Sharekhan has reaffirmed its Buy recommendation on Welspun Living Limited (WLL) with an adjusted price target of Rs. 189, driven by revenue growth yet tempered by margin pressures. Despite an overall increase in revenues, WLL’s Q2FY2025 results show mixed performance, as global challenges impact profitability. The management remains optimistic, backed by robust demand projections and capacity expansion plans.

Performance Summary

Revenue Exceeds Expectations

WLL’s revenue for Q2FY2025 climbed 14.5% y-o-y to Rs. 2,873 crore, surpassing forecasts.
Home textiles grew by 15.3% y-o-y, while the flooring segment remained subdued with a mere 2.9% growth y-o-y.
EBITDA Margin Shortfall

EBITDA margin fell by 182 basis points y-o-y to 12.4%, below the forecasted 14.7%.
Net Profit held steady y-o-y at Rs. 202 crore, in line with the market’s expectations.

Key Business Developments

Expanding Home Textiles and Emerging Business Segments

Home textiles saw double-digit growth, with exports increasing by 17% y-o-y.
Emerging businesses (advanced textiles, flooring, and branded segments) grew by 22% y-o-y, contributing 33% to total sales.
Red Sea Issue Pressures Margins

Disruptions in the Red Sea led to increased shipping costs, impacting flooring segment margins and affecting overall profitability.

Capex and Debt Outlook

Phase-2 Capex Approval

WLL’s board approved a Rs. 709 crore capex to expand its home textiles capacity, slated for FY2026-27.
The expansion, funded by a mix of debt and internal accruals, will bolster production at the Anjar facility.
Debt Reduction Plans

WLL’s net debt is expected to fall to Rs. 0-200 crore by FY2028, down from Rs. 1,400-1,500 crore at FY2025-end.

Market and Demand Outlook

Robust Global Demand for Home Textiles

WLL anticipates growth fueled by festive season demand and broader economic stabilization.
Demand is particularly strong in the U.S., Europe, and emerging markets, supported by India’s integration into global supply chains.
China +1 Strategy

WLL benefits from the China +1 strategy, which supports India’s rise as a global manufacturing hub, thus enhancing WLL’s export prospects.

Valuation and Price Target

Revised Price Target and Valuation

Sharekhan reiterates its Buy rating with a revised price target of Rs. 189. WLL trades at 20x/16x/14x its estimated earnings for FY2025E, FY2026E, and FY2027E, respectively.
WLL's growth strategy includes scaling its export potential, expanding its home textile capacity, and capturing a larger share in the domestic market. While near-term risks exist, long-term demand and strategic expansions support the company’s positive outlook.