Mumbai: Cotton textiles firm Welspun India Ltd reported a standalone net profit of Rs306.54 crore in FY16-17, 53% lower than previous fiscal year’s Rs648.33 crore, as it still battles the aftermath of losing its biggest client, US retailer Target Corporation, after Welspun was found selling cheaper sheets as made from premium Egyptian cotton.
Welspun India saw an 11% decline in its Q4 standalone net profit to Rs157.14 crore as the company was hit by the loss of nearly $90 million business from Target’s pullout and the subsequent class action lawsuits that it is facing in the US. In Q3 of this fiscal year, the company set aside Rs460.56 crore for the “return of goods by the customers, refund to customers, cost of rework, inventory write-down, legal fees” and other expenses stemming from the lawsuits and from losing Target’s business, the company said in its stock exchange filings.
However, Welspun’s annual revenues also increased 14.8% to Rs5,793.51 crore primarily led by volume growth that countered pressures from rising raw material prices and the currency exchange rate, chief financial officer Altaf Jiwani said. Revenue for Q4 of FY17 grew 10% to Rs1,490.55 crore. Welspun is focusing on new business segments like sales to hotels while also working on a traceability program to restore reliability to its supplies, managing director Dipali Goenka said.
“We have seen three times growth in the hospitality business in the last three years, and we are now tying up with StayWell, a Mayo Clinic affiliate, that has Deepak Chopra as an advisor”, Goenka said. “Health and wellness has been a key initiative globally and StayWell provides this with lighting that helps you sleep better when you’re jetlagged and have vitamin C showers. We will now provide the bedding and towels to StayWell”, she said, adding details to Welspun’s tie-up with the Australian hospitality chain.
The company also launched a traceability program Wel-Trak to help retailers and customers track the origin of Welspun products. The program will use radio frequency identification (RFID) tags to track cotton as it goes from ginning to spinning to finished products and QR codes to trace the process back to the farm from where they originate.
In February this year, Welspun signed a pact with Cotton Egypt Association to have its Egyptian cotton products certified by the CFA in a move to restore confidence in Welspun’s supplies. Goenka on Tuesday said the company was looking at options for setting up a manufacturing facility in Egypt for local cotton, but declined to share further details.
Welspun has also planned investments worth Rs700 crore for fiscal year 2017-18, to expand its towel manufacturing capacity and set up facilities for their flooring products like carpets and rugs.
“We are at almost full capacity for towel manufacturing, we are at 97%,” Jiwani said. “So the board has announced an expansion of 10,000 metric tons for towels during FY17-18. The capacity for Welspun flooring solutions is about 7 million square metres at an investment of Rs600 crore which will happen over a period of next 15 months. Together with the towel expansion, the routine capex, and Welspun flooring, we will be spending Rs700 crores in FY18.”
Welspun India is also targeting higher sales in the domestic market, aiming to make it 20% of total revenue by 2020, Jiwani said. As part of this push, the company has also relaunched its retail brand Spaces. Domestic sales contribute less than 5% of Welspun’s total revenue currently.
“The results were better than what was expected”, an analyst with an equities brokerage firm said, requesting anonymity. “In Q4, gross margins for the company were also severely impacted with the rise in cotton prices that grew 30% year-on-year and with coal prices, one of the company’s top 3 expenses, which were 40% higher y-o-y,” the analyst said. “The Wel-Trak program to trace the cotton used back to farms will be a big positive for the company. I think the credibility is back for the company, they have more confidence from investors as well. I think the domestic market will grow a lot for them as it has already grown by around 21% year-on-year. They are looking to expand distribution as well by getting into shop-in-shops and institutional sales to firms like Oyo and AirBnB.”
Shares of Welspun India closed 0.26% lower at Rs94.25 while the benchmark BSE Sensex closed 0.97% higher at 29,934 points.