Welspun India has been in the limelight of late. The stock has gained 388 percent this year. The company is planning a Rs 15,000-crore capex on home textiles and renewable energy over 3 years and has recently commissioned 170,000 spindle spinning facility in Anjar, Gujarat, which is fully automated.
In an interview to CNBC-TV18, Rajesh Mandawewala, MD of Welspun India, said the company will use yarns from new spinning mill for its products and is eyeing to achieve 70 percent of vertical integration with the new facility.
Below is the transcript of Rajesh Mandawewala’s interview with Sumaira Abidi & Reema Tendulkar on CNBC-TV18.Reema: Very recently the company commissioned a spinning facility in Gujarat. It is close to about 170,000 spinning spindles. Can you tell us what this means to the company’s financials, how much would the capacity go up in revenues, in margins? A: This spinning facility is the largest under one roof spinning facility in the country. We will make all the yarns in this spinning facility and use it for our finished products like towels, bed sheets, rugs, carpets and all other home textile products that we do. There is another very important unique thing about this facility that this is a fully automated spinning facility. It is one of its kind in India particularly within the cotton spinning industry. So, right through starting from let us say where the cotton takes shape to the packing, everything is fully integrated and automated. So, this is the unique thing about this spinning facility.
Sumaira: Given the size of this facility that you have would it suffice your entire requirements or would you at some point in the future look at more? A: Even with this facility we will achieve only 70 percent of vertical integration which means that we will still be in the market to buy 30 percent of our yarn requirements. We are pretty happy with this; we don’t see the company investing into more yarn capacities in the future. We are a home textile company and the reason why we vertically integrate is to bring supply chain security. Also, it gives us an ability to innovate product faster because if you are in the full value chain you are able to innovate faster, you can improve your response time to your clients. However, having said that beyond this we will not increase, so, there will be no more investments in the spinning area in the future.
Reema: Will you be able to operate at 100 percent capacity at this facility straightway or will it be gradually scaled up?A: This is for captive consumption so every kilo of yarn that we will produce is going to be consumed in-house. Right from day one, in fact the mill is working now and it is fully operating. We will consumer everything; we don’t have to find a customer for it, the customer is right in the mill there. Reema: That would mean that your margins should improve. As per your Q2 your EBITDA was about 23.4 percent, how much would the margins improve? A: The spinning will definitely aid the margins; there is absolutely no question on that. However, having said that we are currently at about 22 percent in EBITDA margins and we have been around that 21-22 percent margin range for the last several quarters maybe about seven or eight quarters. So, we are hoping to remain at the 22 percent kind of EBITDA levels. There is also some positive tailwind that we got which helped the margins a point or point and half in the past. So, all in all if you take a five to six year view, we are very comfortable at the current levels of margins in the company.
Sumaira: You are also I believe half way through some capex that you had announced sometime Rs 2500 crore, can you take us through how much is done, what is left and how much of it is distributed between home textiles and renewable energy?A: This is all about textiles so all this Rs 2500 crore is in Welspun India. This is about the textile business. Almost half of it is going to go into vertically integrating the facility which means producing more yarn, more fabric to produce our bed sheets, towels and rugs and things like that. The other half is to caliberatedly grow our main products capacities of towel, sheets, rugs. Our business is growing between 15 percent and 22 percent, if you look at the last seven to eight years we have consistently grown our business CAGR at 20 plus. So, we need the additional capacity year-on-year (YoY) to continue to grow our business and which is why the other half of this capital expenditure will go to increase capacity. So, some of it has already happened in the last year FY14, some is happening in the current year FY15 and some of it will happen in FY16. So, the capex has been planned over a three financial year period looking to the cash flows of the companies. So, we are very conscious that we also need to actually keep our debt in check. Reema: What is the balance sheet looking like, where does the debt currently stand at, how much cash is the company generating every quarter? A: The current gross debt of the company is about Rs 2900 crore, between Rs 2800 crore and Rs 2900 crore. We have about Rs 350 crore of cash. So, that leaves about Rs 2550 crore of net debt on the balance sheet. On annualised earnings basis it is about 2.2 times, net debt to EBITDA is about 2.2-2.3 times and we are pretty comfortable with that. Our debt is very low cost, on an average our rupee debt is costing the company about 7-8 percent. So, we are very comfortable at this level of debt that we have. Having said that, despite the capital expansion, we are monitoring the debt, so, our goal is to maintain the current level of debt where it is despite the large capital expenditure. So, we are monitoring that very closely. We want to stay where we are in terms of our overall debt; couple of Rs 100 crore here and there but otherwise we will maintain this level of debt. The company generated about Rs 650 crore of cash profit last year. For the first six months we are about Rs 400 crore or thereabouts on cash profit and the business is looking good in the future. So, hopefully we will continue this performance of the company in the first half that we had.
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