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Cost advantage helps Welspun double Q2 FY'14 profit
12
Dec '13

Welspun India Ltd (WIL), the leading home textiles maker, has been spinning robust margins and profits on back of rupee’s depreciation against US dollar, coupled with advantage of cheaper Indian cotton over key competitors like China and Pakistan.

Profit after tax (PAT) of the company for Jul-Sep 2013 quarter (adjusted for the one-off depreciation) has doubled to Rs 116.6 crore from the Q2 FY13 level of Rs 58.6 crore. In comparison, the revenues of the company were up by just 23 per cent at Rs 1,219.1 crore in Q2 FY’14 from Rs 994.5 crore in Q2 FY’13.

In the first half of the current fiscal year, the company’s EBITDA margins have risen to 23 per cent as against historical margins of 15-17 per cent. With the domestic cotton prices expected to remain stable, the margins are likely to stay above 20 per cent going ahead.

A major factor behind company’s improving margins is the advantage of cheaper Indian cotton as Chinese cotton prices continue to be about 40-45 per cent higher than what they are in India. Pakistan cotton prices are also higher than India.

This is well reflected in the fact that India’s market share in US imports of home textiles is continuing to gain. Of all the bedsheets that get imported into the US, almost half of them are now landing up from India. Besides, US is importing about 37-38% of towels from India. The ongoing Human Rights issues in Bangladesh are also working in favour of Indian companies like Welspun.

Welspun also enjoys the advantage of cheap labour in India as compared to its Chinese peers. Labour costs, in terms of Dollar, in China on an average stand between USD 250 and USD 350 a man month, while in India it is between USD 150 and USD 200.

The margins of the company would get a further boost if India signs FTA with Europe as its products currently attracts 8-9 per cent duty in European countries.

Moreover, the company also plans huge capital expenditure in coming months. It has already invested Rs 475 crore and has plans to invest up to Rs 525 crore more going ahead to boost its capacity.

 

Fibre2fashion News Desk - India


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