.4 768.6 958.5 1,089.1
Tax 170.0 217.9 271.3 308.2
RPAT 471.1 539.6 676.2 769.8
As on 31
stMar. FY20 FY21 FY22E FY23E
Equity Share Capital 100.5 100.5 100.5 100.5
Reserves 2,871.6 3,544.2 4,205.3 4,960.0
Net worth 3,056.9 3,743.2 4,409.2 5,169.1
Total loans 3,178.7 2,715.7 2,798.7 2,783.3
Other Current Liabilities 2,074.6 2,218.9 2,408.4 2,581.6
Total Liabilities 8,310.2 8,677.8 9,616.4 10,534.0
Net block 3,632.6 3,511.8 3,621.0 3,740.4
Capital Work-in –Progress 56.4 170.9 588.3 642.6
Deferred tax Asset (net) 116.2 112.0 117.6 123.5
Sundry debtors 1,086.2 1,181.7 1,355.6 1,480.6
Inventories 1,528.7 1,773.1 2,056.0 2,252.1
Cash and bank 230.4 399.1 378.6 404.2
Loans and advances 0.5 0.6 0.6 0.7
Other Assets 322.4 442.2 464.3 487.5
Total Assets 8,310.2 8,677.8 9,616.4 10,534.0
15 Oct. 12, 2021
CASH FLOW STATEMENT
(Rs.cr)FINANCIAL RATIO STATEMENT
Y/E Mar. FY20 FY21 FY22E FY23E
PAT 471.1 539.6 676.2 769.8
Depreciation & Amortization 481.1 453.6 479.1 523.3
Taxes 170.0 217.9 271.3 308.2
Finance Cost 177.7 197.5 200.0 200.0
(Incr)/Decr in Working Capital 56.4 (95.5) (324.8) (228.6) Cash Flow from Operating 1356.3 1313.2 1301.6 1572.6
(Incr)/ Decr in Gross PP&E (1041.9) (332.8) (588.3) (642.6) (Incr)/Decr In Investments and
Intangibles 33.5 15.2 (0.1) (0.1)
Others 425.6 (59.9) (384.9) (59.6)
Cash Flow from Investing (582.8) (377.5) (973.3) (702.3)
(Decr)/Incr in Debt 217.0 (463.0) 83.1 (15.5)
Others (832.7) (288.9) (416.9) (814.1)
Cash Flow from Financing (716.2) (767.0) (348.9) (844.7)
Opening Cash 173.0 230.0 399.0 379.0
Total cash flow 57.3 168.7 (20.5) 25.7
Cash at the End of the Year 230.5 399.1 378.6 404.2
Y/E Mar. FY20 FY21 FY22E FY23E
Growth (%)
Total Sales 3.3% 8.9% 14.5% 9.2%
Profitability (%)
EBITDA Margin 18.0% 18.4% 18.6% 18.8%
APAT Margin 7.0% 7.4% 8.0% 8.4%
ROCE 15.0% 17.4% 18.9% 18.7%
Per Share Data (Rs.)
AEPS 4.7 5.4 6.7 7.7
Reported CEPS 9.5 9.9 11.5 12.9
BVPS 29.6 36.3 42.9 50.4
Valuation
PER (x) 34.8 30.4 24.3 21.3
P/BV (x) 5.5 4.5 3.8 3.2
EV/EBITDA (x) 15.8 14.2 12.3 11.1
MCap/Net Sales (x) 2.4 2.2 2.0 1.8
Turnover
Debtor Days 59 59 59 59
Inventory Days 169 180 181 181
Creditor Days 99 111 111 111
Gearing Ratio
D/E (x) 1.07 0.75 0.65 0.55
Source: Company, Sushil Finance Research Estimates
16 Oct. 12, 2021
Sushil Financial Services Private Limited
Member : BSE / NSE - SEBI Regn. No. INZ000165135 Research Analyst – SEBI Registration No. INH000000867 Regd. Office : 12, Homji Street, Fort, Mumbai 400 001.
Phone: +91 22 40936000 Fax: +91 22 22665758 Email : [email protected]
Analyst Stock Ownership No
Stock Recommended to Clients Yes
Remuneration/Benefits received from company in 12 months No Merchant Banking Market Making activities / projects No Sushil Financial Services Pvt. Ltd and Group Companies Holding No Sushil Financial Services Pvt. Ltd and Group Directors Holding No
Broking Relationship with the company covered No
Total Expected Return Matrix (Rating and Return) BUY : Over 12% HOLD : 0% to 12% SELL : 0% to -12%
Disclaimer & Disclosures : http://goo.gl/1sOHeV
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