b&k sec -welspun india - initiating coverage
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INITIATING COVERAGE Welspun India (BUY)
© B&K Securities 2015
All Rights Reserved
Attention is drawn to the disclaimer andother information on the last page
Batlivala & Karani
MID CAP
Strong B2B model/Evolving B2C model
Welspun India (WLSI) is the market leader and the preferred supplier in thehome textile space having presence in towels, bed linens, rugs and carpets. WLSIhas integrated manufacturing presence from spinning to made-ups with latesttechnology which makes the business model sound and sustainable. WLSI has astrong pedigree for market research, innovation, supply chain, branding andretailing, the key intangibles to remain competitive in the business. WLSI hasdiversified client mix including most of the large retailers like Walmart, Macy’s,Bed Bath & Beyond, IKEA, etc. across geographies.
Year to March FY15 FY16E FY17E FY18E CAGR (%)
P&L data (Rs mn) FY15-18E
Revenue 53,025 59,896 68,462 79,609 14.5
EBITDA 12,742 14,315 15,507 17,395 10.9
Adjusted net profit 5,398 5,743 6,467 7,702 12.6
Margin (%)
EBITDA 24.0 23.9 22.7 21.9 –
Adjusted net profit 10.2 9.6 9.4 9.7 –
Balance sheet (Rs mn)
Total assets 56,953 64,932 68,837 72,783 8.5
Shareholders’ funds 14,319 18,382 22,958 28,407 25.7
Per share data (Rs)
EPS 53.7 57.2 64.4 76.7 12.6
CEPS 86.9 102.7 112.4 126.3 13.3
Returns (%)
RoCE 23.4 21.7 21.4 23.4 –
RoE 42.5 35.1 31.3 30.0 –
Resham Jain, CFA Nishant [email protected] [email protected]+91-22-4031 7133 +91-22-4031 7185
WLSI has multiple growth drivers like penetrating newer geographies, scalingthe newer product categories, expanding under-penetrated channels, etc.Improving global environment, increasing competitiveness of Indianmanufacturers and wider access to European market (if Europe FTA getscleared) will also help to keep the growth momentum.
WLSI’s increasing vertical integration, higher share of value-added productsand branded sales will keep the operating margin healthy while incrementalinvestment for capital heavy spinning and weaving through ancillary model(third party) will keep the return ratios healthy going forward. Increasingdividends, high capacity utlization and experience management providesadditional comfort.
At the current market price of Rs 647, the stock trades at 10.1x FY17E EPSand 5.9x FY17E EV/EBITDA. We initiate coverage with a Buy rating with atarget price of Rs 842, valuing the stock at 7.2x FY17E EV/EBITDA implyinga P/E of 13.1x FY17E EPS.
Share Data
Market Cap. Rs 65.0 bn (US$ 1,025 mn)
Price Rs 647
Target Price Rs 842
BSE Sensex 28,093
Reuters WLSP.BO
Bloomberg WLSP IN
6M avg. daily turnover (US$ mn) 1.3
52-week High/Low (Rs) 670/191
Issued Shares 100.5 mn
Valuation Ratios (Consolidated)
Yr to 31 Mar FY16E FY17E
EPS (Rs) 57.2 64.4
+/- (%) 6.4 12.6
PER (x) 11.3 10.1
PBV (x) 3.5 2.8
Dividend/Yield (%) 2.2 2.5
EV/Sales (x) 1.5 1.3
EV/EBITDA (x) 6.5 5.9
Shareholding Pattern (%)
Promoters 73
FIIs 4
MFs 4
BFSI's 1
Public & Others 18
Relative Performance
06 July 2015
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Jul-1
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Welspun India (Actual)Sensex
2WELSPUN INDIA
B&K RESEARCH JULY 2015
Index ...................................................................... Page No.
Investment rationale ..................................................................................... 3
Investment concerns .................................................................................. 10
Outlook and valuation ................................................................................ 11
Industry overview ...................................................................................... 14
Company background ................................................................................ 21
Financial statement analysis ........................................................................ 24
Detailed financials ....................................................................................... 27
3WELSPUN INDIA
B&K RESEARCH JULY 2015
Investment rationale
Market leader in B2B home textile industry
WLSI has been in the home textile industry since 1993 and has expanded gradually to become
one of the largest players in the industry. It has started with a towel facility with a capacity of
2,000 MT p.a. in 1993 and now it has become the preferred supplier for top retailers across 50
countries in the world. WLSI is the leading supplier to 14 of the top 30 US retailers. WLSI has
now become the differentiated end-to-end solution provider in home textiles. WLSI has created
one of the largest single location home textiles manufacturing facility at Anjar.
The company has continuously enhanced its manufacturing capacities over the last decade. It
enjoys strong relationship with its fabric and yarn suppliers because of which it is able to
enhance its front end capacity (processing) in the initial leg smoothly and upon its stabilisation
invested on backward integration gradually.
After starting its journey in home textiles through towels, it later diversified itself into bed linens
in 2005. WLSI also entered rugs and carpets segment in 2009, which it expects to scale-up over
the next few years. It has divided the product segment into three major categories as under:
Ranked the largest hometextile supplier to the US forthe 3rd consecutive year byHome Textile Todaymagazine in its annualsurvey done in February 2015
Relationship with top retailers across geographies
USA Europe UK
Bed Bath & Beyond Ikea Christy
Macy’s Carrefour Tesco
Walmart Jysk Marks & Spencer
JC Penney El Corte Ingles Debenhams
Target Vincenzo Zucchi S.p.A House of Frazer
Kohl’s Bassetti John Lewis
Kmart – Sears Auchan Sainsburry
Source: Company
Product categories
Bath Bedding Flooring
• Towels • Sheets • Carpets
• Bath robes • Top of Bed • Rugs
• Basic and Fashion Bedding
Key terry towel players in India
Company Revenue Capacity Planned Capacity Post
FY15 (Rs mn) (MT) expansion (MT) expansion (MT)
Welspun India 21,937 50,000 10,000 60,000
Alok 5,068* 13,400 Nil 13,400
Trident ~16,000 88,775 Nil 88,775
*Alok’s revenue is for 18 months for the period ending on 31st March 2015.
Source: Company, B&K Research
WLSI is the world’s largestterry towel manufacturerby turnover in India
Strong relationship withsuppliers helped in scalingup the business
Multi-products in hometextiles provides an abilityto cross-sell the productsand helps in leveraging theresources
4WELSPUN INDIA
B&K RESEARCH JULY 2015
US import of terry towels
Source: Company, OTEXA
Out of the total US importfor terry towels in CY14,WLSI’s share was ~16.4%which is ~45% of totalIndia’s export to USA
Key bed linen players in India
Company Revenue Capacity Planned Capacity Post
FY15 expansion expansion
(Rs mn) (mn meters) (mn meters) (mn meters)
Alok 17,577* 150 Nil 150
Welspun India 15,547 60 12 72
Indo Count Industries 15,034 68 Nil 68
GHCL 9,572 36 Nil 36
Himatsingka Seide 8,224 21 Nil 21
Trident Nil Nil 43 43
*Alok’s revenue is for 18 months for the period ending on 31st March 2015.
Source: Company, B&K Research
US import of bed sheets
Source: Company, OTEXA
Out of the total US importfor bed sheets in CY14,WLSI’s share is ~9.9%which is ~21% of totalIndia’s export to USA
Towels
28 30 30 35 36 36 37
21 22 2124 23 23 23
22 24 3025 26 26 26
29 25 20 16 16 16 14
2008 2009 2010 2011 2012 2013 2014
India Pakis tan China ROW
Bed Sheets
18 27 35 38 45 47 4727
2623 22 18 16 17
3429 29 24 22 25 23
22 18 13 16 15 13 13
2008 2009 2010 2011 2012 2013 2014
India Pakis tan China ROW
WLSI is the 2nd largest bedlinen manufacturer in India
5WELSPUN INDIA
B&K RESEARCH JULY 2015
15 top home textile supplier in USA
(US$ mn) 2013 2014
Welspun 632 649
Alok 542 647
Mohawk Home 556 565
Hollander Home Fashions 475 475
Carpenter 423 440
Himatsingka America 347 362
Oriental Weavers/Sphinx 315 337
Innocor 318 330
1888 Mills 300 315
Natco Home 225 280
Pacific Coast Feather 236 271
Indo Count Industries 221 249
Maples Rugs 237 240
Trident 205 228
Source: Home Textile Today, Business Annual – 2015
Multiple growth drivers
Geographical expansion: Currently, ~60% of WLSI’s revenue is concentrated in the US
markets (come down from ~73% in FY10), while the revenue from other geography is scattered
and small. The company is aggressively looking to penetrate markets like Asia Pacific, Latin
America, Europe and India to enhance the reach of its products. The management believes
that these markets have huge potential for growth and they have made the initial in-roads in
these markets which will help them to seize this opportunity.
Out of the total US$ 45 bn home textiles market, US market is around 30% where WLSI
commands dominant position in bed and bath products. The company believe that the proposed
EU-FTA can significantly improve the competitiveness of Indian players and gives access to
the European home textile market. The recent FTA with Japan and Korea will lead to improved
trade in the coming years. It also sees huge opportunity in the Indian market especially on the
branded side.
Multiple sales channels: WLSI predominantly caters to large retailers and brands across
geographies. WLSI is now aggressively looking at three different areas to expand its reach.
a) Institutional business: WLSI is looking to expand its institutional business. This
segment typically caters to hotel chains, hospitals and other wholesale requirements. This
will help to grow all its segments i.e. towels, bed linens, rugs and carpets. These orders
typically require customisation yielding better operating margins.
b) E-retailing: The company has launched its own brand of luxury bed and bath linen
‘Crowning Touch’ in the US market through third party e-retailers like Amazon, Overstock,
Wayfair, etc. and through its own website welspunbathandbedstore.com. WLSI also sells
its own brands like Christy and Spaces through e-commerce channel.
6WELSPUN INDIA
B&K RESEARCH JULY 2015
c) Branded business: WLSI’s branded sales in FY15 were ~11%. WLSI expects strong
growth for its Indian branded portfolio led by ‘Spaces’ and ‘Welhome’ with increased
penetration through SIS and e-commerce. WLSI has increased its reach for brand ‘Christy’
from UK to USA, China and Middle East. ‘Kingsley Home’, the company’s mass market
brand in the UK with a focus on bedding is expected to grow at the healthy pace with
increased penetration. It also expects its licenced brands ‘Amy Butler’ and ‘Annie Phllips’ to
grow at a healthy rate.
Scaling the under-penetrated product categories: WLSI expects a slightly moderate
growth in two of its major product lines i.e. towels and bed linens as compared to its new
product categories like bath robes, top of the bed, fashion bedding, filled products, rugs and
carpets. Each of these product categories are very large (at least US$ 1 bn each), providing
huge opportunity to grow for multi years.
Innovation, service and brands aiding faster growth
Innovation: From just a supplier of generic products where the focus was on sales rather
than marketing with limited efforts on designing, WLSI has come a long way to become one of
the most admired companies for supply of home textile products. In the year 2000, the
company decided to invest in product developments and design capabilities. Later, the
innovation also included processes, practices and people. WLSI’s innovative products as a %
of sales are continuously increasing and stood at 31% of revenue in FY15. The company has
total 12 patented products, most of which are pending for approval. HYGRO COTTON®,
SOFTSHIELD™, SPOTSTOP™, EVERSMOOTH™, FLEXIFIT®, DRYLON®,
RESILON™ are few such trademark and patented products of WLSI.
Properties of Hygro cotton: Hygro cotton® is a patented spinning technology that uses a
hollow core cotton yarn. The fabric made from Hygro cotton® is ultra soft, ultra absorbent
and plumps up after every wash, thus maintaining its soft and plush feel. Hygro cotton® also
helps to regulate the temperature of the fabric, keeping it cool in the summers and warm in the
winters, which makes it an ideal sheeting product.
A typical display of such patent on third party brand
Amazon’s private label brand Tesco’s e-retailing website
Source: www.amazon.com; www.tesco.com
Hygro yarn
Source: Company
7WELSPUN INDIA
B&K RESEARCH JULY 2015
The company currently has a large design team (including a team of product development and
innovation) in India (Mumbai, Anjar and Vapi) and USA. It has three design studios in USA,
UK and Mumbai. WLSI complemented the product development skills with global sales network
providing constant inputs on consumer requirements. Currently, it has 110 people team to
support its innovation, design and development.
Service: WLSI is actively involved in consumer research studies by engaging organisation
like ‘NPD Group Inc’ and ‘Just ask a Woman’ for consumer insights and suggesting its customers
about the latest trends and customer requirements. Through market intelligence, the company
also conducted grid analysis of its key customers with respect to product range, fast moving
items, best selling SKUs, attractive price points, etc.
WLSI also works as an extended supply chain partner for its retailer. From, just being a supplier
to retailers through intermediaries (exporters and buying house), it has come a long way to
become a direct supplier to these retailers. Initially, this shift to establish direct relationship
with customers impacted its sales but it paid off eventually. The important step in this direction
was utilising IT as an integrator. It adopted SAP R/3 to integrate operations, marketing and
supply chain to create seamless integration with customers. In addition to the Indian warehouses,
WLSI have strategic facilities in Ohio, USA and Manchester, UK supported by SCM and co-
planning team to provide support on inventory and Vendor Managed Inventory (VMI). It is
now involved with retailers for collaborative forecasting, planning and replenishment of
products (production to point of sale).
Branding: Branding is a key area for the company from the last few years. WLSI is creating
brand within its B2B business as well through appropriate packaging for apt communication,
point of sale communication programme to explain the key functional product attributes,
product trademarks and patents. WLSI has launched ‘Hygro’ branding campaign in the US last
year, showcasing the key attributes of the products. It also plans to invest for its domestic and
global brand portfolio. All these steps are expected to aid in faster growth.
Innovation across product categories
Source: Company
8WELSPUN INDIA
B&K RESEARCH JULY 2015
Branded sales trend (Select brands)
(Rs mn) FY10 FY11 FY12 FY13 FY14 FY15E
Spaces 80 150 180 290 430 580
Welhome 450 550 110 70 40 120
India branded sales 530 700 290 360 470 700
Christy 1,565 1,411 1,547 1,741 2,334 2,686
Total 2,095 2,111 1,837 2,101 2,804 3,386
Note: WLSI closed its owned Welhome stores in FY12 and now growing it through SIS.
Operating margin to remain healthy
We expect the margin to remain healthy between 22-24% over the next few years. This is
mainly supported by:
• Economies of scale (operating leverage).
• Increase in vertical integration (backward integration through spinning and weaving capacity
and forward integration through branded sales).
• Improving product mix, customer mix and geography mix.
• Higher automation (resulting in lower employee cost as a % of sales and improvement in
productivity).
• Favourable cotton and yarn market (Short-term) (over long-term price gets adjusted).
• Favourable exchange rate (Short-term) (over long-term price gets adjusted).
Moderate risk to industry margin post FY17: One of the major risks to the margin
expectation is with respect to export incentives, which currently stands at ~9% of revenue
(~7% duty draw back and ~2% MEIS). The interest subvention for export credit of ~2%
(pre-shipment and post-shipment packing credit) is already discontinued by the government
last year. As per the WTO agreement, when the share of a developing country (Per capita
income below US$ 1,000) in global exports touches 3.25% in any product for two straight
years, then the country need to phase out the export incentives for the items eight years
from the second year of breach. India has first breached the threshold in 2005 and remained
above the level in 2006 as well. Therefore all the export incentives should ideally be stopped
by January 2015.
The other view is that the general WTO norms permit import duty neutralisation for exports
and thus the duty drawback scheme (~7%) will not be affected.
India’s take on WTO phase out: India is deliberating with WTO on this issue of definition
of product (many items within the textile and clothing group are yet to achieve export
competitiveness) and applicable period of phasing out subsidy.
Solution to WTO phase out: The textile ministry is planning to replace export based
incentives by production based incentives. TUFS is one such scheme which is linked to
production and not exports.
9WELSPUN INDIA
B&K RESEARCH JULY 2015
Integration will aid in maintaining healthy and sustainable margins/Future investment on backward integration through ancillary model toimprove return ratios
WLSI is one of most well integrated company in the home textile space. It is present in the
entire manufacturing value chain right from spinning till made-ups along with captive power
plant. It has higher processing capacity as compared to its weaving and spinning capacities.
The company outsource ~30% of its yarn and fabric requirement from third party. WLSI has
gradually increased its spinning and weaving capacities to keep the in-house manufacturing
proportion at ~70%, which helps in maintaining the consistent quality of the final product and
ensure better service levels/reliable SCM. This also provides the flexibility to the company in
planning the production programmes efficiently.
WLSI is considering to increase its spinning and weaving capacity through ancillary model in
future, whereby it will allow third party to co-locate their plants with WLSI. WLSI will assure
the off-take based on the arm’s length pricing formula mutually agreed. This will help WLSI to
focus on higher valued-added activities including processing, marketing, distribution and
retailing. This will also aid in improving the return ratios as the incremental investments are
mostly into asset light businesses.
COTTON (Mostly lower staple length)
Brands & Retail
MADE UPS
SPINNING
WEAVING
DISTRIBUTION
PROCESSING
~70% in House
100% In House
100% In House
100% In House
~30% Yarn Purchased
from Third Party
CAPACITY 407 Looms
LOCATION Vapi and Anjar
CAPACITY 60,000 MT
LOCATION Vapi and Anjar
COTTON (Mostly lower staple length)
Brands & Retail
MADE UPS
SPINNING
WEAVING
DISTRIBUTION
PROCESSING
~70% in House
100% In House
100% In House
100% In House
~30% Yarn Purchased
from Third Party
COTTON (Mostly lower staple length)
Brands & Retail
MADE UPS
SPINNING
WEAVING
DISTRIBUTION
PROCESSING
COTTON (Mostly lower staple length)
Brands & Retail
MADE UPS
SPINNING
WEAVING
DISTRIBUTION
PROCESSING
~70% in House
100% In House
100% In House
100% In House
~30% Yarn Purchased
from Third Party
CAPACITY 407 Looms
LOCATION Vapi and Anjar
CAPACITY 60,000 MT
LOCATION Vapi and Anjar
Tow
els
Welspun’s value chain integration across product lines
Source: Company, B&K Research
Be
dLi
ne
n
COTTON (Mostly long staple length)
Brands & Retail
MADE UPS
SPINNING
WEAVING
DISTRIBUTION
PROCESSING
100% In House
~60% In House
100% In House
100% In House
~40% Fabric Purchased
from Third Party
CAPACITY 474 Looms
LOCATION Anjar
CAPACITY 72 mn meters per year
LOCATION Anjar
COTTON (Mostly long staple length)
Brands & Retail
MADE UPS
SPINNING
WEAVING
DISTRIBUTION
PROCESSING
100% In House
~60% In House
100% In House
100% In House
~40% Fabric Purchased
from Third Party
COTTON (Mostly long staple length)
Brands & Retail
MADE UPS
SPINNING
WEAVING
DISTRIBUTION
PROCESSING
COTTON (Mostly long staple length)
Brands & Retail
MADE UPS
SPINNING
WEAVING
DISTRIBUTION
PROCESSING
100% In House
~60% In House
100% In House
100% In House
~40% Fabric Purchased
from Third Party
CAPACITY 474 Looms
LOCATION Anjar
CAPACITY 72 mn meters per year
LOCATION Anjar
10WELSPUN INDIA
B&K RESEARCH JULY 2015
Investment concernsNegative global clues could impact demand conditions: WLSI revenue are spread
across the globe with larger concentration of its revenue from US/Europe markets; hence any
adverse impact on global economy could negatively impact the demand. We saw the similar
situation in the industry (demand tapering) post the sub-prime crisis in 2008. Moreover, some
of the high end products see larger impact on the demand because of its discretionary nature
during these times. Postponement of demand is the typical behaviour of the consumers resulting
in deeper impact on demand conditions. Any such event can impact WLSI’s revenue and
profitability.
Sharp rupee appreciation may impact the margins till the price revision takes
place: Majority of WLSI’s revenue come from exports. Extremely volatile currency
movements may impact the company’s competitiveness as well as margins. The recent
depreciation of rupee is providing WLSI an edge over some of its competitors in China,
Pakistan and Turkey, but sharp appreciation of rupee may create demand and margin pressure
on its manufacturing division. In the past few years, WLSI follows the pricing discipline because
of the exchange rate volatility whereby any appreciation/depreciation (+/-5%) is adjusted on
a semi-annually/yearly basis. Thus, sometimes margins may get impacted for short-term till the
price revision takes place.
Increase in competitive rivalry: WLSI has two major products line i.e. towels and bed
linen. In the towel segment, the competition is mostly from few players from China, Pakistan
and India. For the products served by WLSI, the major competition is from Trident Limited,
since it has recently doubled its towel capacity (largest towel capacity in the world) and plans to
ramp-up the capacity to absorb the fixed cost. In this process, the WLSI may need to compete
in certain basic products, which may impact its margins in short-term. On the bed linen side,
most of the company competition is from Alok, Indo Count Industries, GHCL, Himatsingka
Seide and Trident (upcoming capacity). Most of the players except Alok (working on lower
utilisation) has increased their capacity or are planning to increase their capacity. This may
increase the competitive rivalry between the players leading to pricing pressures and strain on
operating margin.
Inherent risk of venturing into new segments: WLSI is investing into new products,
technologies, innovation for its future growth. In the past, the company has been successful to
implement such projects profitably. At the same time, inability to adopt or execute new
technology or failure to market the new products/brands effectively could impact the profitability
of the company.
11WELSPUN INDIA
B&K RESEARCH JULY 2015
Outlook and valuationWLSI’s revenue, EBITDA and PAT is expected to witness CAGR of 14.5%, 10.9% and
12.6%, respectively, over FY15-18E supported by volume growth and healthy margins. Under-
penetrated geographies, under-penetrated product segments and under-penetrated sales
channels on the micro side and improving global environment, increasing competitiveness of
Indian manufacturers and wider access to European market on the macro side will aid the
growth momentum.
WLSI’s capex plan of Rs 25 bn over FY14-16E is focused towards increasing spinning and
weaving capacity as a part of backward integration (~Rs 13 bn) and to modernise and enhance
finished product capacity for optimal efficiency and growth (~Rs 12 bn). This will help the
company to earn stable and consistent operating profits.
The company has consistently performed over the last three years after the reorganisation of
its businesses in FY12 (merger of marketing division, closing non-performing international
manufacturing and closed own retail network). The relative debt level measured through net
debt/EBITDA fell from 4.6x in FY12 to 1.9x in FY15 despite incurring capex of Rs 25 bn
during this period. We believe the relative debt levels to further reduce to ~1x by FY18E. This
according to us is the key transformation for WLSI and warrants re-rating. WLSI has first time
announced the dividend distribution policy along with FY15 results to pay 25% of its PAT as
dividend, which further improves the case for re-rating.
Average EV/EBITDA multiple of the similar companies is ~5.5x (see table below). We have
assigned 30% premium to the valuation multiple to adjust for the higher than average return
ratios. We initiate coverage on the stock with a Buy rating with a target price of Rs 842/share
(We have valued WLSI based on 7.2x FY17E EV/EBITDA). At the current market price of Rs
647/share, the stock is trading at 5.9x FY17E EV/EBITDA.
Efficient and staggeredcapital allocation aiding tobuild stable businessmodel
Falling relative debt levels,increasing return ratiosand rising dividend are keyvariables resulting inmultiple re-rating for thestock
Peer valuation matrix
FY17E PER (x) P/BV (x) EV/EBITDA (x) RoE (%) RoCE (%)
Arvind 12.3 2.0 7.5 17.3 17.1
Vardhman Textiles 6.2 1.0 4.1 16.0 16.5
Himatsingka Seide 5.1 0.8 4.8 14.8 15.7
Indo Count Industries 10.2 3.8 6.8 53.7 36.1
Trident 3.1 0.7 4.9 14.4 –
KPR Mill 7.8 1.7 4.6 23.4 23.4
Average 7.4 1.7 5.5 23.3 21.8
Welspun India (FY17E) 10.1 2.8 5.9 31.3 30.0
Implied multiple based on target price 13.1 3.7 7.2 – –
Note: All the numbers are based on B&K estimates except Trident which is based on Bloomberg estimates.
12WELSPUN INDIA
B&K RESEARCH JULY 2015
Key business comparison of home textile players in India
Company Business Revenue mix Manufacturing Exports Integration Rated Return (%)
location (%) 1-mth 3-mths 6-mths 12-mths
Himatsingka Weaving/ Manufacturing – 49% Hasan/ 96 Partially BUY 3.9 13.6 (1.2) 19.1
Seide Processing/ (Premium bed Bengaluru
Made-ups/ sheets and silk drapery
Distribution/ and upholstery) and
Captive Retail & Distribution
Thermal plant – 51%
Welspun Spinning/ Terry towel – 42%, Anjar/Vapi 95 To a greater BUY 10.6 90.1 95.4 274.9
India Weaving/ Bed linen products – extent
Made-ups/ 29%, Rugs – 5%,
Distribution/ Subsidiary – 11%
Captive and Others – 13%
Thermal plant
Indo Count Spinning/ Yarn – 13%; Kolhapur 84 Partially BUY 21.6 89.2 103.4 691.6
Industries Weaving/ Bed sheet – 84%;
Processing/ Others – 3%
Made-ups
Trident Spinning/ Yarn – 46%; Punjab/MP 48 Completely Not (15.3) 10.4 (10.2) (9.3)
Weaving/ Towel – 35%; Rated
Processing/ Paper – 19%
Made-ups
Alok Spinning/ Apparel fabric – 77%, Vapi 17 To a greater Not (12.3) (9.7) (40.1) (56.5)
Weaving/ Polyester yarn – 11%, extent Rated
Made-ups/ Bed sheets and
Captive Towels – 10%,
Thermal plant/ Others – 2%
Polyester chips/
POY/FDY/PTY
13WELSPUN INDIA
B&K RESEARCH JULY 2015
Adjusted EPS Total debt Net debt/Equity Net debt/EBITDA RoCE
Company (Rs) (Rs mn) (x) (x) (%)
FY13 FY14 FY15 FY13 FY14 FY15 FY13 FY14 FY15 FY13 FY14 FY15 FY13 FY14 FY15
Himatsingka Seide 4.0 6.9 9.7 7,030 8,136 7,567 1.1 1.1 0.9 4.3 3.9 3.4 8.8 10.4 11.3
Indo Count 12.7 31.0 43.6 4,110 4,341 4,276 2.1 1.4 0.9 3.6 2.2 1.2 17.7 25.3 36.5
Welspun India 22.8 56.4 53.7 20,279 30,293 28,480 1.8 2.4 1.6 3.1 3.0 1.9 16.3 21.4 23.4
Alok 1.4 – 1.2 200,122 – 180,085 5.7 – 4.4 4.4 – 3.2 12.2 – 11.1
Trident 1.6 6.2 2.3 22,398 18,623 25,117 3.1 2.0 1.7 4.0 2.5 3.6 10.4 16.0 10.6
Key financial comparison between home textile players in India
Company CMP Target M-Cap Net sales EBITDA margin Interest cost Adjusted PAT
(Rs) price (Rs mn) (Rs mn) (%) (Rs mn) (Rs mn)
(Rs) FY13 FY14 FY15 FY13 FY14 FY15 FY13 FY14 FY15 FY13 FY14 FY15
Himatsingka Seide 91 130 8,945 16,894 20,282 19,406 9.3 9.9 11.1 653 828 857 398 675 952
Indo Count 696 643 27,462 12,084 14,892 17,818 9.2 12.1 17.6 498 499 641 449 1,098 1,722
Welspun India 647 842 65,030 36,473 44,954 53,025 16.3 20.5 24.0 1,977 2,352 2,829 2,279 5,659 5,398
Alok 7 NA 9,297 213,884 – 241,531 21.5 0.0 20.9 28,136 – 35,127 4,206 – 2,597
Trident 26 NR 13,179 33,352 38,690 37,860 16.7 18.8 18.3 2,353 2,103 2,060 493 1,940 1,179
RoE PER Price/Book value EV/EBITDA Dividend yield
Company (%) (x) (x) (x) (%)
FY13 FY14 FY15 FY13 FY14 FY15 FY13 FY14 FY15 FY13 FY14 FY15 FY13 FY14 FY15
Himatsingka Seide 6.6 9.8 12.3 7.3 8.4 8.3 0.5 0.8 1.0 6.1 6.8 7.1 3.4 2.6 2.5
Indo Count 96.3 96.0 70.3 0.8 1.3 8.6 0.6 0.8 4.6 3.9 3.0 5.9 – – –
Welspun India 26.5 53.9 42.5 3.0 1.8 6.6 0.7 0.9 2.5 4.2 4.1 4.7 5.6 3.0 3.0
Alok 12.1 – 7.1 5.7 – 5.9 0.3 – 0.3 4.0 – 3.3 21.6 – –
Trident 7.3 24.4 10.1 4.8 2.4 9.9 0.3 0.5 0.8 4.4 3.1 5.3 – 2.9 1.6
Note: Alok results are for 18 months from 1st April 2012 to 30th September 2013 mentioned in FY13 column while FY15 numbers reflect results for 18months from 1st October 2013 to 31st March 2015
14WELSPUN INDIA
B&K RESEARCH JULY 2015
Industry overview
Textile industry overview
The global textile and apparel market size is estimated to be ~US$ 1.1 trn and expected to
touch ~US$ 2 trn by 2025 based on the report ‘The road to 2025’ published by Wazir advisors,
since 75% of the current market is concentrated only by one-third of the population (EU-27,
USA, China and Japan) which reflects extremely large opportunity of growth in emerging
economies.
Changing dynamics: Phasing out of Multi Fibre Agreement (MFA) in 2005 changed the
dynamics of the industry with shifting of manufacturing from some of the European countries
to Asian countries like China, India, Bangladesh and Vietnam. Also over these years the domestic
market in China and India themselves have started growing with GDP growing much faster
than developed countries.
Global trade continue to grow: The global textile and apparel trade is worth US$ 766 bn
in year 2013. Over the years, textile manufacturing saw a gradual shift of manufacturing base
from developed to developing countries. Exports of Asian countries have increased substantially
over the last two decades in comparison to western world especially EU-27. China contributes
37.1% (US$ 284 bn) of the world exports whereas India contributes 4.7% (US$ 36 bn).
Global apparel market size2012 (US$ bn)
No. Region Apparel
market size
1 EU-27 350
2 United States 225
3 China 150
4 Japan 110
5 Brazil 55
6 India 45
7 Russia 40
8 Canada 30
9 Australia 25
10 Rest of the World 75
Source: The Road to 2025 published byWazir Advisors.
Global textile and apparel exports
Source: WTO (*Estimates from Industry data)
198309 346 364 316 351 422 460 520
650157
220 237 248210
251286
306340
430
1,080
860766
708
602525
612583529
355
0
200
400
600
800
1,000
1,200
2000 2006 2007 2008 2009 2010 2012 2013 2015* 2020*
USD
bn
Clothing Textiles
World trade share (Top 10 countries)
2013 – Textile exports share
Country US$ bn % share
China 107 34.8
India 19 6.2
Germany 15 4.9
United States 14 4.6
Italy 13 4.4
Turkey 12 4.0
Korea 12 3.9
Hong Kong 11 3.5
Taiwan 10 3.3
Pakistan 9 3.1
2013 – Clothing exports share
Country US$ bn % share
China 177 38.6
Italy 24 5.2
Bangladesh 24 5.1
Hong Kong 22 4.8
Germany 18 4.0
Vietnam 17 3.7
India 17 3.7
Turkey 15 3.3
Spain 12 2.5
France 11 2.4
15WELSPUN INDIA
B&K RESEARCH JULY 2015
2013 – Textile import share
Country US$ bn % share
United States 27 8.4
China 22 6.7
Germany 14 4.2
Vietnam 11 3.3
Hong Kong 10 3.2
Japan 9 2.7
Italy 9 2.6
France 7 2.3
United Kingdom 7 2.3
Turkey 7 2.1
Source: WTO
2013 – Clothing import share
Country US$ bn % share
United States 91 18.9
Germany 35 7.4
Japan 34 7.0
France 23 4.9
United Kingdom 23 4.7
Hong Kong 16 3.4
Italy 16 3.3
Spain 15 3.1
Netherlands 13 2.7
Canada 10 2.1
Textiles and Clothing exports of major Asian players (Indexed to 100)
Source: WTO *Including Hong Kong
0
100
200
300
400
500
600
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
%
India China*Pakis tan Bangladesh
Bangladesh grew swiftlypost 2009...
Indian textile overview
One of the most important sectors for the economy: India is the second largest
producer of textile and clothing products after China. Being the largest producer of cotton in
the world, India enjoys natural benefit compared to most of the countries. Textile industry,
being a major contributor to GDP (~4%), Industrial Production (~14%), Exports (~17%) and
Employment (35 mn people), it enjoys favourable treatment from Government compared to
many other sectors in the country. During FY14, Indian textile sector was ~US$ 90 bn, out of
which US$ 36 bn is towards exports. According to the industry estimates, Consumer Textile
(Apparel) contributes ~70%, while Home Textile and Technical Textile contribute ~8% and
~22%, respectively.
India export market isexpected to see a substantialjump on account of ease ofavailability of cotton,ability to handle smallorders, better designingskills, availability of skilledmanpower, and learningcurve over the years andcontinuously adopting thechanges coming in theindustry through variousinitiatives from government
16WELSPUN INDIA
B&K RESEARCH JULY 2015
Textile and Clothing’s contribution to India’s GDP (2012)
Source: Technopak Report (2012)
How India fares among other Asian peers...
(US$ bn) China India Bangladesh Pakistan Vietnam Combodia World
2013 284 36 25 14 22 5 766
% share 37.1 4.7 3.3 1.8 2.9 0.7 –
2000 52 12 5 7 2 1 353
% share 14.8 3.3 1.5 1.9 0.6 0.3 –
CAGR (%) 13.9 9.1 12.6 5.8 19.7 13.6 6.1
Source: WTO
Global home textile market
Based on the industry estimates, the world trade in home textiles is valued at US$ 45 bn, out of
which cotton fibre accounts for ~50% followed by the man-made fibres.
In terms of products bedding is largest segment with ~54% share followed by bath with 25%,
window with 14% and kitchen and dining with 7% share.
China contributes ~33% to the home textiles trade followed by India which contributes ~11%.
India, China and Pakistan contribute ~85 of the home textile exports into the US market. In
European market, Turkey and Bangladesh are also key players along with the China, India and
Pakistan since both these countries enjoy duty-free access in the region. Within the home
textile space, India enjoys dominant position in the cotton led textile products. India’s share in
the cotton bed sheets and cotton towels of the total US import is ~47% and ~37%.
Home textile product classification
Bed linen (bedspreads, blankets, pillow cases, quilts, sheets, etc.)
Household textiles Bath linen (bath mats, bath rugs, towels, washing gloves, etc.)
Kitchen linen (table linen, dish towels, etc.)
Window covering (curtains and drapes)
Furnishing textiles Wall and ceiling coverings
Upholstery, decorative pillows, throw rugs, etc.
17WELSPUN INDIA
B&K RESEARCH JULY 2015
Distribution channels for home textiles
Home textiles in the US and Europe are imported from China, India and Pakistan through
general trading companies or specialty textile trading companies, and then are distributed via
wholesalers and dealer agents to department stores, specialty stores and other retail outlets.
Many domestic brand makers serve as import agents for foreign brand names, and they distribute
through the same channels as their own products.
Department stores and mass merchandisers increasingly import direct from abroad or bring in
development imports for sale under private brand labels. Other sales channels are proliferating
as well, including catalogue sales and online shopping.
Linen supply services that provide bed linens used by hotels and hospitals and hand towels and
other commercial use towels used by beverage establishments acquire imported linens directly
from general trading companies or specialty trading companies.
Distribution channels
Source: Marketing guide for Asean Exporters to Japan.
Manufacturing – Wholesalers
General Trading Company/Textile Trading Company
Wholesalers/Authorised Dealer Agents
DepartmentStores
BeddingSpeciality
Stores
FurnitureStores
OtherRetailers
Linen Supply & ServiceCompanies
Home Textile Consumers Hotel & Other Institutional Customers
Home Textile manufacturer in Asia
CorporationMass
Merchants
Top home textile retailing giants of USA
Rank Store Company Home textile Home textile as a % Market Number
type revenue (US$ mn) of total revenue share (%) of stores
1 DC/SC Walmart 4,375 1.6 16.5 4,203
2 SP Bed Bath & Beyond 4,140 36.0 15.6 1,456
3 DC/SC Target 2,455 3.4 9.3 1,793
4 DP Kohl’s 1,290 6.8 4.9 1,158
5 DP Macy’s 990 NA 3.7 789
6 DP/DTC JC Penney 905 7.8 3.4 1,094
7 DC T.J. Maxx/Marshalls 856 4.8 3.2 2,025
8 DC/SC Kmart 730 5.5 2.8 1,152
9 DC Ross Stores 590 5.8 2.2 1,276
10 SP IKEA 530 12.1 2.0 38
Note: DC – Discount department store; SC – Supercenter (includes food in merchandise mix); SP – Specialty store; DP – Department store; DTC – Directto Consumer. Source: Home Textile Today (2014).
18WELSPUN INDIA
B&K RESEARCH JULY 2015
Pricing of product
Source: Company
Home textiles: Porter Five Force analysis
Five Forces Spinning Weaving Processing Made-ups Distribution Retailing
Entry Barriers Low Medium High Low Medium High
Intensity of Competition High Medium Medium High Medium High
Bargaining Power of Customers High Medium Medium High Medium High
Bargaining Power of Suppliers Low Low Medium High* Medium Medium
Threat of Substitutes Low Low Low Medium** Medium Medium
Source: B&K Research. *Labour Force. **Increasing automation.
May&Co,Federated,
Dillard’s
BB&B, Kohl’s
J C Penny, Target
Wal-Mart, K Mart,
Costco
Tommy Hilfiger,
Nautica, Polo Ralph
Lauren, DKNY, Calvin
KleinDesigner Brands
Department Stores
Specialty Stores
Fashion Stores
Mass Merchantsx
+ 5-7%
+ 13-15%
2x
Retail Price
Expansion
3x
Indian home textile market
Home textile market size
Source: B&K Research, Industry
Global home textiletrade ~US$ 45 bn
India’s home textileexport ~US$ 6 bn
India’s home textilemarket size ~US$ 12 bn
Global textile and Clothing marketsize ~US$ 1,100 bn
Global textile and Clothing trade~US$ 766 bn
Global clothing trade~US$ 460 bn
Global textile trade~US$ 306 bn
19WELSPUN INDIA
B&K RESEARCH JULY 2015
India’s home textile market is ~US$ 12 bn. Out of which, ~50% is exported and mostly
cotton-based textile products. Among the product categories, bed linen is the dominant category
accounting ~50% of the entire size.
Exciting times for export market: India export market is witnessing exciting times in the
home textile space in the global trade on account of ease of availability of cotton, ability to
handle small orders, better designing skills, availability of skilled manpower and learning curve
over the years and continuously adopting the changes coming in the industry through various
initiatives from government. Over the years, the industry’s competitiveness has increased
against most of its competing countries because of:
1) Ease of availability of good quality raw material (India is a net exporter of cotton and
cotton yarn).
2) Increase in wages in China is much faster than India over the last few years.
3) India has strong integration across the value chain unlike Bangladesh and Pakistan.
4) Attractive and favourable government policy (mainly to generate employment and foreign
exchange).
5) Ease of trade and work environment as compared to Bangladesh (Worker’s safety issues)
and Pakistan (Geopolitical issues).
Key parameters of comparison between major competing countries
Parameters India China Bangladesh Pakistan
Cotton production 2014/15 (mn MT) 6.5 6.4 Negligible 2.1
Cotton consumption 2014/15 (mn MT) 5.4 7.9 1.0 2.3
Wages (US$) – CY12 140 240 60 110
Manufacturing made-ups (Factor Cost Index) 100 111 87 98
Movement in domestic currency (FY09-14) (%) (18) 9 (12) (22)
Integration across value chain Strong Strong Weak Moderate
Textile and Clothing as a % of GDP 4 7 13 8.5
Source: www.Cottoninc.com, Technopak Analysis, Gherzi Benchmark study (Texprocil), Bloomberg.
Ranking of Indian home textile companies as supplier in USA
Rank Company Sales ~US$ mn – 2014
1 Welspun 649
3 Alok – US 647
6 Himatsingka America 362
14 Indo Count Industries 249
15 Trident 228
Source: Home Textile Today (Business Annual 2014).
Domestic home textile market also looking up: Indian domestic market is expected
to see a significant growth in the coming years especially on account of higher disposable
income, increasing retail penetration, favourable demographic profile, higher growth in
urban population, etc.
20WELSPUN INDIA
B&K RESEARCH JULY 2015
Domestic home textile market (Rs mn)
Source: Technopak
407,800
273,650
184,000
2011 2016 (P) 2021 (P)
Category-wise market break-up (Rs mn)
Categories 2011 2016 (P) 2021 (P) CAGR (%)
2011-21
Bed Linen 89,650 131,700 193,500 8.0
Towels 33,200 48,400 70,600 7.8
Curtains 18,500 29,750 47,900 10.0
Blankets 14,650 20,400 28,500 6.9
Upholstery 11,900 19,150 30,800 10.0
Kitchen Linen 11,100 16,350 24,000 8.0
Rugs & Carpets 5,000 7,900 12,500 9.6
Total 184,000 273,650 407,800 8.3
Indian home textile retail market
Based on the presentation made during Home Fashion India Week, share of organised home
retail in India is ~6% of total market. Urban home furnishing retail and institutional home
furnishing market is estimated to be Rs 93 bn (2010) and Rs 5.3 bn (2010), respectively. Bed
products are the dominant category followed by bath product, together they account for 66%
of the entire market. Home textile retail market has seen the entry of manufacturers and
apparel retailers over the last decade where most of the stores are still evolving in terms of
size, display & sale and location.
Organised market in home textiles
Specialty home retailers @home, HomeStop, Atmosphere, Welhome, Good Earth, Bombay
Dyeing, Portico, Kurlon, Maspar, Carmichael House, Roseby, etc.
Big-box (Soft + Hard Home) HomeStop, Home Centre, Home Town.
Departmental stores Big Bazaar, Shoppers Stop, Lifestyle, Central.
MBOs Jagdish Store, Bharat Furnishings, etc.
21WELSPUN INDIA
B&K RESEARCH JULY 2015
Important timelines
1985 Incorporated as Welspun Winilon Silk Pvt. Ltd. (a synthetic yarn company).
1994 Started terry towels unit in Vapi.
1995 Commissioned cotton yarn spinning unit.
1997 Bathrobes Joint Venture with Zucchi, Italy (for manufacturing).
2000 Incorporated Welspun USA.
2002 Vendor of the year award from Walmart and JC Penney.
2005 Set-up manufacturing facility at Anjar for Terry Towels and Bed Linen.
2006 Acquired 85% stake in Christy, UK (150-year-old heritage brand).
2007 Acquired fashion and basic bedding manufacturing facility (Mexico). Acquired 76% stake in
bath rug manufacturer (Portugal). (Divested in FY12).
2008 Set-up bath rug manufacturing facility in Vapi.
2009
Welspun India Limited de-merged its Sales & Marketing and Investment divisions into two
separate companies – Welspun Global Brands Ltd. and Welspun Investments & Commercials
Ltd., respectively.
Licence to sell Nautica in the US and Canada and Tommy Hilfiger in India. (Divested in FY12).
2010 Raised Rs 1.56 bn through QIP route.
2012 Welspun Global Brands Ltd. becomes a subsidiary of Welspun India Limited.
2013 Largest supplier of home textile in USA.
2014 Capex on backward integration.
Company backgroundWelspun India Limited (WLSI) started its operations in 1985 as a yarn company and forayed
into home textile in 1995. It is currently one of the largest home textile players globally having
presence in towels, bed linen, rugs and carpets. All the manufacturing plants are located in
Gujarat. It has increased its integration over the last few years to provide more flexibility to its
weaving and processing facility. Export contributes ~95% of revenue.
WLSI’s – Swot analysis
Strength Weakness
• Integrated (market research to distribution). • Many moving and volatile variables like cotton prices, currency, geo-political issues,
• Strategically located manufacturing facilities. demand environment, etc.
• Diversified product portfolio. • Dependence on large retailers.
• Diversified clientele.
Opportunity Threat
• EU FTA to provide larger access to 2nd largest • Changes in government policies related to investment benefits or export incentives.
global market. • Emerging low cost textile manufacturing hubs.
• Product diversification. • Large e-retailers may disrupt the already established branded distribution network.
• To increase its branded business globally.
• Labour reforms.
22WELSPUN INDIA
B&K RESEARCH JULY 2015
Business verticals
Retailer solutions • WLSI has the complete suite of products and services for home textiles for all the major retailers globally.
• The product includes terry towels, bath mats, area rugs, bed sheets and basic bedding products.
• The critical function includes product design and development, forecasting and planning, marketing and distribution.
• Suppliers to major retailers like Walmart, Target, Costco, Macy’s, Kohl, JC Penney, Tesco, John Lewis, Carefour, IKEA, etc.
Brands • WLSI has some of the most formidable home textile brands across the world under its flag.
• WLSI has brands like Christy, Kingsley Home, Crowning Touch, Spaces, Welhome, Amy Butler and Spun.
Hospitality • WLSI provides bed, bath linen and decorative products (throws, quilts and rugs) to major hotel chains, Spas & Resorts,
solutions Cruises & Liners and distributors globally.
Advanced textiles • WLSI has recently entered into this segment and is present in the disposables and durables segment of the market.
• Wipes, wound care, hygiene care and drapes & gowns are few product lines on disposables side
• Automotive, protective, filtration, coating substrates and home textiles are few product lines on durables side.
Manufacturing capabilities
WLSI has two manufacturing facilities, one in Vapi and other in Anjar, both located in the state
of Gujarat. Both the plants have ETP with zero discharge facilities.
Capacities
FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Cotton yarn (MT) 1,30,000 1,30,000 1,30,000 3,05,000 3,05,000 3,05,000 3,05,000
Terry towel (MT) 43,800 43,800 45,000 50,000 60,000 60,000 70,000
Bath rugs & carpets (MT) 10,151 10,151 12,000 15,000 20,000 20,000 25,000
Bed linen products (Mn mtrs) 45 52 55 60 72 72 90
Products
Towels • WLSI is the largest supplier of bath towels in USA.
• The product range includes wash cloths, face towels, hand towels, bath towels, bath sheets and beach towels.
• WLSI manufactures a variety of towels to suit the needs of different customers from simple solid colour towels to complex
yarn-dyed jacquards.
• WLSI manufacture towels using carded/combed cotton, ring spun, zero twist, low twist and newly patented, Hygro cotton®
yarns.
Bath rugs/ • WLSI started bath rugs manufacturing facility with a capacity of 8 million pieces in 2009.
mats • With machine tufting and hand tufting capabilities, WLSI manufactures cotton, nylon, PET and polyester filament-based
Drylon and Resilon yarn rugs and the bi-component fibre (BCF) rugs called Kushlon.
• WLSI procures dope dyed Drylon, Resilon, Kushlon and Nylon yarns from its group company Welspun Syntex Ltd.
Area rugs • WLSI recently launched a vertically integrated line of area and accent rugs.
• WLSI expertise in fibre extrusion and design innovation helps it to offer diverse range of product and styles.
Bath robes • WLSI manufactures cotton terry-based bathrobes in all sizes and designs like the kimono, shawl, hood and zipper styles.
Bed sheets • WLSI forayed into bed sheets in FY05 at Anjar.
• WLSI manufactures solid-colour flat and fitted sheets, damask stripes, complex jacquards and woven dobby patterns across
all thread counts in cotton and blended yarn/fabric.
• It also has rotor and digital printing capabilities.
Utility bedding • WLSI manufactures pillow fillers, mattress pads and filled comforters at their Anjar facility.
& Fashion • WLSI has few unique patent-pending solution driven products in this area.
bedding • It also manufactures fashion core comforters in solid and stripes that coordinate with the bed sheets.
23WELSPUN INDIA
B&K RESEARCH JULY 2015
Key management personnel
Mr Rajesh R. Mandawewala – Managing Director, WLSI.
Ms Dipali Goenka – Executive Director – WLSI.
Mr Altaf Jiwani – Director (Finance) & CFO, WLSI.
Mr Suneel Mohnot – President (Commercial).
Mr Vikram Kumar – Sr. Vice President (Human Resources).
Mr Mukesh Savlani – Vice President, Marketing.
Mr Anil Channa – Director Operations – WLSI Anjar plant.
Mr A.K. Joshi – Director Operations – WLSI Vapi plant.
Mr Barry Leonard – President & CEO ( Welspun USA).
Corporate Social Responsibility (CSR)
On the CSR side, WLSI is working on three major areas i.e. Education, empowerment of
women and environment & health. On the education front, WLSI runs education programme
in various government schools (5,720 students), runs 2 CBSE affiliated schools (2,060 students)
and runs 4 pre-primary education centres. To bring the socio-economic change it runs 8
vocational centres to train the women employees and provide them self employment. WLSI
runs various initiatives for sustainable environment through tree plantation, waste water
recycling, rain water harvesting, drinking water purification, etc.
Corporate structure
Source: Company
24WELSPUN INDIA
B&K RESEARCH JULY 2015
49.6
50.351.5
52.0 52.051.0 50.5
21.922.723.924.020.5
11.4
16.3
9.79.49.610.2
(2.9)
6.1
12.6
45
47
49
51
53
55
FY12 FY13 FY14 FY15 FY16E FY17E FY18E
%
(5)
0
5
10
15
20
25
30
%
Gros s margin (LHS) EBITDA margin (RHS)PAT margin (RHS)
44 41 41 41 41 42 43
25 31 25 29 29 30 30
4 5 6 5 6 6 717 11 15 11 12 12 129 11 11 11 10 8 7
1222321
0
20
40
60
80
100
FY12 FY13 FY14 FY15 FY16E FY17E FY18E
%
Terry towels Bed linen products Rugs OthersSubs idiaries Other operating income
32 36 45 53 60 68 80
13.3
16.314.3
13.0
18.023.3
0
10
2030
40
50607080
90
FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Rs
bn
0
5
10
15
20
25
%
Revenue (LHS) Revenue Growth (RHS)
Financial statement analysis
Consolidated revenue and Revenue growth Consolidated revenue product mix
Source: Company, B&K Research. Note: Classification of product revenue is based on standalone numbers.
Expenses break-up (Consolidated)
(%) FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Revenue 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of material consumed 49.7 48.5 50.4 48.0 48.0 49.0 49.5
Gross margin 50.3 51.5 49.6 52.0 52.0 51.0 50.5
Employees cost 9.5 7.6 7.6 8.4 8.5 8.8 8.8
Power & fuel cost 7.5 7.2 2.6 2.2 2.3 2.3 2.3
Other operating expenses 22.0 20.4 18.9 17.3 17.3 17.3 17.6
EBITDA margin 11.4 16.3 20.5 24.0 23.9 22.7 21.9
Revenue growth and EBITDA growth
Gross margin, EBITDA margin and PAT margin (% ofrevenue)
Source: Company, B&K Research
13.3
23.318.0 16.314.313.0
52.338.3
54.962.4
57.7
12.38.3
12.20
10
20
30
40
50
60
70
FY12 FY13 FY14 FY15 FY16E FY17E FY18E
%
Revenue growth EBITDA growth
25WELSPUN INDIA
B&K RESEARCH JULY 2015
28 28 33 31 34 34 34
110 109 108 119 127 127 127
(85) (105) (89) (94) (87) (87) (87)
54 31 52 56 74 74 74
(150)
(100)
(50)
0
50
100
150
200
FY12 FY13 FY14 FY15P FY16E FY17E FY18E
Day
s
Receivable days Inventory daysPayable days Total days
7764
57
723
56 5437
23
87103
112125 126
0
20
40
60
80
100
120
140
FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Rs
Adjus ted EPS Cash EPS
Power & fuel cost (% of revenue) Employees cost (% of revenue)
Source: Company, B&K Research
EPS and Cash EPS (Rs) Market price and Book value (Rs/share)
Source: Company, B&K Research. Note: Market price per share for FY16 to FY18 are based on our target price.
Working capital cycle Net block/Gross block (Fixed assets)
Source: Company, B&K Research
2,40
4
2,63
3
1,17
4
1,18
7
1,37
8
1,57
5
1,83
1
2.32.32.32.22.6
7.27.5
0
500
1,000
1,500
2,000
2,500
3,000
FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Rs
mn
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
%
Power & fuel cos t (LHS) % of revenue (RHS)
3,05
1
2,76
8
3,40
1
4,46
0
5,09
1
5,99
0
7,00
6
7.6 7.6
8.4 8.58.8 8.8
9.5
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Rs
mn
5.05.56.06.57.07.58.08.59.09.510.0
%
Employees cos t (LHS) % of revenue (RHS)
101
976
811
45 68
356
713
229 28382 99111
143 183
2.5
0.90.70.6
3.5
3.93.5
0
200
400
600
800
1,000
1,200
FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Rs/
shar
e
0.00.51.01.52.02.53.03.54.04.5
x
Market price (Rs/share) Book value (Rs/share)Price/book value (x)
25.1
27.8
36.1
45.6
55.6
60.6
64.1
15.8
16.3
18.4
24.7
30.2
30.4
28.9
0.50.50.50.50.50.6
0.6
0
10
20
30
40
50
60
70
FY12 FY13 FY14 FY15P FY16E FY17E FY18E
Rs
bn
0.1
0.3
0.5
0.7
0.9
x
Gros s block (LHS)Net block (LHS)Net block/ Gros s block (x) (RHS)
26WELSPUN INDIA
B&K RESEARCH JULY 2015
113(630)519206082431,092
(20,000)(15,000)(10,000)
(5,000)0
5,00010,00015,00020,000
FY12 FY13 FY14 FY15P FY16E FY17E FY18E
Rs
mn
CFO (Before WC changes ) WC changesCapex Inves tment, loans & advancesCFF Changes in cash
53.9
26.5
9.5
30.0
42.5
35.131.3
6.22.112.6 10.2 9.6 9.4 9.7
1.0 1.0 1.11.01.01.01.0
3.74.3
2.83.2
4.34.6
4.3
0
10
20
30
40
50
60
FY12 FY13 FY14 FY15P FY16E FY17E FY18E
%
0
1
2
3
4
5
x
RoE (%) Net profit margin (%)As set turnover (x) Leverage factor (x)
Return ratios Net debt/Equity and Net debt/EBITDA
Source: Company, B&K Research
DuPont analysis – RoE
Source: Company, B&K Research
Cash flow analysis
Source: Company, B&K Research
30.031.335.1
53.9
26.5
9.5
42.5
23.4 21.7 21.4 23.4
8.9
16.3
10.09.710.3 7.57.37.8
9.510.8
0
10
20
30
40
50
60
FY12 FY13 FY14 FY15P FY16E FY17E FY18E
%
RoE RoCE Implied Interes t Rate
1.12.21.8
2.4
1.6 1.51.2
0.8
1.72.01.9
3.03.1
4.6
0.0
1.0
2.0
3.0
4.0
5.0
FY12 FY13 FY14 FY15P FY16E FY17E FY18E
x
Net debt/Equity (x) Net debt/EBITDA (x)
27WELSPUN INDIA
B&K RESEARCH JULY 2015
Detailed financials
Income Statement (Consolidated)
Yr end 31 Mar (Rs mn) Mar 12 Mar 13 Mar 14 Mar 15 Mar 16E Mar 17E Mar 18E
Net sales 32,205 36,473 44,954 53,025 59,896 68,462 79,609
Growth (%) 52.3 13.3 23.3 18.0 13.0 14.3 16.3
Operating expenses (28,544) (30,527) (35,743) (40,283) (45,581) (52,956) (62,215)
Operating profit 3,662 5,946 9,211 12,742 14,315 15,507 17,395
EBITDA 3,662 5,946 9,211 12,742 14,315 15,507 17,395
Growth (%) 57.7 62.4 54.9 38.3 12.3 8.3 12.2
Depreciation (1,378) (1,449) (6,863) (3,329) (4,570) (4,824) (4,990)
Other income 460 492 1,042 949 800 800 700
EBIT 2,744 4,990 3,389 10,362 10,545 11,483 13,104
Finance cost (1,918) (1,977) (2,352) (2,829) (2,340) (2,244) (2,102)
Exceptional & extraordinary (795) (31) – – – – –
Profit before tax 30 2,982 1,037 7,533 8,205 9,239 11,002
Tax (current + deferred) (193) (733) (199) (2,090) (2,461) (2,772) (3,301)
P/(L) for the period (163) 2,248 838 5,443 5,743 6,467 7,702
P/L of Associates, Min Int, 29 – 82 (45) – – –
Pref Div
Reported profit/(Loss) (134) 2,248 921 5,398 5,743 6,467 7,702
Adjusted net profit 662 2,279 5,659 5,398 5,743 6,467 7,702
Growth (%) 4,619.5 244.5 148 -4.6 6.4 12.6 19.1
28WELSPUN INDIA
B&K RESEARCH JULY 2015
Balance Sheet (Consolidated)
Yr end 31 Mar (Rs mn) Mar 12 Mar 13 Mar 14 Mar 15P Mar 16E Mar 17E Mar 18E
Share capital 890 1,000 1,003 1,005 1,005 1,005 1,005
Reserves & surplus 6,433 8,902 10,093 13,314 17,377 21,953 27,402
Shareholders’ funds 7,323 9,902 11,096 14,319 18,382 22,958 28,407
Minority interest and others 355 250 317 378 378 378 378
Non-current liabilities 11,374 12,030 18,782 17,607 20,158 19,963 19,370
Long-term borrowings 9,812 10,039 16,795 15,946 18,446 18,196 17,546
Other non-current liabilities 1,563 1,991 1,988 1,661 1,712 1,766 1,823
Current liabilities 16,307 16,398 21,489 24,650 26,014 25,539 24,628
ST borrowings, curr maturity 9,730 10,240 13,498 12,534 13,435 11,531 8,923
Other current liabilities 6,577 6,157 7,990 12,115 12,579 14,008 15,706
Total (equity and liab.) 35,360 38,579 51,684 56,953 64,932 68,837 72,783
Non-current assets 19,814 22,108 28,336 29,397 34,120 34,469 33,168
Fixed assets (net block) 17,015 16,861 23,770 26,049 30,651 30,876 29,432
Non-current investments 8 537 473 15 16 17 17
Long-term loans and adv. 1,105 1,559 1,232 1,377 1,515 1,667 1,833
Other non-current assets 1,685 3,151 2,860 1,955 1,938 1,910 1,885
Current assets 15,546 16,471 23,348 27,557 30,812 34,369 39,615
Cash & current investment 2,679 2,118 2,974 4,657 3,303 2,672 2,785
Other current assets 12,867 14,353 20,374 22,900 27,510 31,696 36,829
Total (assets) 35,359 38,579 51,684 56,953 64,932 68,837 72,783
Total debt 19,542 20,279 30,293 28,480 31,881 29,727 26,469
Capital employed 28,783 32,422 43,694 44,838 52,354 54,829 57,077
29WELSPUN INDIA
B&K RESEARCH JULY 2015
Cash Flow (Consolidated)
Yr end 31 Mar (Rs mn) Mar 12 Mar 13 Mar 14 Mar 15P Mar 16E Mar 17E Mar 18E
Profit before tax 30 2,982 1,037 7,533 8,205 9,239 11,002
Depreciation 1,378 1,449 6,863 3,329 4,570 4,824 4,990
Change in working capital (616) (2,335) (2,976) 1,510 (4,234) (2,856) (3,546)
Total tax paid (569) (319) (1,681) (1,884) (2,461) (2,772) (3,301)
Others 1,918 1,977 2,352 2,829 2,340 2,244 2,102
Cash flow from oper. (a) 2,142 3,753 5,595 13,318 8,420 10,679 11,247
Capital expenditure (2,243) (1,295) (13,772) (5,609) (9,172) (5,049) (3,547)
Change in investments (198) 274 (184) (305) 1,404 (1) (1)
Others 997 (691) 375 852 (34) (20) (22)
Cash flow from inv. (b) (1,444) (1,711) (13,581) (5,062) (7,801) (5,070) (3,570)
Free cash flow (a+b) 697 2,042 (7,986) 8,256 618 5,610 7,677
Equity raised/(repaid) 1 124 12 1 – – –
Debt raised/(repaid) 2,144 737 10,014 (1,813) 3,401 (2,154) (3,258)
Dividend (incl. tax) 0 (442) (357) (1,234) (1,680) (1,891) (2,253)
Others (1,751) (2,218) (1,076) (4,290) (2,289) (2,194) (2,054)
Cash flow from fin. (c) 395 (1,799) 8,594 (7,336) (568) (6,240) (7,564)
Net chg in cash (a+b+c) 1,092 243 608 920 51 (630) 113
30WELSPUN INDIA
B&K RESEARCH JULY 2015
Balance Sheet (Consolidated)
Period end (Rs mn) Mar 15P Mar 16E Mar 17E Mar 18E
Share capital 1,005 1,005 1,005 1,005
Reserves & surplus 13,314 17,377 21,953 27,402
Shareholders’ funds 14,319 18,382 22,958 28,407
Minority interests and others 378 378 378 378
Non-current liabilities 17,607 20,158 19,963 19,370
Long-term borrowings 15,946 18,446 18,196 17,546
Other non-current liabilities 1,661 1,712 1,766 1,823
Current liabilities 24,650 26,014 25,539 24,628
ST borrowings, curr maturity 12,534 13,435 11,531 8,923
Other current liabilities 12,115 12,579 14,008 15,706
Total (equity and liab.) 56,953 64,932 68,837 72,783
Non-current assets 29,397 34,120 34,469 33,168
Fixed assets (net block) 26,049 30,651 30,876 29,432
Non-current investments 15 16 17 17
Long-term loans and advances 1,377 1,515 1,667 1,833
Other non-current assets 1,955 1,938 1,910 1,885
Current assets 27,557 30,812 34,369 39,615
Cash & current investment 4,657 3,303 2,672 2,785
Other current assets 22,900 27,510 31,696 36,829
Total (assets) 56,953 64,932 68,837 72,783
Total debt 28,480 31,881 29,727 26,469
Capital employed 44,838 52,354 54,829 57,077
Income Statement (Consolidated)
Period end (Rs mn) Mar 15 Mar 16E Mar 17E Mar 18E
Net sales 53,025 59,896 68,462 79,609
Growth (%) 18.0 13.0 14.3 16.3
Operating expenses (40,283) (45,581) (52,956) (62,215)
Operating profit 12,742 14,315 15,507 17,395
EBITDA 12,742 14,315 15,507 17,395
Growth (%) 38.3 12.3 8.3 12.2
Depreciation (3,329) (4,570) (4,824) (4,990)
Other income 949 800 800 700
EBIT 10,362 10,545 11,483 13,104
Finance cost (2,829) (2,340) (2,244) (2,102)
Profit before tax 7,533 8,205 9,239 11,002
Tax (current + deferred) (2,090) (2,461) (2,772) (3,301)
P/(L) for the period 5,443 5,743 6,467 7,702
P/L of Associates, Min Int, Pref Div (45) 0 0 0
Reported Profit/(Loss) 5,398 5,743 6,467 7,702
Adjusted net profit 5,398 5,743 6,467 7,702
Growth (%) (4.6) 6.4 12.6 19.1
Cash Flow Statement (Consolidated)
Period end (Rs mn) Mar 15P Mar 16E Mar 17E Mar 18E
Profit before tax 7,533 8,205 9,239 11,002
Depreciation 3,329 4,570 4,824 4,990
Change in working capital 1,510 (4,234) (2,856) (3,546)
Total tax paid (1,884) (2,461) (2,772) (3,301)
Others 2,829 2,340 2,244 2,102
Cash flow from oper. (a) 13,318 8,420 10,679 11,247
Capital expenditure (5,609) (9,172) (5,049) (3,547)
Change in investments (305) 1,404 (1) (1)
Others 852 (34) (20) (22)
Cash flow from inv. (b) (5,062) (7,801) (5,070) (3,570)
Free cash flow (a+b) 8,256 618 5,610 7,677
Equity raised/(repaid) 1 0 0 0
Debt raised/(repaid) (1,813) 3,401 (2,154) (3,258)
Dividend (incl. tax) (1,234) (1,680) (1,891) (2,253)
Others (4,290) (2,289) (2,194) (2,054)
Cash flow from fin. (c) (7,336) (568) (6,240) (7,564)
Net chg in cash (a+b+c) 920 51 (630) 113
Key Ratios (Consolidated)
Period end (%) Mar 15P Mar 16E Mar 17E Mar 18E
Adjusted EPS (Rs) 53.7 57.2 64.4 76.7
Growth (4.7) 6.4 12.6 19.1
CEPS (Rs) 86.9 102.7 112.4 126.3
Book NAV/share (Rs) 142.5 183.0 228.5 282.8
Dividend/share (Rs) 10.5 14.3 16.1 19.2
Dividend payout ratio 22.9 29.2 29.2 29.2
EBITDA margin 24.0 23.9 22.7 21.9
EBIT margin 19.5 17.6 16.8 16.5
Tax rate 27.7 30.0 30.0 30.0
RoCE 23.4 21.7 21.4 23.4
Net debt/Equity (x) 1.6 1.5 1.2 0.8
Net Debt/EBITDA (x) 1.9 2.0 1.7 1.1
Du Pont Analysis - ROE
Net margin 10.2 9.6 9.4 9.7
Asset turnover (x) 1.0 1.0 1.0 1.1
Leverage factor (x) 4.3 3.7 3.2 2.8
Return on equity 42.5 35.1 31.3 30.0
Valuations (Consolidated)
Period end (x) Mar 15P Mar 16E Mar 17E Mar 18E
PER 6.6 11.3 10.1 8.4
PCE 4.1 6.3 5.8 5.1
Price/Book 2.5 3.5 2.8 2.3
Yield (%) 3.0 2.2 2.5 3.0
EV/EBITDA 4.7 6.5 5.9 5.1
B&K RESEARCH
B&K Securities is the trading name of Batlivala & Karani Securities India Pvt. Ltd.
B&K Investment Ratings.
LARGE CAP MID CAP SMALL CAP(Market Cap > USD 2 bn) (Market Cap of USD 200 mn to USD 2 bn) (Market Cap <USD 200 mn)
BUY >+20% (absolute returns) >+25% (absolute returns) >+30% (absolute returns)
OUTPERFORMER +10% to +20% +15% to +25% +20% to +30%
UNDERPERFORMER +10% to -10% +15% to -15% +20% to -20%
SELL <-10% (absolute returns) <-15% (absolute returns) <-20% (absolute returns)
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Public offerings managed/co-managed for issuer None
Fees for merchant banking, investment banking or brokerage services (as percentage of issuer’s turnover) < 0.1%
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B&K Universe Profile
By Market Cap (US$ mn) By Recommendation
92
64
23
0 3
129
0
20
40
60
80
100
120
140
160
Buy OP UP Sell NR UR
no. o
f com
pani
es
33
158
120
0
2040
6080
100
120
140160
180
> $2bn $200mn - $2bn <$200mn
no. o
f com
pani
esJULY 2015
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B&K RESEARCH JULY 2015