Buy Welspun India Ltd For Target Rs.215 - Sushil Finance
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Leading player in Home Textiles in US
Welspun India (Welspun) is one of the leading manufacturers of terry towels and bed linen. Market share of towels for the company in the US has grown from 15% in CY13 to 19% in CY20 and for bedsheets, from 7% in CY13 to 12% in CY20. This was primarily on account of favourable macro factors like cheap labour in India, availability of cotton and company-specific factors like strong relationships with leading big-box retailers in the US, introducing innovative products and adopting a mix of offline and online sales.
Flooring business to drive growth
The addressable market for flooring in the US was $20bn market in CY20, where China is the market leader in this segment. However trade war between China and the US has impacted prospects for China. This has resulted in new growth opportunities for India. To capture the advantage, the company has spent Rs.1200cr as capex as of Q1FY22 and foresee a potential of Rs.2,400cr turnover over the medium term.
Strong visibility for revenue growth
Many retail companies in the US are looking for alternative locations, following the China+1 theme in home textiles and flooring as well. Welspun is likely to benefit, given its strong presence and tie-ups with big-box retailers in the segments over the years. The company has ventured into B2C, advanced textiles and flooring, which should further drive the growth, going forward.
OUTLOOK & VALUATION
We forecast Welpsun’s revenue/PAT to grow at 11.8%/19.0% CAGR over FY21-23E. Going forward, we expect the company to deliver an EPS of Rs.7.7 in FY23; assigning a target multiple of 28x, we arrive at a target price of Rs.215, showcasing an upside potential of 31% from current levels with an investment horizon of 18-24 months. We recommend a BUY at current levels.
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