We met with Welspun India’s management recently. Welspun (N-R) is a global leader in home textiles (terry towels, bed linens). Management briefed us about its Vision 2020 plans, which has a three-pronged strategy: achieving $2 billion in revenues (2x over FY16) with 25% branded products share and becoming debt-free by the end of FY20. Welspun’s market share in US terry towel imports has increased by 1.4x in the past two years. The company indicated that higher-margin innovative/branded products would help improve overall profitability. Significant FCF (Rs 3.7 billion in FY16) should help reduce debt levels. It also suggested gaining further market share in US imports would be important to achieving the company’s vision.
Target to achieve $2 billion revenue by 2020
Welspun reported a 23% revenue Cagr over FY11-16, primarily through rapid market share gains in the US market. The company is now targeting growth from newer geographies (UK, Europe and Japan) and faster growth in institutional sales besides focusing on the branded segment in the domestic market. Welspun expects new capacities planned over FY17 to help drive incremental growth.
Target to achieve debt-free status by FY20
Calibrated capex spend, judicious working capital management coupled with improvement in profitability have helped Welspun turn FCF positive (after 3 years). A hyper-investment phase is now behind the company. Welspun now intends to focus on balance sheet consolidation and quality of growth through higher contribution of branded sales. Management highlighted that capex needs going forward are expected to come down and that would aid improvement in FCF. The company hopes to achieve debt-free status by FY20.
Strong growth and share price performance
Welspun’s performance in the last few years has been strong (46% FY13-16 EPS Cagr) with improvement in RoCE (26% FY16) and balance sheet de-leveraging (1.3x FY16 D/E vs 1.8x FY13). This has been reflected in the stock price compounding 75% over the period (doubled in the last 12 months). The stock trades at 6.5x FY18 EV/Ebitda (based on Bloomberg consensus) with 18% Ebitda Cagr over FY16-18e.