Welspun Living home textiles recovery supports growth despite raw-material cost pressure

Investment View and Valuation

Motilal Oswal Financial Services Limited has reiterated its Buy rating on Welspun Living and raised its earnings estimates, citing improved visibility in the core home-textiles business, margin recovery potential and expansion in emerging businesses.

The broker values Welspun Living at 12x FY28E EV/EBITDA and arrives at a target price of Rs 215.

Q1 FY27 Operating Performance

Welspun Living reported 24% year-on-year revenue growth to about Rs 28 billion in Q1 FY27. Home-textile revenue increased 26% year-on-year to Rs 26.8 billion and remained the principal growth driver.

The pillow business is ramping up, and management expects FY27 revenue from the business to double from FY26 to US$60 million. The Ohio facility operated at 81% utilisation, while the Nevada facility is ramping up.

Management expects flooring to scale through a greater focus on soft flooring and expansion into Australia, New Zealand and Canada.

Margins and Capacity Utilisation

Raw-material inflation constrained gross profitability, with Q1 FY27 gross margin contracting 246 basis points year-on-year to 45.2%. Despite this pressure, EBITDA increased 42% year-on-year and EBITDA margin expanded to 11.5%. The reported improvement was supported by volume recovery, a better business mix and cost-saving initiatives.

Flooring EBITDA margin improved to 10.4%, supported by the shift to soft flooring, mix improvement and operating leverage. Management expects gross margin to remain near current levels because of elevated raw-material prices, but has guided for a low-teens EBITDA margin.

Management also expects around 80% utilisation across segments as demand improves. The outlook is supported by easing US tariffs, UK and EU free-trade agreements, and geographic expansion in flooring.

Growth Outlook and Business Expansion

Motilal Oswal expects home textiles to grow at a 15% CAGR over FY26–28, improving the overall margin mix. Within the portfolio, the broker forecasts high-teens growth for Bath, followed by high-single-digit growth for Bed and Rugs & Carpet.

Emerging businesses are expected to grow 17% over the next couple of years. The broker forecasts FY26–28 CAGRs of 15% in revenue, 44% in EBITDA and 101% in PAT, led mainly by emerging businesses and then the home-textile portfolio.

Revised Financial Estimates

Near-Term Disruption and Key Risks

Flooding at Welspun Living’s Vapi facility is a near-term operational disruption. Operations are being restored in phases. The broker expects the plant closure to hurt Q2 FY27, with recovery anticipated during the second half of FY27.

The key risks identified by Motilal Oswal are:

• Customer concentration
• Geographical concentration
• Commodity-price movements