Welspun Living: Axis Securities selects the stock as its ‘pick of the week’, sees 14% upside – 3 key reasons why

After a 110 percent rise in the stock in the last 1 year, domestic brokerage house Axis Securities has picked home textiles major as its ‘top pick of the week’. This is on the back of the promising long-term potential in the textile sector, raw material price correction, improvement in margins, developing branded presence and macroeconomic tailwinds. The brokerage has a ‘buy’ call on the stock with a target price of 175, implying a potential upside of over 14 percent.

Welspun Living Ltd is a part of the $3 billion Welspun Group. The company offers home textile products such as bed & bath linen, advanced/technical textiles products, and flooring solutions. With a distribution network in over 50 countries, Welspun is the largest exporter of home textile products from India.

The company is vertically integrated across the entire value chain from procuring cotton to dispatching end-products to consumers and has in-house infrastructure. Welspun has top-of-the-line home textile manufacturing facilities in Vapi and Anjar (Gujarat, India) and a flooring facility in Telangana (India). Stock Price Trend The stock has given multibagger returns in the last 1 year, surging over 110 percent and has jumped over 87 percent in 2023.

Just in January 2024 so far, the stock has added over 6 percent. In 2023, the stock gave positive returns in 7 of the 12 months. It gained the most in April, up around 38 percent, and shed the most in January, down 13 percent.

It also gave double-digit positive returns in October 2023, up 24 percent, in July, up 19 percent and in August, up 14 percent. Currently trading at 153, the stock is over 10 percent away from its 52-week high of 170. 25, hit on November 16, 2023.

Meanwhile, it has rallied 174 percent from its 52-week low of 62. 20, hit on March 29, 2023. Earnings Welspun Living Ltd reported a multi-fold rise in consolidated net profit to 200.

41 crore for the September quarter. The company had posted a net profit of 8. 33 crore in the year-ago period.

Its revenue from operations rose 18. 71 percent to 2,509. 08 crore during the second quarter of the current fiscal as against 2,113.

46 crore in the year-ago period. This is the highest quarterly revenue by the company. “It is a proud moment for the company to have reported the highest-ever consolidated quarterly revenues in Q2FY24 with consistent profitability in the last few quarters, in the face of the relatively adverse global economic situation and subdued consumer sentiments,” Welspun Group Chairman BK Goenka said.

Investment Rationale The company is witnessing a push towards the ‘China Plus’ strategy in the major global markets with a focus on complete feasibility on the supply chain and sink with the market opportunities. It is working on an indigenisation of a complete value chain. Its flooring business recorded the highest-ever quarterly revenue of 243 crore in Q2FY24, up 52 percent YoY.

The plant reached a capacity utilisation of 63 percent during the quarter. EBITDA also continued to grow, reaching 8. 3 percent in Q2FY24 on account of increased revenues and better operating leverage, noted the brokerage.

The correction in cotton and container prices impacted margins favourably. Cotton prices have dropped by 45 percent from highs to around 55,000/candy, and supply costs have stabilised compared to the pandemic era, boosting profitability. As consumer prices adjust and retailers adjust inventory, demand for home textiles is expected to rise, stated Axis.

Improved mix, operational efficiency, lower commodity cost, increased demand, and capacity utilisation can lead to larger profits in future years, it added. The China+ 1 factor, the government’s entry into trade agreements with a wide range of countries, increased benefits derived from the PLI scheme, and market share gains in export markets have created strong prospects for the textile industry over the medium term. The Indian textile and apparel market is expected to reach a size of $250 billion and will grow at a CAGR of 10 percent by FY31.

As India’s economy expands, demand for apparel and textile items is likely to rise, providing considerable potential for Indian companies to enhance market share and expand worldwide, said the brokerage. The brokerage maintains a positive outlook on Welpsun Living as its strong brand, capacities and industry-leading position will help in quick demand recovery moving forward. Moreover, potential UK and Euro FTA agreements (combined have the same size as the US market) can open another market for WIL.

It expects improved and stable margins and strong operational performance with an added impact on the flooring segment. Consequently, it estimates the firm will report revenue/EBITDA/APAT CAGR of 17 percent/41 percent/96 percent respectively over FY23-FY26E. Livemint tops charts as the fastest growing news website in the world to know more.

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