Buy Welspun Living for the Target Rs.180 by JM Financial Services Ltd.
Welspun Living reported an EBITDA of INR1.6bn, higher than JMfe of INR1.3bn. EBITDA decline of ~43% YoY was driven by lower EBITDA from flooring segment (down 83% YoY). Consolidated EBITDA margin remained muted at 7.3% in 3QFY26 vs. 11.3% in CQLY. However, margin increased sequentially by ~80bps QoQ given lower other expenses. Key takeaways from the concall are a) company expects margin recovery to start in 4QFY26, with a gradual upside in margins towards normal expected to begin 1QFY27 onwards b) domestic flooring business continue to perform well with 14% YoY growth while global flooring business declined by ~29% YoY amid tariff headwinds; soft flooring business expected to have a higher uptake while hard flooring will pan out gradually, and c) company sees a huge growth opportunity in the domestic business and expects 20-25% growth in the next financial year on the back of GST reforms. Company highlighted that the use of cotton does not go above 50% for towels and 30-40% for sheets (with +/- 10% for apparels) – reflecting minimal competitive advantage to Bangladesh for the recently announced ‘zero tariff’ on products with 70%+ of US cotton (as per media sources). Net Debt stood at ~INR13bn as at end of 3Q vs ~INR16bn as at end of 2Q. We believe multiple newer markets opening on the back of FTAs and GOIs focus on developing the textile ecosystem is likely to drive earnings trajectory for the company. Maintain BUY.
? Margins under pressure amid tariffs headwinds: The Company reported net sales of INR22.6bn, down 9% YoY given tariff headwinds impacting the Home Textile segment revenue (-4.7% YoY) and Flooring revenue (-20.3% YoY). Consolidated EBITDA for Welspun Living stood at INR1.6bn vs JMfe of 1.3bn. EBITDA was down ~43% YoY driven by lower EBITDA from flooring segment (down 83% YoY). Consolidated EBITDA margin remained muted at 7.3% in 3QFY26 vs. 11.3% in CQLY. However, margin increased sequentially by ~80bps QoQ given lower other expenses. Margins remained under pressure during the quarter due to lower volume offtake given continued tariff uncertainty. Adjusted PAT came in at INR192mn vs. INR1.2bn in 3QFY25, down significantly YoY. The global retailers maintain a cautious stance – weighing on demand visibility.
? Muted performance across segments: Home textile revenue decreased YoY by ~5% to INR21.7bn. The flooring business revenue decreased by ~20% YoY to INR1.7bn. Home textile business reported EBITDA of INR1.6bn with margins at 7.3% during 3QFY26 vs 12.5% in CQLY. Flooring business reported EBITDA of INR29mn, down significantly by ~83% YoY. Domestic flooring business continues to perform well with 14% YoY growth driven by housing, hospitality and institutional demand. However, global flooring business declined by ~29% YoY amid tariff headwinds. Company believes soft flooring business (major part of flooring business) has a massive uptake in the coming time while hard flooring will pan out gradually. FTAs to aid flooring business growth. Bath Linen capacity utilisation decreased to 74% vs 76% in 2Q while Bed Linen capacity utilisation increaed to 76% vs 75% in 2Q. Capacity utilisation for Rugs & Carpets came in at 75% vs 78% in 2Q.
? Tariff remained an overhang in 3Q; recovery expected going ahead: In 3QFY26, company continued to face US tariff headwinds, muted discretionary demand and cautious retailer buying. However, company believes that recent deals / FTAs (US, EU, UK, Japan, Australia) represent a structural inflection for Indian exports. Company expects 4QFY26 to remain competitive, with a gradual upside in margins from 1QFY27 onwards.
Please refer disclaimer at https://www.jmfl.com/disclaimer
SEBI Registration Number is INM000010361
