Welspun India - Backward Integration Takes it Forward; Result Update ::Edelweiss

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Welspun India’s (WLSI) Q3FY15 revenues grew 22% YoY to INR13.4bn, driven by an est. 15% surge in volumes. EBITDA spurted 42% YoY and 7% QoQ to INR3.4bn, while margins improved by 349bps YoY (285bps QoQ) to 25.3% as impact of backward integration kicked in. Though depreciation and interest rose significantly, PAT beat estimates coming in at INR1.4bn (up 31% YoY) gaining from lower tax rate.

Towels, bedsheet at near utilisation, carpets to drive growth

Growth in revenues was driven by an est. 15% YoY surge in overall volumes in Q3FY15. Terry towel/bed linen/rugs production grew by est. 23%/28%/19% YoY. There was a marginal fall in revenues QoQ mainly because of lower utilisation in bed sheet (94% versus 100% in Q2FY15).Till capacity is ramped up in towels/bedsheet, revenue growth in ensuing quarters will come from carpets as the company starts shipping to customers. Average USD realisation, as in Q2FY15, stood at INR64 for the quarter.

Backward integration aids significant improvement in margin

This was the first full quarter of the newly commissioned spindle capacity availability. During Q3FY15, 70% of the yarn requirement was met indigenously versus 40% in past few quarters. As a result, raw material cost fell by 390bps YoY (411bps QoQ). Impact of this was directly seen in EBITDA margin, which improved by 349bps YoY (285bps QoQ) to 25.3%. Though margins should sustain in ensuing quarters, management has still guided for long-term margin to be in the 22% range. While depreciation and interest cost increased on account of capitalisation of the vertical integration projects and discontinuation of interest subvention, respectively, lower tax outgo still resulted in the 31% jump in PAT to INR1.4bn.

LINK

https://www.edelweiss.in/research/Welspun-India--Backward-Integration-Takes-it-Forward;-Result-Update-Q3FY15/28195.html