Welspun India - Initiating Coverage

Transcription

Batlivala & Karani
INITIATING COVERAGE
Share Data
MID CAP
(BUY)
06 July 2015
Strong B2B model/Evolving B2C model
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
Welspun India
Welspun India (WLSI) is the market leader and the preferred supplier in the
home textile space having presence in towels, bed linens, rugs and carpets. WLSI
has integrated manufacturing presence from spinning to made-ups with latest
technology which makes the business model sound and sustainable. WLSI has a
strong pedigree for market research, innovation, supply chain, branding and
retailing, the key intangibles to remain competitive in the business. WLSI has
diversified 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
P&L data (Rs mn)
CAGR (%)
FY15-18E
Revenue
53,025
59,896
68,462
79,609
14.5
EBITDA
12,742
14,315
15,507
17,395
10.9
5,398
5,743
6,467
7,702
12.6
FY16E
FY17E
EPS (Rs)
57.2
64.4
Margin (%)
+/- (%)
6.4
12.6
EBITDA
24.0
23.9
22.7
21.9
–
PER (x)
11.3
10.1
Adjusted net profit
10.2
9.6
9.4
9.7
–
PBV (x)
3.5
2.8
Dividend/Yield (%)
2.2
2.5
Total assets
56,953
64,932
68,837
72,783
8.5
Shareholders’ funds
14,319
18,382
22,958
28,407
25.7
EV/Sales (x)
1.5
1.3
Per share data (Rs)
EV/EBITDA (x)
6.5
5.9
EPS
53.7
57.2
64.4
76.7
12.6
CEPS
86.9
102.7
112.4
126.3
13.3
RoCE
23.4
21.7
21.4
23.4
–
RoE
42.5
35.1
31.3
30.0
–
Shareholding Pattern (%)
Promoters
73
FIIs
4
MFs
4
BFSI's
1
Public & Others
Adjusted net profit
Balance sheet (Rs mn)
Returns (%)

WLSI has multiple growth drivers like penetrating newer geographies, scaling
the newer product categories, expanding under-penetrated channels, etc.
Improving global environment, increasing competitiveness of Indian
manufacturers and wider access to European market (if Europe FTA gets
cleared) will also help to keep the growth momentum.

WLSI’s increasing vertical integration, higher share of value-added products
and branded sales will keep the operating margin healthy while incremental
investment for capital heavy spinning and weaving through ancillary model
(third party) will keep the return ratios healthy going forward. Increasing
dividends, high capacity utlization and experience management provides
additional comfort.

At the current market price of Rs 647, the stock trades at 10.1x FY17E EPS
and 5.9x FY17E EV/EBITDA. We initiate coverage with a Buy rating with a
target price of Rs 842, valuing the stock at 7.2x FY17E EV/EBITDA implying
a P/E of 13.1x FY17E EPS.
18
Relative Performance
Oct-14
Jul-15
Jul-12
Apr-13
Jan-14
Jan-11
Oct-11
Oct-08
Jul-09
Apr-10
Apr-07
Jan-08
700
600
500
400
300
200
100
0
Wels pun India (Actual)
Sens ex
© B&K Securities 2015
All Rights Reserved
Attention is drawn to the disclaimer and
other information on the last page
Resham Jain, CFA
[email protected]
+91-22-4031 7133
Nishant Agrawal
[email protected]
+91-22-4031 7185
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
WELSPUN INDIA
2
B&K RESEARCH
JULY 2015
Investment rationale
Market leader in B2B home textile industry
Ranked the largest home
textile supplier to the US for
the 3rd consecutive year by
Home Textile Today
magazine in its annual
survey done in February 2015
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.
Strong relationship with
suppliers helped in scaling
up the business
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.
Multi-products in home
textiles provides an ability
to cross-sell the products
and helps in leveraging the
resources
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:
Product categories
Bath
Bedding
Flooring
• Towels
• Sheets
• Carpets
• Bath robes
• Top of Bed
• Rugs
• Basic and Fashion Bedding
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
Key terry towel players in India
Company
WLSI is the world’s largest
terry towel manufacturer
by turnover in India
Welspun India
Alok
Trident
Revenue
Capacity
Planned
Capacity Post
FY15 (Rs mn)
(MT)
expansion (MT)
expansion (MT)
21,937
50,000
10,000
60,000
5,068*
13,400
Nil
13,400
~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
WELSPUN INDIA
3
B&K RESEARCH
JULY 2015
US import of terry towels
Towels
Out of the total US import
for terry towels in CY14,
WLSI’s share was ~16.4%
which is ~45% of total
India’s export to USA
16
16
16
14
25
26
26
26
24
23
23
23
30
35
36
36
37
2010
2011
2012
2013
29
25
20
22
24
30
21
22
21
28
30
2009
2008
India
Pakis tan
China
2014
ROW
Source: Company, OTEXA
Key bed linen players in India
Company
Revenue
Capacity
FY15
WLSI is the 2nd largest bed
linen manufacturer in India
Planned
Capacity Post
expansion
expansion
(Rs mn)
(mn meters)
(mn meters)
(mn meters)
Alok
17,577*
150
Nil
150
Welspun India
15,547
60
12
72
15,034
68
Nil
68
GHCL
9,572
36
Nil
36
Himatsingka Seide
8,224
21
Nil
21
Nil
Nil
43
43
Indo Count Industries
Trident
*Alok’s revenue is for 18 months for the period ending on 31st March 2015.
US import of bed sheets
Bed Sheets
Out of the total US import
for bed sheets in CY14,
WLSI’s share is ~9.9%
which is ~21% of total
India’s export to USA
13
16
15
13
13
29
24
22
25
23
23
22
18
16
17
27
35
38
45
47
47
2009
2010
2011
2012
2013
2014
18
22
29
34
26
27
18
2008
India
Pakis tan
China
ROW
Source: Company, OTEXA
WELSPUN INDIA
4
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
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.
WELSPUN INDIA
5
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.
Hygro yarn
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.
Source: Company
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
WELSPUN INDIA
6
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.
Innovation across product categories
Source: Company
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 coplanning 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.
WELSPUN INDIA
7
B&K RESEARCH
JULY 2015
Branded sales trend (Select brands)
(Rs mn)
FY10
FY11
FY12
FY13
FY14
FY15E
80
150
180
290
430
580
Welhome
450
550
110
70
40
120
India branded sales
530
700
290
360
470
700
1,565
1,411
1,547
1,741
2,334
2,686
2,095
2,111
1,837
2,101
2,804
3,386
Spaces
Christy
Total
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.
WELSPUN INDIA
8
B&K RESEARCH
JULY 2015
Integration will aid in maintaining healthy and sustainable margins/
Future investment on backward integration through ancillary model to
improve 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.
Welspun’s value chain integration across product lines
COTTON (Mostly lower staple length)
COTTON (Mostly long staple length)
SPINNING
SPINNING
~70% in House
Towels
100% In House
~30% Yarn Purchased
from Third Party
CAPACITY 407 Looms
LOCATION Vapi and Anjar
PROCESSING
100% In House
MADE UPS
100% In House
CAPACITY 60,000 MT
LOCATION Vapi and Anjar
WEAVING
Bed Linen
WEAVING
100% In House
~60% In House
PROCESSING
100% In House
CAPACITY 474 Looms
LOCATION Anjar
~40% Fabric Purchased
from Third Party
CAPACITY 72 mn meters per year
LOCATION Anjar
MADE UPS
100% In House
DISTRIBUTION
DISTRIBUTION
Brands & Retail
Brands & Retail
WELSPUN INDIA
9
B&K RESEARCH
JULY 2015
Investment concerns
Negative 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.
WELSPUN INDIA
10
B&K RESEARCH
JULY 2015
Outlook and valuation
WLSI’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. Underpenetrated 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.
Efficient and staggered
capital allocation aiding to
build stable business
model
WLSI’s capex plan of Rs 25 bn over FY14-16E is focused towards increasing spinning and
Falling relative debt levels,
increasing return ratios
and rising dividend are key
variables resulting in
multiple re-rating for the
stock
The company has consistently performed over the last three years after the reorganisation of
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.
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.
Peer valuation matrix
FY17E
PER (x)
P/BV (x)
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
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
10.1
2.8
5.9
31.3
30.0
Impliedmultiplebasedontargetprice 13.1
3.7
7.2
–
–
Arvind
Welspun India (FY17E)
EV/EBITDA (x) RoE (%) RoCE (%)
Note: All the numbers are based on B&K estimates except Trident which is based on Bloomberg estimates.
WELSPUN INDIA
11
B&K RESEARCH
JULY 2015
Key business comparison of home textile players in India
Company
Business
Revenue mix
Manufacturing Exports Integration Rated
location
Himatsingka Weaving/
Manufacturing – 49% Hasan/
Seide
Processing/
(Premium bed
Made-ups/
sheets and silk drapery
Distribution/
and upholstery) and
Captive
Retail & Distribution
Thermal plant
– 51%
Welspun
Spinning/
Terry towel – 42%,
India
Weaving/
Bed linen products –
Made-ups/
29%, Rugs – 5%,
Distribution/
Subsidiary – 11%
Captive
and Others – 13%
(%)
Return (%)
1-mth 3-mths 6-mths 12-mths
96 Partially
BUY
3.9
13.6
(1.2)
19.1
95 To a greater
BUY
10.6
90.1
95.4
274.9
Bengaluru
Anjar/Vapi
extent
Thermal plant
Indo Count
Spinning/
Yarn – 13%;
Industries
Weaving/
Bed sheet – 84%;
Processing/
Others – 3%
Kolhapur
84 Partially
BUY
21.6
89.2
103.4
691.6
Punjab/MP
48 Completely
Not
(15.3)
10.4
(10.2)
(9.3)
(12.3)
(9.7)
(40.1)
(56.5)
Made-ups
Trident
Spinning/
Yarn – 46%;
Weaving/
Towel – 35%;
Processing/
Paper – 19%
Rated
Made-ups
Alok
Spinning/
Apparel fabric – 77%, Vapi
Weaving/
Polyester yarn – 11%,
Made-ups/
Bed sheets and
Captive
Towels – 10%,
Thermal plant/
Others – 2%
17 To a greater
extent
Not
Rated
Polyester chips/
POY/FDY/PTY
WELSPUN INDIA
12
B&K RESEARCH
JULY 2015
Key financial comparison between home textile players in India
Company
CMP Target M-Cap
(Rs)
price (Rs mn)
(Rs)
Himatsingka Seide
Net sales
EBITDA margin
Interest cost
Adjusted PAT
(Rs mn)
(%)
(Rs mn)
(Rs mn)
FY13
FY14
FY15 FY13 FY14 FY15 FY13 FY14 FY15 FY13 FY14 FY15
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
21.5
0.0
16.7
18.8
Alok
Trident
7
NA
26
NR
9,297 213,884
13,179
33,352
– 241,531
38,690
37,860
20.9 28,136
18.3
2,353
– 35,127
2,103
2,060
4,206
–
2,597
493
1,940
1,179
Adjusted EPS
Total debt
Net debt/Equity
Net debt/EBITDA
RoCE
(Rs)
(Rs mn)
(x)
(x)
(%)
Company
FY13
FY14
FY15
FY13
FY14
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
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
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
–
– 180,085
5.7
–
4.4
4.4
–
3.2
12.2
–
11.1
Trident
1.6
6.2
22,398 18,623 25,117
3.1
2.0
1.7
4.0
2.5
3.6
10.4
16.0
10.6
Himatsingka Seide
Indo Count
Welspun India
Company
Himatsingka Seide
Indo Count
Welspun India
Alok
Trident
1.2 200,122
2.3
RoE
PER
Price/Book value
EV/EBITDA
Dividend yield
(%)
(x)
(x)
(x)
(%)
FY13
FY14
FY15
FY13
FY14
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
96.3
96.0
70.3
0.8
1.3
8.6
0.6
0.8
4.6
3.9
3.0
5.9
–
–
–
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
12.1
–
7.1
5.7
–
5.9
0.3
–
0.3
4.0
–
3.3
21.6
–
–
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 18
months from 1st October 2013 to 31st March 2015
WELSPUN INDIA
13
B&K RESEARCH
JULY 2015
Industry overview
Global apparel market size
2012 (US$ bn)
Textile industry overview
No. Region
Apparel
touch ~US$ 2 trn by 2025 based on the report ‘The road to 2025’ published by Wazir advisors,
market size
since 75% of the current market is concentrated only by one-third of the population (EU-27,
The global textile and apparel market size is estimated to be ~US$ 1.1 trn and expected to
1
EU-27
350
USA, China and Japan) which reflects extremely large opportunity of growth in emerging
2
United States
225
economies.
3
China
150
Changing dynamics: Phasing out of Multi Fibre Agreement (MFA) in 2005 changed the
4
Japan
110
dynamics of the industry with shifting of manufacturing from some of the European countries
5
Brazil
55
to Asian countries like China, India, Bangladesh and Vietnam. Also over these years the domestic
6
India
45
market in China and India themselves have started growing with GDP growing much faster
7
Russia
40
than developed countries.
8
Canada
30
Global trade continue to grow: The global textile and apparel trade is worth US$ 766 bn
9
Australia
25
in year 2013. Over the years, textile manufacturing saw a gradual shift of manufacturing base
10
Rest of the World
75
from developed to developing countries. Exports of Asian countries have increased substantially
Source: The Road to 2025 published by
Wazir Advisors.
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 textile and apparel exports
1,200
USD bn
1,000
Clothing
1,080
Textiles
860
708
800
400
200
583
612
237
248
309
346
364
316
2006
2007
2008
2009
529
600
355
220
602
525
251
210
157
198
286
766
306
430
340
351
422
460
520
2010
2012
2013
2015*
650
0
2000
2020*
Source: WTO (*Estimates from Industry data)
World trade share (Top 10 countries)
2013 – Textile exports share
Country
WELSPUN INDIA
2013 – Clothing exports share
US$ bn
% share
China
107
34.8
India
19
Germany
Country
US$ bn
% share
China
177
38.6
6.2
Italy
24
5.2
15
4.9
Bangladesh
24
5.1
United States
14
4.6
Hong Kong
22
4.8
Italy
13
4.4
Germany
18
4.0
Turkey
12
4.0
Vietnam
17
3.7
Korea
12
3.9
India
17
3.7
Hong Kong
11
3.5
Turkey
15
3.3
Taiwan
10
3.3
Spain
12
2.5
Pakistan
9
3.1
France
11
2.4
14
B&K RESEARCH
JULY 2015
2013 – Textile import share
Country
2013 – Clothing import share
US$ bn
% share
United States
27
8.4
China
22
Germany
Country
US$ bn
% share
United States
91
18.9
6.7
Germany
35
7.4
14
4.2
Japan
34
7.0
Vietnam
11
3.3
France
23
4.9
Hong Kong
10
3.2
United Kingdom
23
4.7
Japan
9
2.7
Hong Kong
16
3.4
Italy
9
2.6
Italy
16
3.3
France
7
2.3
Spain
15
3.1
United Kingdom
7
2.3
Netherlands
13
2.7
Turkey
7
2.1
Canada
10
2.1
Source: WTO
Textiles and Clothing exports of major Asian players (Indexed to 100)
600
India
Pakis tan
500
China*
Banglades h
Bangladesh grew swiftly
post 2009...
%
400
300
200
100
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: WTO
*Including Hong Kong
Indian textile overview
India export market is
expected to see a substantial
jump 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
WELSPUN INDIA
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.
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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
2013
284
36
25
14
22
5
766
% share
37.1
4.7
3.3
1.8
2.9
0.7
–
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
2000
Combodia World
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.
WELSPUN INDIA
16
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
Home Textile manufacturer in Asia
General Trading Company/Textile Trading Company
Manufacturing – Wholesalers
Wholesalers/Authorised Dealer Agents
Corporation
Mass
Merchants
Department
Stores
Bedding
Speciality
Stores
Other
Retailers
Furniture
Stores
Home Textile Consumers
Linen Supply & Service
Companies
Hotel & Other Institutional Customers
Source: Marketing guide for Asean Exporters to Japan.
Top home textile retailing giants of USA
Rank
Store
Company
type
Home textile
Home textile as a %
Market
Number
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 – Direct
to Consumer. Source: Home Textile Today (2014).
WELSPUN INDIA
17
B&K RESEARCH
JULY 2015
Pricing of product
Retail Price
Expansion
3x
Designer Brands
2x
Department Stores
+ 13-15%
Specialty Stores
Fashion Stores
+ 5-7%
x
Tommy Hilfiger,
Nautica, Polo Ralph
Lauren, DKNY, Calvin
Klein
Mass Merchants
May&Co,
Federated,
Dillard’s
BB&B, Kohl’s
J C Penny, Target
Wal-Mart, K Mart,
Costco
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.
Indian home textile market
Home textile market size
Global textile and Clothing market
size ~US$ 1,100 bn
Global textile and Clothing trade
~US$ 766 bn
Global textile trade
~US$ 306 bn
Global home textile
trade ~US$ 45 bn
Global clothing trade
~US$ 460 bn
India’s home textile
market size ~US$ 12 bn
India’s home textile
export ~US$ 6 bn
Source: B&K Research, Industry
WELSPUN INDIA
18
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$) – CY12
140
240
60
110
Manufacturing made-ups (Factor Cost Index)
100
111
87
98
Movement in domestic currency (FY09-14) (%)
(18)
9
(12)
(22)
Strong
Strong
Weak
Moderate
4
7
13
8.5
Integration across value chain
Textile and Clothing as a % of GDP
Source: www.Cottoninc.com, Technopak Analysis, Gherzi Benchmark study (Texprocil), Bloomberg.
Ranking of Indian home textile companies as supplier in USA
Rank
Company
Sales ~US$ mn – 2014
1
Welspun
649
3
Alok – US
647
6
Himatsingka America
362
14
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.
WELSPUN INDIA
19
B&K RESEARCH
JULY 2015
Domestic home textile market (Rs mn)
Category-wise market break-up (Rs mn)
407,800
273,650
184,000
Categories
2016 (P)
2021 (P)
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
5,000
7,900
12,500
9.6
184,000
273,650
407,800
8.3
Rugs & Carpets
2011
2011
Total
Source: Technopak
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.
WELSPUN INDIA
Big-box (Soft + Hard Home)
HomeStop, Home Centre, Home Town.
Departmental stores
Big Bazaar, Shoppers Stop, Lifestyle, Central.
MBOs
Jagdish Store, Bharat Furnishings, etc.
20
B&K RESEARCH
JULY 2015
Company background
Welspun 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.
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.
Welspun India Limited de-merged its Sales & Marketing and Investment divisions into two
2009
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.
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.
• Diversified product portfolio.
demand environment, etc.
• 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.
• Product diversification.
• Emerging low cost textile manufacturing hubs.
• Large e-retailers may disrupt the already established branded distribution network.
• To increase its branded business globally.
• Labour reforms.
WELSPUN INDIA
21
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
Cotton yarn (MT)
FY13
FY14
FY15
FY16E
FY17E
FY18E
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
45
52
55
60
72
72
90
Bed linen products (Mn mtrs)
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.
WELSPUN INDIA
22
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
WELSPUN INDIA
23
B&K RESEARCH
JULY 2015
Financial statement analysis
23.3
18.0
16.3
13.3
13.0
14.3
25
100
20
15
80
9
17
41
11
11
52
11
11
52
10
12
62
8
12
2
6
7
12
71
60
11
15
63
25
31
25
29
29
30
30
44
41
41
41
41
42
43
FY12
FY13
FY14
FY15
%
90
80
70
60
50
40
30
20
10
0
Consolidated revenue product mix
%
Rs bn
Consolidated revenue and Revenue growth
40
10
20
5
32
36
45
53
60
68
0
80
0
FY12
FY13
FY14
FY15 FY16E FY17E FY18E
Revenue (LHS)
Revenue Growth (RHS)
Terry towels
Rugs
Subs idiaries
FY16E FY17E FY18E
Bed linen products
Others
Other operating income
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
Gross margin, EBITDA margin and PAT margin (% of
revenue)
70
60
55
62.4
54.9
53
52.3
38.3
40
24.0
51
51.5
50.3
16.3
%
%
50
57.7
30
23.3
13.3
20
49
18.0
10
13.0
12.3
0
FY12
FY13
FY14
Revenue growth
FY15
14.3
8.3
FY16E FY17E
16.3
12.2
FY18E
EBITDA growth
11.4
45
20.5
12.6
49.6
6.1
47
23.9
52.0
10.2
52.0
9.6
22.7
30
21.9
20
51.0
9.4
50.5
9.7
FY13
15
10
5
0
(2.9)
FY12
25
%
Revenue growth and EBITDA growth
(5)
FY14
Gros s margin (LHS)
PAT margin (RHS)
EBITDA margin (RHS)
WELSPUN INDIA
24
B&K RESEARCH
JULY 2015
2.3
3.0
7.6
7.6
3,000
2.0
2,000
1.0
1,000
0.0
0
10.0
9.5
9.0
8.5
8.0
7.5
7.0
6.5
6.0
5.5
5.0
%
4,000
Power & fuel cos t (LHS)
8.8
7,006
5,000
8.5
8.8
5,990
5.0
8.4
5,091
6,000
4,460
2.3
0
FY12 FY13 FY14
6.0
9.5
FY12 FY13
3,401
1,187
1,174
2,633
2,404
2.3
1,831
2.2
1,000
500
7,000
4.0
2.6
1,575
1,500
1,378
Rs mn
2,000
8,000
7.0
2,768
7.5
8.0
Rs mn
2,500
7.2
%
3,000
Employees cost (% of revenue)
3,051
Power & fuel cost (% of revenue)
FY14
Employees cos t (LHS)
% of revenue (RHS)
% of revenue (RHS)
125
120
103
Rs
80
56
60
54
77
37
23
7
0
800
FY12
0
FY14
FY15
FY16E FY17E FY18E
Adjus ted EPS
811
713
400
23
FY13
3.5
2.5
600
200
20
3.9
1,000
64
57
1,200
126
87
100
40
112
Rs/share
140
Market price and Book value (Rs/share)
0.6
0.7
82
45
FY12
99
68
FY13
0.9
3.5
356
111
143
101
FY14
229
183
283
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Market price (Rs /s hare)
Price/book value (x)
Cas h EPS
976
x
EPS and Cash EPS (Rs)
Book value (Rs /s hare)
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)
70
(105)
34
34
34
(89)
(94)
(87)
(87)
(87)
(100)
0.5
0.5
0.5
30
20
10
0.7
0.5
64.1
28.9
(85)
31
0.5
60.6
30.4
(50)
33
0.6
55.6
30.2
28
50
0.6
40
45.6
24.7
0
31
28
50
36.1
18.4
109
0.9
60
127
74
27.8
16.3
110
54
127
74
119
56
25.1
15.8
Days
100
127
74
108
52
Rs bn
150
FY12
FY13
FY14 FY15P FY16E FY17E FY18E
FY12
FY13
FY14
Receivable days
Payable days
FY15P FY16E FY17E FY18E
Inventory days
Total days
0.5
0.3
0.1
0
(150)
x
200
Gros s block (LHS)
Net block (LHS)
Net block/ Gros s block (x) (RHS)
WELSPUN INDIA
25
B&K RESEARCH
JULY 2015
Return ratios
Net debt/Equity and Net debt/EBITDA
60
5.0
53.9
50
35.1
3.1
31.3
26.5
20
16.3
10.8
10 10.0
9.5
0
FY12
2.0
9.5
23.4
10.3
8.9
9.7
FY13
FY14
RoE
3.0
3.0
30.0
1.9
2.0
1.6
1.5
x
%
30
4.0
42.5
40
4.6
21.7
7.8
FY15P FY16E
RoCE
21.4
23.4
7.3
7.5
FY17E
FY18E
1.7
2.4
2.2
1.1
1.8
1.0
1.2
0.8
0.0
FY12
FY13
FY14
FY15P FY16E FY17E FY18E
Net debt/Equity (x)
Implied Interes t Rate
Net debt/EBITDA (x)
DuPont analysis – RoE
50
4.3
4.3
4.6
%
0
1.0
1.0
9.5
2.1
6.2
FY12
4
3.2
2.8
42.5
26.5
30
10
3.7
53.9
40
20
5
4.3
35.1
FY13
1.0
1.0
12.6
10.2
FY14
FY15P
31.3
1.0
30.0
1.1
9.6
9.4
9.7
FY16E
FY17E
FY18E
1.0
RoE (%)
As s et turnover (x)
3
x
60
2
1
0
Net profit margin (%)
Leverage factor (x)
Rs mn
Cash flow analysis
20,000
15,000
10,000
5,000
0
(5,000)
(10,000)
(15,000)
(20,000)
1,092
FY12
243
608
920
51
FY13
FY14
FY15P
FY16E
CFO (Before WC changes )
Capex
CFF
(630)
FY17E
113
FY18E
WC changes
Inves tment, loans & advances
Changes in cas h
WELSPUN INDIA
26
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
(28,544)
(30,527)
(35,743)
(40,283)
(45,581)
(52,956)
(62,215)
3,662
5,946
9,211
12,742
14,315
15,507
17,395
3,662
5,946
9,211
12,742
14,315
15,507
17,395
57.7
62.4
54.9
38.3
12.3
8.3
12.2
(1,378)
(1,449)
(6,863)
(3,329)
(4,570)
(4,824)
(4,990)
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)
(795)
(31)
–
–
–
–
–
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
29
–
82
(45)
–
–
–
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
4,619.5
244.5
148
-4.6
6.4
12.6
19.1
Operating expenses
Operating profit
EBITDA
Growth (%)
Depreciation
Other income
Exceptional & extraordinary
Profit before tax
P/L of Associates, Min Int,
Pref Div
Growth (%)
WELSPUN INDIA
27
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
6,433
8,902
10,093
13,314
17,377
21,953
27,402
7,323
9,902
11,096
14,319
18,382
22,958
28,407
355
250
317
378
378
378
378
Non-current liabilities 11,374
12,030
18,782
17,607
20,158
19,963
19,370
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
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
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
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
15,546
16,471
23,348
27,557
30,812
34,369
39,615
2,679
2,118
2,974
4,657
3,303
2,672
2,785
12,867
14,353
20,374
22,900
27,510
31,696
36,829
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
Reserves & surplus
Minority interest and others
Long-term borrowings
Current liabilities
Other current liabilities
Non-current investments
Current assets
Cash & current investment
Other current assets
Total (assets)
WELSPUN INDIA
28
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)
(198)
274
(184)
(305)
1,404
(1)
(1)
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)
8,256
618
5,610
7,677
Change in investments
Others
Free cash flow (a+b)
Equity raised/(repaid)
Debt raised/(repaid)
Dividend (incl. tax)
Others
Cash flow from fin. (c)
697
1
124
12
1
–
–
–
2,144
737
10,014
(1,813)
3,401
(2,154)
(3,258)
0
(442)
(357)
(1,234)
(1,680)
(1,891)
(2,253)
(1,751)
(2,218)
(1,076)
(4,290)
(2,289)
(2,194)
(2,054)
8,594 (7,336)
(568)
(6,240)
(7,564)
51
(630)
113
395 (1,799)
Net chg in cash (a+b+c) 1,092
WELSPUN INDIA
2,042 (7,986)
243
608
920
29
B&K RESEARCH
JULY 2015
Income Statement (Consolidated)
Cash Flow Statement (Consolidated)
Period end (Rs mn)
Period end (Rs mn)
Mar 15 Mar 16E Mar 17E Mar 18E
Net sales
53,025
Growth (%)
59,896
18.0
Operating expenses
(40,283)
13.0
68,462
14.3
79,609
16.3
(45,581) (52,956) (62,215)
Profit before tax
7,533
8,205
9,239
11,002
Depreciation
3,329
4,570
4,824
4,990
1,510
(4,234)
(2,856)
(3,546)
(1,884)
(2,461)
(2,772)
(3,301)
Change in working capital
Total tax paid
Operating profit
12,742
14,315
15,507
17,395
EBITDA
12,742
14,315
15,507
17,395
38.3
12.3
8.3
12.2
(3,329)
(4,570)
(4,824)
(4,990)
949
800
800
700
EBIT
10,362
10,545
11,483
13,104
Cash flow from inv. (b)
Finance cost
(2,829)
(2,340)
(2,244)
(2,102)
Free cash flow (a+b)
7,533
8,205
9,239
11,002
Equity raised/(repaid)
(2,090)
(2,461)
(2,772)
(3,301)
Debt raised/(repaid)
Dividend (incl. tax)
Growth (%)
Depreciation
Other income
Profit before tax
Tax (current + deferred)
P/(L) for the period
P/L of Associates, Min Int, Pref Div
5,443
5,743
6,467
7,702
(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
(4.6)
6.4
12.6
19.1
Growth (%)
Mar 15P Mar 16E Mar 17E Mar 18E
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)
(305)
1,404
(1)
(1)
Change in investments
Others
852
(34)
(20)
(22)
(5,062)
(7,801)
(5,070)
(3,570)
8,256
618
5,610
7,677
1
0
0
0
(1,813)
3,401
(2,154)
(3,258)
(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)
Balance Sheet (Consolidated)
Period end (%)
Period end (Rs mn)
Adjusted EPS (Rs)
53.7
57.2
64.4
76.7
Growth
(4.7)
6.4
12.6
19.1
Share capital
1,005
1,005
1,005
1,005
Reserves & surplus
13,314
17,377
21,953
27,402
Book NAV/share (Rs)
14,319
18,382
22,958
28,407
378
378
378
378
17,607
20,158
19,963
Minority interests and others
Non-current liabilities
Long-term borrowings
CEPS (Rs)
86.9
102.7
112.4
126.3
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
19,370
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
15,946
18,446
18,196
17,546
1,661
1,712
1,766
1,823
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
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
27,557
30,812
34,369
39,615
4,657
3,303
2,672
2,785
PER
6.6
11.3
10.1
8.4
Other current assets
22,900
27,510
31,696
36,829
PCE
4.1
6.3
5.8
5.1
Total (assets)
56,953
64,932
68,837
72,783
Price/Book
2.5
3.5
2.8
2.3
Total debt
28,480
31,881
29,727
26,469
Yield (%)
3.0
2.2
2.5
3.0
Capital employed
44,838
52,354
54,829
57,077
EV/EBITDA
4.7
6.5
5.9
5.1
Other non-current liabilities
Current liabilities
Non-current investments
Current assets
Cash & current investment
WELSPUN INDIA
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
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
42.5
35.1
31.3
30.0
Du Pont Analysis - ROE
Net margin
Return on equity
Valuations (Consolidated)
Period end (x)
30
B&K RESEARCH
JULY 2015
B&K Universe Profile
180
160
140
120
100
By Recommendation
160
158
129
140
120
80
60
40
20
0
no. of companies
no. of companies
By Market Cap (US$ mn)
33
120
100
92
80
64
60
40
23
20
0
3
NR
UR
0
> $2bn
$200mn - $2bn
<$200mn
Buy
OP
UP
Sell
B&K Securities is the trading name of Batlivala & Karani Securities India Pvt. Ltd.
B&K Investment Ratings.
LARGE CAP
(Market Cap > USD 2 bn)
MID CAP
(Market Cap of USD 200 mn to USD 2 bn)
SMALL CAP
(Market Cap <USD 200 mn)
BUY
>+20% (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)
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Disclosures, applying to B&K and the Analyst (together with associates and family members)
Ownership interest in the issuer of the securities mentioned
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Other financial interest in the issuer
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Other material conflict of interest
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Compensation/benefits received from issuer/3 Parties in past 12 months:
rd
Public offerings managed/co-managed for issuer
None
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B&K RESEARCH
JULY 2015
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