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Shanthi Venkataraman

Making waves in the home textiles market overseas and aggressively creating retail space in India.

EXPOSURE to the Welspun India stock can be considered. The stock trades at about 25 times its expected FY-05 earnings per share, taking into consideration the expansion in the equity base on account of the merger with Glofame Cotspin — a group company — and the impending preferential allotment to Temasek, the Singapore-based private equity fund. The valuation is at a premium to its peer, Abhishek Industries, which trades at about 15 times.

The premium, however, appears justified. Welspun is the only player that is wholly focussed on home textiles. Home textiles, which refers collectively to bed, bath, kitchen linen and furnishing materials, is one of the more lucrative segments in the textile value chain and India enjoys a strong position in the export market, particularly in the US.

Welspun appears set to enjoy volumes-driven growth, with its capacity expansion plans on schedule. Its aggressive expansion of the retail network in the growing domestic market would improve visibility; Welspun would be retailing not only its own brand, `Spaces', but also the premium products of Tommy Hilfiger.

Its merger with Glofame Cotspin — a spinning company from which Welspun sources more 60 per cent of its yarn requirements — would improve operational efficiencies and provide it with a presence across segments, from yarn to retail.

Volume-led growth

Welspun's earnings have risen at an impressive clip over the past three years. This growth was helped by a spurt in `other income' and a reduction in the interest cost.

Growth is likely to be moderate. Stable cotton prices, higher operational efficiencies that could arise from the merger with Glofame Cotspin, and increasing volumes should help maintain operating margins.

With the end of quantitative restrictions on textiles, there is reason to expect robust volume growth, particularly in home textiles, as several manufacturing facilities in these products spaces in countries such as the US have shut shop.

As one of the larger exporters of home textiles, Welspun is set to benefit. It exports more than 85 per cent of its production; about 70 per cent of its exports are to the US. A part of its exports is routed through its wholly-owned subsidiary, Welspun US. Retailers such as Wal-Mart account for about 35 per cent of Welspun's sales. Revenues in the coming quarters are likely to reflect higher volumes as these retailers scale up their imports although pricing may come under pressure. The company, however, also caters to premium brands such as Tommy Hilfiger and Polo Ralph Lauren, to name a few, where realisations are better.

Welspun, which operates at 110 per cent capacity at its other plant at Vapi, Gujarat, is doubling its terry towel production capacity. It is also setting up capacity in bed linen, which would mark its foray into the segment.

Welspun has commenced production of terry towels at Anjar, Gujarat and expects to start production of bed linen in April. The company has already received orders for about one million square metres of bed linen.

Domestic market thrust

Its early days in the post quota-regime and orders from the export market may just be trickling in, but Welspun expects to put the additional capacity to use in the domestic market. With home textiles increasingly finding their way into the priority list of Indian consumers, Welspun is placing an emphasis on the Indian market. Its brand `Spaces' was launched in September 2003 and retailed in a shop-in-shop format across the country.

The company now plans to launch 125 retail stores over the next three years involving an outlay of Rs 50 crore. It has also obtained marketing rights from Tommy Hilfiger to market the latter's products in India. While `Spaces' would be positioned in the mid-priced segment, the bouquet of products from Tommy Hilfiger will cater to the premium market.

Welspun's retail thrust in the domestic market would mean taking on the likes of Bombay Dyeing, which is an established player with strong brand recall.

The latter also recently announced plans to set up stores across the country. There are few organised players in the segment and both companies would have to first create a market for branded home textiles.

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