welspun india ltd Management discussions

^_For India, data and forecasts are presented on a fiscal year basis, and GDP from 2011 onward is based on GDP at market prices with FY12 as a base year. Quarterly data are non-seasonally adjusted and differences from the January 2023 WEO Update and October 2022 WEO are not available. 4Indonesia, Malaysia, Philippines, Singapore, Thailand.

As per a recent report by the International Cotton Advisory Committee (ICAC), global cotton consumption is estimated to fall below production levels for the year 2022/23. Recent projections indicate a decline in both cotton production and consumption, with the latter expected to experience a more substantial decrease. In terms of supply, global cotton production is estimated to decrease to 24.55 MMT for the year 2022/23, a drop from the 25.18 MMT recorded for the year 2021/22. As for the demand side, global cotton usage is estimated to reach 23.79 MMT for the year 2022/23, a decline compared to the 25.81 MMT consumed for the year 2021/22.

As the gap between consumption and production widened, the cotton market experienced an oversupply, which exerted downward pressure on prices, as illustrated in the figure below. This decline in prices can be attributed to the reduction in global cotton usage, combined with a decrease in production levels.

Source: USDA

Note: _A-Index is the average of the five cheapest quotations (quality being Middling 11/8) for Cost and Freight (CFR) at a Far Eastern Port U.S. is the simple average of spot quotations reported by the Agricultural Marketing Service.

China is the reported China Cotton Price Index (i.e. CCIndex 3128B) and reflects the national weighted average of cotton (3128B grade) delivered to more than 200 enterprises in China India is the Shankar-6 (grade 29- 3.8-76) spot price Brazil is the delivered price in S?o Paulo city (grade strict low middling) Pakistan is the ex-gin price in Karachi.

FY23 was a landmark year for the Indian economy, as it become the fifth-largest economy in the world. Unlike other emerging and developed economies, Indias resilience was not entirely dependent on fiscal stimulus but led by structural interventions by the Government of India such as the PLI scheme, and stronger than anticipated private consumption. Amidst an uncertain global economic scenario, the Indian economy is estimated to have grown by 7.2%, in FY23. This growth was broad-based and strong across sectors, with manufacturing and services showcasing a strong recovery. High-frequency indicators such as the IIP, GST collection, and the RBIs most recent survey of consumer confidence also reflect the resilience and growth of the Indian economy, which has made a swift recovery from the pandemic. Throughout the year, inflation remained beyond the RBIs tolerance limit. Mean headline inflation stood at 6.7% in FY23, resulting from higher commodity prices and adverse weather conditions. After reaching a peak in April 2022, inflation has eased with improvement in supply chain conditions and the strategic and agile approach of the RBI. Notably, the RBI was successful in combatting inflation by raising the repo rate by 250 basis points from May 2022 to February 2023.

Going forward, India will continue to remain a bright spot in the global economic landscape. The country is projected to be the fastest-growing major economy in the world. According to the economic survey, real GDP growth is forecasted to reach 6.5% in FY24, driven by a progressive regulatory environment, a strong industrial policy (through PLI), a de-leveraged private sector, and increased capital expenditure, especially on large-scale infrastructure projects.

During FY23, the Indian rupee, as well as other regional currencies, such as the Japanese Yen, experienced a decline due to the US Federal Reserve Banks implementation of one of the most rigorous monetary tightening policies in decades. The Indian rupee was further impacted by the Russia-Ukraine conflicts oil price rally, which led to a record-high current account deficit in nominal terms.

In the near-term, interest rate differentials, primarily driven by the US dollar, will play a critical role.

Indias cotton production is expected to fall to 30.3 million bales, down by 3.2% for the year 2022/23. Indias cotton exports are projected to reduce to 2.5 million bales, roughly equal to Indias cotton imports. Lower domestic supplies, increased demand for foreign long and extra-long staple grades, and the Australia-India Economic Cooperation and Trade Agreement (ECTA) have all supported this recent dynamic. The combined figure for beginning stocks and production is projected to reach 33.1 million bales for the year 2022/23, exerting pressure on exports. Furthermore, Indian spot prices surged earlier in the year compared to global prices, mainly due to reduced cotton supplies, which subsequently led to a slowdown in shipments to major markets, including China.

Note: _India basis is the marketing year average of the following computation: India spot price minus the U.S. Intercontinental Exchange nearby contract for cotton.

The global retail industry recorded sales of $25.8 trillion in 2022 and is projected to reach $32 trillion by 2026, driven primarily by rising customer spending in emerging economies like India and China. The COVID-19 pandemics impact on online shopping habits has also contributed to additional market growth.

The United States continues to hold the title of the worlds largest retail market, home to the three largest retail companies globally. However, other regions such as China and India, due to their increasing GDP growth, are poised to play an increasingly significant role in the global retail industry.

Despite the retail industrys continued reliance on in-store or physical retail, e-commerce channels are playing an increasingly crucial role in many global markets. Consequently, many retailers have adopted an omnichannel model to integrate offine and online channels seamlessly. Other trends, such as the growing adoption of smartphones, are expected to increase tra_c on e-commerce websites.

As per a report by Wazir Advisors, the global textile and apparel trade amounted to $871 billion in 2021, showcasing a consistent growth rate of around 3% since 2017. Projections indicate that this industry is poised to expand further and is anticipated to reach $1.2 trillion by 2030, with a CAGR of 4%.

In 2022, the textile and apparel demand remained subdued, particularly in the latter half, due to the prevalence of high inflationary conditions and recessionary trends in key regions such as the US and EU. Additionally, Chinas share in global textile and apparel exports continued to decline, primarily due to increasing manufacturing costs and geopolitical shifts. However, amidst this transition, Bangladesh and Vietnam emerged as the highest gainers, successfully meeting the demands of global fashion buyers seeking to diversify their supply base.

Growth in the textile and apparel industry is expected to be driven by the demand for online shopping, where textile and apparel companies can increase their customer base geographically at low costs. Additionally, rising purchasing power in emerging and developed economies is expected to add to the industrys growth prospects. In countries such as India, for instance, e-commerce portals have boosted the sales of traditional garments by giving larger exposure to producers who were confined to one geography. Other growth drivers include a rise in the millennial and Gen Z population. For example, according to Forbes, millennials in the United States spend $600 billion annually and are projected to make up 35% of spending by 2030.

Sustainable practices are becoming a crucial factor in the global apparel industry. For example, according to McKinsey, 67% of consumers consider sustainable materials when making a purchase, and 63% value brands that promote sustainability.

Notably, in March 2022, the European Commission unveiled the ‘EU Strategy for Sustainable and Circular Textiles, aiming to achieve sustainable production, distribution, and consumption of textile and apparel products by 2030. Complying with this legislation will be crucial for manufacturers and brands alike, ensuring they stay competitive and stay ahead in the industry. This shift presents a significant opportunity for companies such as Welspun to cater to the emerging market of eco-conscious consumers. By adopting sustainable practices, companies can differentiate themselves and meet the growing demand for sustainable products.

According to ITMF, the global textile industry has shown an average capacity utilisation rate stagnating at 74% since the beginning of 2023. The main factor in keeping the rate up is the improved situation in China, where domestic consumption is picking up pace slowly. In the near term, despite challenges from inflation and higher interest rates, customer expectations have improved toward the beginning of 2023, and further economic normalisation is expected to bode well for the industry.

The Indian textile and apparel market was valued at $125 billion in FY23, with the domestic market contributing 76% and exports accounting for 24% of the market size. Within the domestic market, apparel accounted for a 74% share of the market size. This was followed by technical textiles which accounted for a 20% share of the market size. The Indian textile and apparel market is expected to reach a size of $250 billion at a CAGR of 10% by FY31. Moreover, the market shows promising growth prospects, buoyed by its expanding domestic market and support from government schemes such as the PLI and PM MITRA scheme. As Indias economy continues to grow, the demand for textile and apparel products is expected to rise, creating significant opportunities for local players to increase their market share and expand globally.

The Indian government approved 64 projects in the man-made value chain, encompassing fabrics, garments, and technical textiles, under the PLI Scheme. These projects involve a combined investment of approximately $2.5 billion. Furthermore, in 2022, the National Textile Technology Mission (NTTM) sanctioned 63 new projects, with a total project cost of around $20 million.

With the governments continued support and initiatives to promote growth in the industry, India is poised to emerge as a significant player in the global textile and apparel trade.

($ billion)

The global home textiles industry reached a size of $119.09 billion in 2022 and is projected to grow at a CAGR of 5.7% to reach $174.14 billion by 2028. Advancements in technology in high-performance textiles with added functionalities and improved durability are predicted to drive demand for home textiles in the years to come, creating significant growth opportunities for companies in the industry. With a market share of over 45% in 2021, Asia-Pacific dominated the global market for home textiles. The region is poised for strong growth in the years ahead, driven by a rise in real estate investment and a growing demand for affordable housing.

According to a research study conducted by Global Market Insights Inc., the bed linen market is projected to exceed $35.81 billion by 2028. Additionally, changing consumer preferences and lifestyle trends are also contributing to market growth as people now recognise the significance of comfortable bedding and are willing to invest in high-quality products.

The global bath linen market is expected to grow at a CAGR of 8.3% to reach a size of $18.57 billion by 2028. Advanced Economies such as the US, UK, and other countries in the EU remain significant markets for companies across the world. The bathroom linen market is poised for significant growth due to various factors, with the bath towels segment leading the charge. Unlike other bathroom accessories, bath towels are essential and always in high demand. This demand is expected to be further fuelled by the increasing popularity of online sales channels and innovative product offerings by manufacturers. Furthermore, the market is set to witness a key trend of personalised towel offerings, which will cater to the growing demand for customised bathroom products.

Home textiles have always been an integral part of home decor, adding a touch of comfort and style to living rooms, bedrooms, kitchens, and bathrooms. In India, the home textile industry is one of the most important categories in which the country has a competitive edge, second only to cotton yarn.

India remains dominant in the bed sheet segment, with a 57% market share in exports to the US. Additionally, India holds a 43% share in terry towel exports to the US, indicating the countrys significant contribution to the global home textile market. Looking ahead, innovation and technology are poised to transform the way textiles are produced, designed, and used, and are shaping the future of the textile manufacturing industry. Additionally, the industry is focusing on sustainability and eco-friendly practices, with the widespread adoption of sustainable fibres and energy-saving technologies, among others.

The global technical textiles market size was $188.81 billion in 2022 and is expected to grow at a CAGR of 4.7% from 2023 to 2030. Increased awareness regarding the benefits of technical textiles in various end-user industries is expected to drive the market. Increasing consumer preferences for protective clothing coupled with emerging fashion trends are creating an opportunity for new engineering technologies such as smart textiles and nanotechnology. The Asia-Pacific region accounted for more than 46.8% share of global revenue in 2022. The growth of Chinese economy coupled with favourable government policies to support the overall textile market in India are expected to add to the growth prospects in the region.

India is emerging as a major player in the field of technical textiles. The countrys rapid economic growth, coupled with increased disposable income and infrastructure development, has led to a surge in demand for technical textile products. The size of the Indian technical textile industry is estimated to be $22 billion in FY23. Indias cost-e_ective and innovative manufacturing processes, along with supportive government policies, have provided the industry with a competitive edge and a promising outlook for future growth.

The Indian government has set an ambitious target for the technical textile industry, with expectations for it to reach a size of $50 billion within the next five years. This target is achievable due to Indias strengths in the industry, including its abundant supply of raw materials, skilled workforce, and advanced technology.

The global flooring industry reached an impressive size of $266.48 billion in 2022 and is expected to maintain a healthy CAGR of 5.2% from 2023 to 2030. The increasing demand for aesthetically pleasing, durable, and high-quality flooring solutions, as well as changing consumer preferences in floor design, have been significant drivers of growth for the industry in recent years. Moreover, the expansion of offices and workspaces, improving consumer lifestyles, and rapid urbanisation are all factors that have contributed to the markets growth. As the industry continues to evolve, new and innovative flooring solutions are emerging, meeting the demands of both commercial and residential consumers. Eco-friendly and sustainable flooring solutions are also gaining traction, reflecting the industrys commitment to sustainable and responsible practices.

The Indian flooring industry has undergone significant transformations, experiencing a surge in innovations, technology integration, and contemporary designs in recent times. The introduction of numerous cutting-edge technologies and the heightened utilisation of specialised machinery have reshaped the terrain of the flooring sector. Particularly in the realm of industrial and commercial flooring, there has been a substantial escalation in project scales.

As the Indian economy continues to grow, the flooring industry is well-poised for growth, driven by factors such as rapid industrialisation and a thriving urban infrastructure landscape.

Welspun India Limited, part of the Welspun Group, is one of the largest home textiles manufacturers in the world. We offer a broad spectrum of home and advanced/technical textiles products and flooring solutions. With a distribution network in over 50 countries, we are the largest exporter of home textiles products from India.

We are the trusted partner and preferred supplier to top global retail giants and hospitality players and supplies from its world-class manufacturing facilities at Anjar and Vapi, both in the state of Gujarat in India.

We delivered a strong performance in FY23, attributable to our highly differentiated and unique value proposition. Despite a challenging year, we recorded revenues of H8,215 crore.

Among the notable highlights, our domestic consumer business achieved record revenues, growing at a YoY rate of 34% in FY23. During the year, we consolidated our leadership position and increased our reach to 11,170+ stores in 500+ towns in India. Our global branded business, likewise, has bucked the international business trend and reached the H1,078 crore mark. With the signing of the licensing agreement with Disney for UK+EU markets, we are further strengthening our brand portfolio and increasing our footprint across global consumers.

This growth-led performance was enabled by both the core business as well as the Emerging Businesses of Brands, E-commerce, Flooring, and Advanced Textiles. Notably, the Advanced Textiles business witnessed a robust 43% growth YoY in FY23 on the back of the increased capacity of Spunlace in Telangana commissioned in March this year. Flooring clocked a revenue of H706 crore in FY23, growing at 7% YoY. Big ticket buyers of the USA and UK are bringing back the business despite the slowdown in both geographies. The institutional/commercial segment has also shown phenomenal growth, both in the US and UK. The ME continues to strengthen and we have been able to make inroads into the Australian market. On the domestic market front in flooring, we are continuing to see substantial growth and good demand build-up in commercial and institutional segments. The residential segment has also started picking up. Domestic Flooring hit its highest quarterly revenue crossing the H100 crore mark during the last quarter of the year and overall 81% growth in FY23.

(in C crore)

Note:

*Non-Domestic #Includes Innovation

Revenue excludes Other Operating Income

* Additional Capacity of 17,729, commenced effective 12^th March 2022

For Welspun, Environment, Social, and Governance (ESG) is a way of life with sustainability embedded in its DNA. We focus on all aspects, which we consider as integral to our business strategy. Our ESG Committee is engaged in reviewing and overseeing all activities pertaining to ESG and provides appropriate directions and guidance to the management in this regard. As a reflection of our commitment to ESG issues, we have set ambitious goals and implemented strategies to make progress on the same. We are rated as "Low Risk" on ESG factors by one of the top ESG rating agencies, is conducting a gap assessment study to identify measures to move to the "Negligible Risk" rating. WILs sustainability journey is now a case study on the Ivey publishing website.

• Set up a facility for utilising blast furnace waste gas for power and steam generation at Anjar, helping us achieve 29% renewable energy adoption in FY23.

• Setting up a 30 MW solar plant at Anjar.

• Entered into PPA with CleanMax for supplying 2 MW of hybrid renewable energy power to Vapi, which will be operational in FY24.

• Achieved the recognition of being the ‘Best Managed Companies 2022 in India in an initiative organised by Deloitte Private India.

• Received the Platinum Award for Environment Protection at the National Fame Awards 2022 for our efforts towards sustainability and controlling GHG emissions.

• Engaged with Cotton Farmers to train and enable them grow sustainable forms of Cotton (Better Cotton Initiative and Organic Cotton) in an initiative spread over 350 villages, impacting 16,500+ farmers.

• Launched ESG Compass - an integrated ESG digital platform with automated data dashboards covering over 90 indicators and extending to all sites, locations and subsidiaries in India.