Welspun India’s (WLSI) Q1FY19 performance stood in line with estimates, driven by the 8% growth in volumes. This was despite India’s home textile exports (towels and sheets) to the US plummeting in the current year (YTD’18). Reported revenue growth was flat primarily impacted by the change in the incentive structure post GST. Ebitda margin stood in line with guidance, improving 160 basis points quarter-on-quarter to 19.1%.
The strong 40% beat on PAT was on account of lower depreciation and higher other income.
Also, WLSI continued to prune debt. Factoring in Q1FY19 numbers, we maintain our 8% volume growth expectation for FY19, but moderate it to 6% for FY20. We maintain our target multiple at 7.0x EV/Ebitda, translating into target price of Rs 83. Increase in cotton prices and industry growth situation remain key monitorables. Maintain ‘buy’.
Despite the contraction in industry growth, YTD’18 (till May) India’s towels/sheets exports to the US declined by 12%/9%. Meanwhile, WLSI reported strong industry beat with 8% year-on-year growth in volumes. Growth was majorly driven by existing clients’ off-take along with some benefits arising from tying with certain e-commerce brands.
Management had stated that despite a challenging industry scenario, things would start improving from Q1FY19 as the current online share in home textiles in the US has peaked. However, reported revenue growth stood flat due to change in the incentive structure post GST. On margin front also, WLSI reported 160 basis points quarter-on-quarter expansion to 19.1%, in line with the guided range. Compared to last year, margin was down 200 basis points and Ebitda, at Rs 3 billion, fell 9% year-on-year. Following the decline in depreciation and higher other income, reported PAT at Rs 1.3 billion increased marginally year-on-year (40% above estimate).
WLSI continued to repay debt, with net debt down ~`1.4 billion quarter-on-quarter to `28.8 billion. Capex guidance for FY19 remains at `8 billion and `3-3.5 billion for FY20.
Majority of the capex is related to the carpet unit, which is expected to be commissioned by Q3FY20E.
Post Q1FY19, we maintain our 8% volume growth expectation for FY19 and expect this to moderate to 6% in FY20. We maintain our target multiple of 7.0x EV/EBITDA, giving us a target price of INR83. Maintain ‘BUY’. Increase in cotton prices and industry growth situation remain key monitorables.