Welspun India Ltd's Q2FY19 consolidated net profit rises 18.79% yoy to Rs114.80cr : Beats Estimates

The company’s consolidated revenue stood at Rs1,779.94cr, up 10.76% yoy and 14.9% qoq.

Oct 22, 2018 11:10 IST India Infoline Research Team

Welspun India Ltd Q2FY19

Consolidated Results Q2FY19: (Rs. in cr)

Q2FY19 YoY (%)
Revenue 1,779.94 10.8
EBITDA 289.45 2.2
EBITDA Margin (%) 16.3 [137]
Net Profit (adjusted) 114.80 18.8
***EBITDA margin change is bps

Welspun India Ltd’s revenue grew by 10.8% yoy and 14.9% qoq to Rs1,780cr. EBITDA came in at Rs289cr, up 2.2% yoy and down 2.4% qoq. EBITDA margin contracted by 137bps yoy and 288bps qoq. Company’s adjusted net profit stood at Rs115cr, up 18.8% yoy and down 9.8% qoq. Revenue and Adjusted PAT came above estimate of Rs1,740cr and Rs112cr respectively. 

• The growth of 10.8% yoy was predominantly volume driven, partly offset by change in drawback rates.
• 'Spaces'  grew 20% yoy on comparable basis during the quarter.
• Christy’s e-commerce revenue grows 140% yoy.
• EBITDA margins were lower, as the cost structure has aligned to the new exchange rate; however, the impact of the same is not reflected in the revenue due to existing hedges. Full impact of the exchange rate will be evident in the revenue during the next financial year.
• Depreciation and amortisation expenses declined by 15.8% yoy resulting in net profit growth.
• Net debt stood at Rs3,033cr at the end of Q2FY19 (Rs3,027cr at FY18 end) implying a net debt-to-equity of 1.15x (1.16x at FY18 end).
• FY19E capex is expected to be Rs900cr, including part of the investment for the flooring project.
• Capex during Q1FY19 was Rs70cr. Capex for flooring project is expected to pick up in the coming quarters.

Con Call Highlights

• In Q2FY19, the company has lost Rs4-5cr of cotton (net of insurance) due to fires, which has impacted margins. Further, currency depreciation impact has already come on the cost side while the impact on revenue is yet to begin due to the hedges. This, combined with higher input costs, has resulted in lower margins. Otherwise, the margin would have been higher by ~1%.
• The ongoing flooring solution project is expected to begin production from June 2019. At full capacity, the revenue potential is 2x of capex i.e. Rs1,800cr.
• Margin profile of this new flooring facility will be similar to existing business. 
• Overall market size of flooring solution is Rs25,000cr in India. However, the company will operate in the premium segment. Estimated market size of this segment is Rs1,500cr. The company will also gradually foray into the middle segment as well.
• Working capital cycle reduced, but in absolute terms, it is higher than the management’s expectations; the company is continuously making efforts to reduce the same.
• Average cost of cotton for the quarter stood at Rs49,000/candy. This includes premium cotton as well. For Shankar-6 cotton, the price is Rs46,000/candy. 
• Company also mentioned that its business has grown in every geography. In India it grew ~20%, in Europe markets it grew 13-14%, and is at 4-5% in the USA.
• EBITDA margin 19-20% if cotton doesn’t change material, in FY20; however, the margins would be lower for H2FY19 
• Company is not putting much capex in its existing textile business. Company expects that existing capacities are enough to provide double-digit growth for the next few years.
• Company’s product categories like fashion bedding and utility bedding are not yet matured and still have a lot of potential. This is aiding the company in gaining market share.
• Hedge rate for FY20E is ~Rs73.5/US$.

Technical View:

Welspun India Ltd ended at Rs59.75, down 3.45 points, or 5.46%, from its previous close of Rs63.20 on the BSE. The scrip opened at Rs63.95 and touched a high and low of Rs64.35 and Rs59, respectively. A total of 17,10,603 (NSE+BSE) shares were traded on the counter. The stock traded above its 50-DMA.

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