Welspun India : Q1 FY 23 WIL Earning conference call

TRANSCRIPT: Welspun India Ltd Q1 FY23 Results Conference Call

12:00 PM IST, 28 July 2022

MANAGEMENT: MR. RAJESH MANDAWEWALA, MANAGING DIRECTOR, WELSPUN INDIA

LIMITED

MR. SANJAY GUPTA, CHIEF FINANCIAL OFFICER, WELSPUN INDIA

LIMITED

MR. ALTAF JIWANI

MR. ABHINANDAN SINGH, HEAD - GROUP INVESTOR RELATIONS,

WELSPUN GROUP

HOSTING ANALYST: MR. NIHAL MAHESH JHAM - EQUITY RESEARCH ANALYST, EDELWEISS SECURITIES LIMITED

Note:

1. This is a transcription and may contain transcription errors. The Company takes no responsibility of such errors, although an effort has been made to ensure high level of accuracy.
2. Any of the statements made herein may be construed as opinions only and as of the date. We expressly disclaim any obligation or undertaking to release any update or revision to any of the views contained herein to reflect any changes in our expectations with regards to any change in events, conditions or circumstances on which any of these opinions might have been based upon

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Welspun India Limited

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Moderator:Ladies and gentlemen, good day and welcome to Welspun India Q1 FY2023 Conference Call hosted by Edelweiss Securities Limited. 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. Nihal Jham from Edelweiss Securities Limited. Thank you and over to you Sir!

Nihal Jham:Yes, Michelle. On behalf of the Edelweiss, I would like to welcome you all to the Q1 FY2023 Earning 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, Abhinandan!

Abhinandan Singh: Thanks Nihal and good afternoon everyone. On behalf of Welspun India, I welcome all of you to the company's Q1 FY'23 earnings call. We have with us today Mr. Rajesh Mandawewala, Managing Director; Mr Altaf Jiwani whom most of you are familiar with, and Mr. Sanjay Gupta, the company's Chief Financial Officer along with myself. Our CEO Dipali Goenka is travelling for customer meetings and therefore she is unable to join us in this call. As usual, we will start the forum with some opening remarks by our leadership team and then we will open the floor for your questions. Once the call gets over, should you have any further queries that remain unanswered post the earnings call, please feel free to reach out to me and with that I would like to hand over the floor to Altaf. Over to you.

Altaf Jiwani:Thank you, Abhi. Good morning, ladies and gentlemen. Thank you for taking time to join us today. It is always a pleasure to interact with all of you. I would like to begin with the quick snapshot of our operating performance for the quarter and then cover the external environment followed by our strategy. Subsequently, Sanjay will take you through the financials. During this quarter, overall revenue was Rs.1979 crore out of which Rs.1852 crore was from the core business, that is, Home Textiles, and as you all know the environment was extremely challenging. Overall, this has been a great start to the fiscal year for our domestic retial business, which you will recall has two power brands "Welspun" and "SPACES". Both these brands delivered a very strong growth and reported revenue growth of 113% year-on-year. This was achieved even after we passed on higher input cost to a large extent, demonstrating the strength of brands.

The reach of Brand Welspun within the country has further expanded as it now covers almost 500 towns and over 7800 stores. The branded portfolio recorded a growth of 41% year-on-year and 31% quarter-on-quarter, which includes own and license brands across businesses and geographies. During Q1 FY'23 markets have grown in low and mid single

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digits driven essentially by price growth, however, our brands have witnessed double digit volume growth. This ahead-of-the market growth for the Brands and the Emerging Businesses is a testimony of of our strategy and the agility of our teams. Our investment in the brands and B2C is undoubtedly giving us an edge and is steadily making us as "FMCG of home textiles'. The share of our branded and e-commerce revenue has steadily moved up to 24% of our total revenue as compared to 16% last quarter.

It also gives us immense pleasure to inform you that Welspun India has won the Texprocil platinum trophy for highest global export, 12 years in a row. Further. Welspun's innovative artificial intelligence project of towel counting and defect detection using AI/ML based vision system, which is an industry first, has received the Nasscom AI Gamechangers award as innovator.

Now, let me share our assessment of the external environment. Inflation has been a challenge for the industry over the last few quarters. Unfortunately this bout of inflation has been worse than the past ones because prices of several key commodities have inflated to all-time highs simultaneously. Be it cotton, crude, caustic soda, or ocean freight, the price increases are at historical highs. I do acknowledge that there has been a very recent cooling off in a few commodities; however, they still remain significantly elevated versus the long- term averages. The softening is very recent to conclude that that the correction has finally kicked in. The forward rates for cotton are indicating a significant reduction in prices.

In such an inflationary scenario it is quite natural for consumers to withdraw their spends, at least for discretionary items. The consumers, world over, are prioritizing essential categories to manage their budgets and we are seeing the same trends in the US and other Western economies. Most large retailers in US have revised their profit guidance for the year a) due to change in consumer spending trends - where consumers are spending more on food and less on higher-margin merchandise and b) due to off-loading high inventories built up, by offering steep markdowns. Recent data from the US that came out last month showed that US inflation hit hit a fresh 40-year high with the consumer price index (CPI) there rising 8.6% year-on-year.

In the UK too, as per data released a few days ago, CPI was up by 9.4% in the last 12 months. As per the US Department of Commerce, the US retail trade & food services sector grew by 8.1% year-on-year between April and June 2022. This is, however, a deceleration from 12.9% increase year-on-year registered in the previous quarter that is Jan-March 2022. Month-on-month, the growth during June 2022 was 1%. This clearly reflects a softening compared to preceding quarters, and this trend might sustain for a while. In these challenging times, as we have continued to articulate in the past few quarters, we have two specific imperatives. First, we need to maintain our competitive edge that comes from a

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highly-differentiated business model. I had earlier shared updates on the Branded and Domestic side of the business. Flooring also followed suit with revenues at ₹169 cr, growing 40% year-on-year. Sales momentum is continuing on Domestic flooring business seeing a healthy growth of 108% year-on-year. The D2C business is picking up good traction in all key 5 cities, where it has been launched. Flooring exports, however, continue to face challenges due to input cost pressures and high ocean freight. Further increase in mortgage rates will have an impact on housing demand in the US. Second, we need to continue focus on building the organization for the future driven by purpose. In the past quarter we continued our effort to demonstrate ESG leadership through our work on the sustainability front, with circularity embedded in our operations, and ensure that we keep strengthening our position on each of the E, S, and G parameters. We were pleased note the recognition received once again, with Welspun India's industry-leading scores by CRISIL in its Sustainability Yearbook 2022 that was released during May. The Company has been rated "Strong" in that report, where CRISIL analysed over 575 companies across 53 sectors on ESG. Welspun India leads among textile companies with the highest scores in each of the three dimensions of Environment, Social, and Governance. Texprocil too has awarded Welspun with a Gold Trophy for Special Achievement in Madeups for Sustainability Initiatives.

Through these unprecedented challenging times, the Company has shown great resilience through an unmatched combination of Scale, Quality, Innovation, and deep Customer Relationships, which clearly sets us apart from rest of the players in the industry. Our investments in brands and D2C initiatives globally have started giving the desired results, and we expect the momentum to propel future growth through our D2C initiatives and our Emerging businesses. We would again reiterate that while the medium to long term fundamentals of the business remain strong, these couple of quarters are a bit challenging, following the deteriorating global environment currently. With the downward trend of commodity prices, and as the consumer sentiment improves, we expect our operating performance would start reflecting the same. With this, I would now like to hand over to Sanjay who will take you through the financial highlights. Thank you.

Sanjay Gupta:Thank you Altaf, and greetings everyone. I will briefly discuss the financial highlights for the quarter and then we will be happy to open the forum for your questions. From the financial perspective, Q1FY23 has been a quarter of resilient cashflows and balance sheet, with sustained de-leveraging.

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During Q1FY23, we reported revenues of ₹1,979 cr., which was down 12% quarter-on- quarter and 7% year-on-year on a like-to-like basis, that is, after taking out the impact of

	Q4FY21 RoSCTL accounted for in Q1 of FY'22.
	Compared to last year, volume impact has been about 16% while price upcharge has been
	5% and forex upcharge about 1%. EBITDA margins for the quarter stood at ₹174 cr and the
	EBITDA margin was 8.8%, which is lower QOQ by 220 bps, reflecting the impact of
	highest ever input costs as well as relatively lower volumes. The major impact has been due
	to increase in cotton prices by about 15% from last quarter. The performance is relatively
	healthier due to various steps taken by the company in rationalizing costs and achieving
	better efficiencies across board. Year-on-year EBITDA margin on a like to like basis is
	lower by 790 basis points, that is down about 50%. Profit after tax after minority interest for
	the quarter is Rs 22 crore vis-à-vis 53 crore last quarter and the like to like 145 crore in Q1
	of FY2022, reflecting the earlier mentioned factors. Our consolidated EPS for Q1 stood at
	Rs.0.23 per share vis-à-vis 0.53 per share last quarter and Rs.1.3 on a like to like basis in
	Q1 FY2022.
	On the forex front, we have been consistently following the board approved policy to hedge
	45% to 65% of our receivables on a rolling 12-month basis. Our average exchange
	realization for the US dollar during Q1 of FY'23 was Rs.77.13 compared to Rs.75.77 in the
	corresponding quarter last year. Going forward, while these pressures might linger in the
	near term, we expect improvement as prices for cotton, coal and freight soften. An uptick in
	sales volume post inventory decongestion should also help on both the top line and
	resultantly on margin front. As you are already aware, central banks worldwide including in
	India have acted to counter inflation by raising interest rates. With the existing geopolitical
	factors and the accompanying inflationary situation sustaining, or in some cases even
	exacerbating, the possibility of further tightening cannot be ruled out. We believe that our
	ability to continually de-leverage and maintain debt levels at a very healthy level will stand
	us in good stead.
.	During Q1FY23, we saw 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 or brand building that are key drivers of our long term growth.
	As a result, at the end of Q1 FY23, net debt stood at ₹2,139 cr. This is ₹90 cr lower than
	₹2,229 cr a quarter ago and ₹110 cr lower than ₹2,249 cr a year ago. In addition, we have in
	hand e-scrips of RoSCTL and RODTEP amounting to Rs 400 crore. Over the past 3 years,
	our net debt has consistently been coming down, from ₹3,028 cr. at the end of FY19 to
	₹2,139 cr. at the end of Q1FY23, a reduction of 30%.

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