Welspun Living Q2 Results Review - Contracting Margins Mar The Strong Topline: Systematix

Systematix Research Report

Welspun Living Ltd. reported its highest-ever quarterly revenue of Rs 28.7 billion, up by a healthy 14.5% YoY and 13.3% QoQ, given the robust performance in its home textile segment, despite a muted flooring business. Gross margin contracted 191 bps YoY and 184 bps QoQ to 44.6% versus our estimate of 47%.

Ebitda was flat YoY (up ~5% QoQ) at Rs 3.6 billion, 10% below our estimate. Ebitda margin contracted 182 bps YoY and 102 bps QoQ to 12.4% on higher freight and logistic costs, versus our estimate of 14%. Adjusted profit after tax grew at 2.2% YoY and 8.3% QoQ to Rs 2 billion, disappointing on our estimate. HT exports grew at 17% YoY, despite challenges like the Red Sea issue, container shortages and mixed global macroeconomic conditions.

Innovation business grew at 13% YoY to Rs 5.9 billion, contributing 23% to overall revenue. Domestic consumer business was resilient despite subdued demand and expanded 10% YoY to Rs 1.6 billion. Emerging business (comprising domestic consumer business, global brands, advanced textiles and flooring) grew at 22% YoY.

Management has maintained its 10-12% revenue growth for FY25, with 15%-15.5% Ebitda margin (including other income). We trim our FY25E/FY26E Ebitda margin by 40 bps/30 bps to factor in the higher freight and logistics costs arising from the ongoing Red Sea crisis.

We cut our EPS for FY25E/FY26E by 8%/7%, respectively, and maintain Buy with a revised target price of Rs 196 (Rs 210 earlier), based on 18 times FY26E P/E (unchanged).

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