Shares of textile manufacturer Welspun India have more than doubled over the last six months against the falling performance of other companies and fluctuating stock markets due to declining Chinese yuan. The company has emerged strong in manufacturing textiles—towels and bed sheets. Experts suggest that the bullish run at the stock market signals at steady growth it has been witnessing led by buoyant exports.
Around 95 per cent of Welspun’s revenue is driven by exports to global retailers in the US such as Walmart Stores and JCPenney. Experts point out that several things worked in favour of the company. First, it was able to grab a market share from competing countries such as China and Pakistan owing to cotton stocks at stable prices and government initiatives such as low-cost funds under the Technology Upgradation Fund Scheme. Also the company, in FY11 and FY12, pulled shutters on its unprofitable businesses like standalone retail stores in India, factories in Mexico and Portugal.
Its June-quarter earnings were better than expected as revenue grew 18 per cent year-on-year to Rs1,388 crores, led by a strong 15 per cent volume growth. Operating profit margins expanded to 25.9 per cent backed by vertical integration, volume growth and higher contribution of innovative products, according to Centrum Wealth Research note dated July 21, 2015.
However, Edelweiss Research is careful about the performance of Welspun stock in future, which is up 2.1 times in the past year and is trading at 10 times one-year forward price-to-earnings multiple. The firm feels that the high market share penetration of towel/sheets in the US may limit upsides and the enhanced capacity by various players in this segment in India may have an impact on the company’s growth momentum beyond FY17.