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Double-digit growth across Home Textile and Flooring

Welspun Living’s (WELSPUN) revenue grew 16% YoY, with HT and flooring delivering 15.8% and 19.3% YoY growth, respectively. Gross margin expanded 113bp YoY to 45.1%, while EBITDA margin settled at 11.9% (+563bp YoY), led by an improving business mix. We expect WELSPUN to continue delivering doubledigit revenue growth, fueled by volume recovery in the home textile segment, followed by a steady growing flooring business. Further, we expect EBITDA margin to expand to 13.2% by FY28, the business mix to improve in the home textile segment, and margins to stabilize at 2H levels in the flooring business.

HT business up 16% YoY; robust growth in flooring

WELSPUN’s revenue grew 16.3% YoY to INR28b in 2QFY27, with home textiles growing 15.8% YoY, while flooring business delivered a robust 19.3% YoY, driven by initiatives taken toward right-sizing the portfolio. For 1H, revenue grew 20% YoY, led by 21% growth in home textiles. Bath linen volumes rose 5% YoY, while in bed linen declined 4% YoY. Home textile exports grew 18.3% YoY, supported by improving demand across the US, UK, and EU, despite inflationary pressures in the US. Management expects US to grow in mid-to-high single-digits, while UK is expected to grow at ~20%, benefiting from FTA. US pillow business grew 2.4x YoY in 2Q, with both manufacturing facilities operational and reaching a combined utilization of ~67%. Both the plants at peak utilization are expected to generate USD80-100m by FY29. Management expects the flooring business to reach revenue potential of INR8-10b. Advanced materials remained under pressure, declining 7% YoY due to higher man-made fiber prices. Management expects the business to recover with normalizing costs.

Continued EBITDA margin expansion in the flooring business

In 2Q, gross margin expanded 113bp YoY to 45.1%, but cotton pricing continued to remain firm. EBITDA grew 120% YoY to INR3.3b, with EBITDA margin at 11.9% (+563bp YoY). The margin in the flooring business continue to improve, supported by the right-sizing of the portfolio. Management expects gross margin to remain at similar levels, hit by higher raw material prices, while guiding for a low-teen EBITDA margin. Cash conversion cycle improved sharply to ~44 days in 2QFY27 from ~82 days in FY26, supported by tighter working capital management, although partly attributable to certain business-related changes. Management expects a more sustainable cash conversion cycle of ~55–60 days

Valuation and view: Reiterate BUY

We expect WELSPUN’s core business, home textiles, to expand at a 16% CAGR over FY26-28 and drive a better margin mix. The flooring and advanced textile businesses are expected to grow at 17% and 9%, respectively, over FY26-28. We expect a CAGR of 16%/45%/104% in revenue/EBITDA/PAT over FY26-28, led mainly by growth in the emerging business, followed by the home textile portfolio. We reiterate our BUY rating with a TP of INR260, valuing the stock at 15x FY28E EV/EBITDA. Key risks: customer and geographical concentrations, and commodity price movements

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