See 25-26% growth in FY16; sheet demand rising: Welspun

Below is the edited transcript of Dipali Goenka's interview with Reema Tendulkar & Mangalam Maloo on CNBC-TV18.

Reema: What led to this kind of an operational improvement and do you think you can sustain your margins at 25 percent for FY16?

A: The operational margins are going to be a consistent margin of around 22 percent annually next year. Basically, there are three economies- USA, Europe and the rest of the world. They have contributed to a steady growth. Today, we have a confirmed order book of around 90-95 percent for the next year as well. So, it is going to be a steady growth. Also, India has been on the prime focus and has gained strength over countries like China and Pakistan.

Mangalam: Last time you spoke to us, you also spoke about the value addition products or innovative products, last time it stood at about 25 percent of your total revenue, so could you give us a sense of what that proportion is this time?

A: It has increased to a whopping 31 percent, going up next year by maybe around 40-45 percent. That is what we see. At Welspun, we are not just a commodity manufacturer; we position ourselves as a fast moving consumer goods (FMCG) vendour and a partner to our customers. We start from the consumer and end at consumer, doing the consumer researches, consumer planning, shipping, picking for them. So it is completely end-to-end.

Reema: What was the reason for such a sharp increase in your margins in this quarter because it is also higher compared to your target band of 22 percent? Were there any one-offs?

A: No, I won’t say that but I would say that it is the kind of the product mix that we are talking about. First of all our innovation portfolio has increased to 31 percent, so that has contributed to that major jump as well.

Reema: So why will it not sustain in FY16?

A: It will definitely sustain but I would say that with the kind of dynamics that prevail and the market in the terms of cotton or any kind of policies. It will be consistent 22 percent, it could be better than that as well.

Reema: So minimum 22 percent?

A: Yes.

Mangalam: Going forward, the cotton prices which are trending downwards, in fact even next year there will be 15 percent higher acreage devoted to cotton, so the raw material prices will go down, will that not aid your margins going forward then?

A: We have a very strong system with our customers. It is called the price indexing. The integral parameters that caused the price increase or price decrease are a part of that price indexing model. So we generally tend to pass off that to our customer.

Mangalam: Wanted to know the share of revenue from your products because your towel factory is working at 99 percent utilisation and your plant capacity addition to that is much lesser as compared to your bath rugs where you are planning a capacity ramp up of about 75 percent. So is that indicating a shift from the towel products to moving onto the bed rugs product?

A: No, that is not the case. We are a diversified manufacturer; we do towels, sheets, rugs. Today, our towel capacity is at 99 percent going up to 120 percent. So we definitely are looking at demand going beyond our capacity as next year. Rugs is a part of our portfolio so that could be another product category for us. Sheets for instance had a growth of 21 percent this year and looking at around 27 percent next year as well. Another category that we are looking at is basic bedding category, which will see a great growth next year as well.

Reema: In this quarter your finance cost has come down, both on a quarter on quarter basis as well as on a year on year basis and that is because the company has started availing the benefits of the Gujarat Textile Policy which led to a reduction in the interest cost. So now your finance cost as of FY15 we are at Rs 282 crore. How much lower will it be in FY16 because of this policy?

A: We have optimised it completely and it would remain the same as we go forward.

Reema: So roughly the same?

A: Roughly the same.

Reema: For FY15 shifting focus then to growth you have clocked in a revenue growth of close to about 21 percent. Considering the optimistic outlook that you have in the US etc., what would be the growth that you are targeting in FY16?

A: Say around 25 to 26 percent. That is what we see happening because it is going to be the different product categories like basic bedding and rugs that will come into foray. Along with that I just want to add on that we launched Hygro in United States of America as in the global and home textiles in the last 15 years has not had a launch of a patent like that where we will be investing some monies to take on Hygro as kind of a brand of ours globally.

Mangalam: If you could give us a sense of what is the investment we are looking at?

A: Around five million in our market for United States itself alone…(interrupted)

Mangalam: And that will be funded from?

A: That will be funded from the revenues itself.

Mangalam: From the internal accruals?

A: From the internal accruals as well. And I just need to talk about the dividend that the company is announcing, it is around 25 percent of the profit after tax (PAT) and Rs 7.5 per share this quarter.