Welspun’s 4Q margins to remain healthy

By: | Updated: March 29, 2016 2:15 AM

Welspun India, the largest player in home textiles, expects 22% Ebitda growth in 4Q (EPS growth: 14%), given continued strength in US demand...

Welspun India, the largest player in home textiles, expects 22% Ebitda growth in 4Q (EPS growth: 14%), given continued strength in US demand, capacity addition in towel/bed linen, and QoQ flattish Ebitda margin (up 180bps YoY). Increase in capacity utilization levels and likely capacity addition in FY18 (contingent on demand remaining healthy) should aid sales growth. This along with tailwinds from product innovation and new segments (entry into hospitality segment, foray into wearable technologies) should help drive 18% EPS CAGR over FY15-18. ROCE should improve about 300bps over FY15-18 to 26% as capacity addition in FY18 through processing lines vs. fully integrated capacity earlier results in lower capex per unit addition.

Continued demand strength in the key US market, increase in towel/bed linen capacity and realisation gains from currency depreciation should help drive 14% sales growth in 4Q (similar to 3Q levels).  Ebitda margin is expected to remain similar to 3Q levels at 27% (up180bps YoY) as higher input costs (in particular cotton) are offset by gains from currency depreciation and operating leverage.

Increasing capacity utilization in FY17 and possible 20-25% capacity addition in FY18 (should demand remain healthy) should help drive healthy 13% EPS CAGR over FY16-18. Further, balance sheet health, and in turn ROCE, should benefit from lower cost of capacity addition.

Although gross margins would moderate from their 3Q levels due to  higher cotton prices, Welspun expects 27% Ebitda margin in 4Q, similar  to 3Q, as gains from currency depreciation.

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