Welspun India : Q2 FY 23 Earning Conference Call

TRANSCRIPT: "Welspun India Limited Q2 FY2023 Earnings Conference Call"

November 08, 2022

ANALYST:MR. BIPLAB DEBBARMA - ANTIQUE STOCK BROKING

MANAGEMENT: MR. RAJESH MANDAWEWALA - MANAGING DIRECTOR - WELSPUN INDIA LIMITED MS. DIPALI GOENKA - JOINT MANAGING DIRECTOR& CHIEF EXECUTIVE OFFICER - WELSPUN INDIA LIMITED

MR. ALTAF JIWANI - CHIEF OPERATING OFFICER - WELSPUN INDIA LIMITED

MR. SANJAY GUPTA - CHIEF FINANCIAL OFFICER - WELSPUN INDIA LIMITED

MR. ABHINANDAN SINGH - HEAD - GROUP INVESTOR RELATIONS - WELSPUN GROUP

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	Welspun India Limited
	November 08, 2022
Moderator:	Ladies and gentlemen, good day and welcome to Q2 FY2023 Earnings Conference Call of Welspun
	India Limited hosted by Antique Stock Broking. As a reminder, all participant lines will be in the
	listen-only mode and there will be an opportunity for you to ask questions after the presentation
	concludes. Should you need assistance during the conference call, please signal an operator by
	pressing "*" then "0" on your touchtone phone. Please note that this conference is being recorded. I
	now hand the conference over to Mr. Biplab Debbarma from Antique Stock Broking. Thank you and
	over to you Sir!
Biplab Debbarma:	Thank you. On behalf of Antique I would like to welcome you all to the Q2 FY2023 Earnings
	Conference Call of Welspun India Limited. I would now like to hand over the call to Mr. Abhinandan
	Singh, Head - Group Investor Relations, Welspun Group to introduce management and take it
	further. Over to you AbhinandanJi!
Abhinandan Singh:	Thanks Biplab and good afternoon to all of you. On behalf of Welspun India, I welcome all of you to
	the company's Q2 FY2023 earnings call. We have with us today Mr. Rajesh Mandawewala,
	Managing Director; Ms. Dipali Goenka Joint Managing Director and CEO, Mr. Altaf Jiwani - Chief
	Operating Officer and Mr. Sanjay Gupta, Chief Financial Officer along with myself. We have already
	seen the financial results. Those are also available on the company's website www.welspunindia.com.
	As usual we will start the forum with opening remarks by our leadership team and then we will open
	the floor for your questions. Once the call get 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
	handover the floor to our CEO. Over to you!
Dipali Goenka:	Good evening everyone and thank you for taking time to join us today, which happens to be a market
	holiday. 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 a financial
	metrics.Our performance during Q2 FY'23 demonstrates our leadership in terms of scale, quality and
	customer relationship, with a growing branded portfolio, which has enabled us to deliver a growth
	performance in an environment that has been very challenging. Revenues during Q2 FY'23 registered
	a sequential growth of 8% quarter-on-quarter to ₹ 2137 Crores and it was down 15% on a year-on-
	year basis. In such unprecedented time, this reflects our ability to maintain wallet share across key
	customers on the back of this deep strategic relationships that we have with many of our global
	customers, in the face of high inflationary pressure and demand headwinds. Our emerging businesses,
	domestic retail, brands and e-commerce, flooring, and advanced textile continued to perform well,
	contributing 29% to overall revenues up from 25% year-on-year. On a year-on-year basis, the
	emerging businesses revenue has overall remained at the same level at last year same quarter.
	Domestic home textiles retail has shown significant growth during the quarter, with revenues growing
	by 31% year-on-year. Our domestic retail business as you may recall has two power brands
	"Welspun"and "Spaces". We have seen very strong expansion in our retail footprints and I am
	pleased to share that we have crossed, as we speak 10000 outlets across the country, a big milestone
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Welspun India Limited

November 08, 2022

in the home textile space and a reach not hitherto achieved by any player in India. This is almost twice the reach we had a year ago, when we had around 5200 outlets and a way above any other competition, and we now have a direct presence in 500 towns and cities. We are also pleased to share that our marketing campaign with a new Brand Ambassador, Akshay Kumar, has met with tremendous success. We continue to invest in this growth market, where we are thriving to expand our leadership and our marketing spends reflects the same, being 10.5% of domestic revenues during Q2.

The recently launched flooring business, which as you may recall broke even in the preceding quarter, clocked a revenue of 160 Crores. The growth remained flat during the quarter as flooring business is also witnessing headwinds from US due to demand slowdown. We have, however, started seeing good demand from hospitality, residential and commercial segment in US, UK and Middle East. On domestic market front in flooring we are seeing a good demand buildup in India in commercial as well as institutional segments. The advanced textile business witnessed a robust 54% growth year-on- year in Q2 FY'23, also reflecting the contribution from its new Spunlace capacity in Telangana that was commissioned in March this year. We also wanted to share with immense pleasure and pride that Welspun India has been named the "Best Managed companies 2022" in India by Deloitte. This recognition, based on a rigorous benchmarking against some of the best companies across the range of industries, is an outcome of the hard work, passion, and pioneering ideas that Welspun India's leadership has brought to life over the years. This reaffirms our continued focus on a culture of growth and innovation and the integration of Environmental, social and governance (ESG)consideration in the governance structure and business operations, to attain the highest level of good governance practices. ESG remains at the core of everything that we do at Welspun. We are happy to share that Welspun India's sustainability case study is now a part of a curriculum across universities in US, Canada, France, Europe and Taiwan. The study highlights the importance of sustainable practices in the textile sector and the entire spectrum of such activities at Welspun that has set an example.

Coming to the external environment, we are seeing decade high inflation in US, UK, and Europe in the range of 8% to 9%. Fed rates have been increased fourth time recently, with UK and Europe following suite. however, US GDP rebounds to 2.9% growth over two successive GDP contractions with retail sales showing resilience, growing marginally in the last two quarters. Indian economy continues to shine with GDP up by 13.5% and retail sector growing by 15% to 20% during the quarter. Over the past few quarters we have been witnessing significant cost pressures due to commodity prices, cotton in particular having touched unprecedented 'historical high' levels. Moreover, given the pervasive nature of inflation, we have also seen customers worldwide reprioritize their spending behavior on essential versus discretionary items. This has put pressure on demand for commodities globally. Hence, over the past couple of months there has been visible moderation in cotton prices and freight rates to have begun to correct, due to the same. In addition the cotton crop yield in India is expected to be up by 7% to 8% better this year. Welspun India is unique, given our

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Welspun India Limited

November 08, 2022

combination of capabilities in manufacturing that is towels, sheets, TOV, and rugs fuelled by innovation and a deep customer understanding and reach. Along with this, our licensed brand Martha and Scott are giving us an additional edge, adding value through differentiated offering and additional shelf space. Our Indian domestic market is the brightest spot, with our leadership in the segment through a deep reach with 10000 stores, which we are striving to increase multi-fold to realize the vision to be Har Ghar Welspun. This not only enables us to be resilient during difficult times, but also allows us to benefit once external conditions improve. With this I would now like to hand over to Sanjay who will quickly take you through the financial highlights. Thank you. Over to you Sanjay!

Sanjay Gupta:Thank you Dipali and greetings everyone. I will give you a brief overview of the financial numbers for the quarter and H1 FY'23 before we open for questions and answers. During Q2 FY'23 we reported revenues of ₹2137 Crores, down 15% year-on-year but up 8% quarter-on-quarter. YTD H1 revenues reached to ₹4116 Crores down 11% on a like-to-like basis i.e. after taking out the impact of Q4 FY'21 RoSCTL accounted for in H1 of FY'22. EBITDA margin for the quarter stood at ₹152 Crores that is 7.1%, which is lower year-on-year by 984 basis points and quarter-on-quarter by 167 basis points. For YTD H1 FY'23 we have reported EBITDA of ₹325 Crores with a contraction of 894 basis points year-on-year on a like-to-like basis. Cotton prices touched historical high during Q2 of FY'23 and the impact of the same in our margin would have been much higher, but for the various measures taken by the company in cost rationalization across board. The average cotton cost consumed during Q2 was ₹83000 per candy as compared to ₹48000 per candy last year same quarter and ₹75000 per candy during the last quarter. Profit after tax after minority interest for the quarter is at ₹9 Crores vis-à-vis ₹22 Crores last quarter and H1 FY'23 PAT is ₹31 Crores vis-à-vis ₹342 Crores year-on-year on a like-to-like basis reflecting the earlier mentioned factors. Our consolidated EPS for Q2 FY'23 at ₹0.08 per share as compared to ₹2.01 per share year-on-year. H1 FY'23 stood at ₹0.31 per share vis-à-vis ₹3.46 per share on a like-to-like basis in H1 FY'22. On the forex front our average exchange realization for the US dollar during Q2 was ₹80.79 per dollar compared to ₹75.83 per dollar in the corresponding quarter last year. We are witnessing a continual increase in interest rates by governments globally in all our markets, to rein in the inflation pressures. Considering the current market condition, further increases also look very imminent. in such a situation, our ability to continually de-leverage and maintain debt levels at a very healthy level has allowed us to stand in good stead.. During H1 of FY23, we have seen some positive impact starting to stream in from measures undertaken to enhance efficiencies and improve cash flows even as we did not shy away from investing in innovation and brand building that are three key drivers of long-term growth.

At the end of Q2 net debt stood at ₹1998 Crores, this is ₹141 Crores lower than ₹2139 Crores a quarter ago and ₹535 Crores lower than ₹2533 Crores a year ago. The expansion projects of flooring, advanced textile and home textile businesses, which were in different stages of progress, had some balance capex remaining which we plan to complete during FY223. In H1 FY'23 we have spent ₹194 Crores towards these and other maintenance capex. In our journey to be more environment friendly and being carbon neutral, the company is planning to put up a 30 megawatt solar facility at its Anjar

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Welspun India Limited

November 08, 2022

location and the Board has approved an investment of ₹200 Crores for the same which would be funded through issuance of green bonds or debentures. This will take us closer to our goal of achieving 20% renewable energy by 2025 and 100% by 2030. The power plant should be operational by Q1FY'24 and about ₹50 to ₹60 Crores of capex for the same is expected to be incurred in FY'23.

Now coming to segmental results, Q2 FY'23 core business home textile revenue stood at ₹2011 Crores versus ₹1852 Crores in Q1 FY'23 up sequentially by 9% quarter-on-quarter and down 15% year-on-year from ₹2374 Crores during the same period last year, due to earlier mentioned factors. YTD H1 FY'23 core business revenue total ₹3863 Crores as compared to ₹4398 Crores on a like-to- like basis down by 12%. Q2 EBITDA home textile stood at ₹128 Crores at 6.3% as compared to 9.3% quarter-on-quarter and 17.4% year-on-year. H1 FY'23 EBITDA of home textile is at ₹299,Crores which is 7.7% compared to 17.9% year-on-year on a like-to-like basis. During the quarter revenue from flooring business was ₹160 Crores same as last year same quarter. EBITDA was almost at same level at ₹4 Crores as compared to ₹5 Crores on year-on-year. YTD H1 FY'23 flooring business recorded revenues of ₹329 Crores as compared to ₹281 Crores year-on-year growing by 17%. H1 FY'23 EBITDA flooring business was ₹6 Crores compared to loss of ₹22 Crores during the same period previous year. With this I leave the floor open for question and answer. Thank you.

Moderator:Thank you. Ladies and gentlemen we will now begin the question and answer session. The first question is from the line of Abhisek Nigam from B&K Securities. Please go ahead.

Abhisek Nigam:Hi thank you so much for giving me the opportunity. So the first question that I have is on the capex side so I understand Vapi and Anjar is operationalized now in first half so how much capex should we build in for second half anything substantial remaining?

Sanjay Gupta:We have spent most of the capex that was required to be done for Anjar and Vapi. Anjar actually the terry towel capacity has been increased from 85400 metric tonnes to 90000 metric tonnes by Q2 and there is no major capex remaining, for the balance year you may see hardly about ₹40 Crores to ₹50 Crores more capex during H2 for balancing the maintenance capex.

Abhisek Nigam:Fair enough. I see some pretty good reduction in debt in the last six months or so but is it possible to give some guidance in terms of gross debt or net debt be by say end of FY2023?

Sanjay Gupta:We have been continually reducing our net debt and what I can say is that we will continue to reduce the net debt going forward, giving a particular number currently is difficult but we would be reducing from this level downward only.

Abhisek Nigam:Fair enough and 200 Crores for the solar plant so that will be incurred mostly next year is it?

Sanjay Gupta:Yes, as I said about 25% of capex we will do during this year and the balance will happen during next year and it will be operational by end of Q1 of next year.

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