Based on Welspun India’s fundamental and technical analyses, the share looks like a stock to watch on the charts before buying it because its current fundamentals do not justify an investment.
Here is a detailed analysis:
What Are Welspun India’s Products?
Though Welspun India is known as a home textile manufacturer, the company has also ventured into flooring solutions, advanced (technical) textiles, direct-to-customer e-commerce, hospitality, and wellness products. It also provides e-solutions to retailers that help them in building customer relations.
The company also owns 7 brands which are well known in India and the UK.
In its 2022 Annual Report, Welspun India stated that its new goals are to increase brand value, start emerging businesses in their doman, increase focus on e-commerce, while ensuring a positive ESG (Environment, Social and Governance) impact.
As of November 2022, Welspun India’s products were available in more than 10,000 outlets across 500+ towns.
How Does Welspun India Generate Revenues?
For the year ended March 2022, about 75% of the company’s revenues were derived from exports. However, in Q2 2023, about 29% of Welspun India’s total revenues were generated by its emerging businesses like domestic retail, brands and e-commerce, flooring, and advanced textiles. The rest came from exports.
Here’s how the company generated its revenues in Q2 2023 (consolidated basis)
In Q2 2023, Welspun India generated total revenues of Rs 2,171 crores. About 93% of its revenues were generated from its home textiles business (including export and domestic sales, e-commerce, retailer solutions, advanced textiles, etc.). Flooring contributed just 7%, or about Rs 160 crores, to sales.
The profitability of both segments is muted, considering the company would have benefitted from the rising dollar rate. The home textiles business generated a profit of about Rs 128 crores (5.9% of revenues) before interest, tax, and depreciation, while the profit before tax was just about Rs 13 crores (0.6% of revenues).
The flooring business generated a profit of about Rs 4.22 crores (0.19% of revenues) before interest, tax, and depreciation, while its loss was Rs 19 crores. After adjusting un-allocable profits, the company reported a net profit of Rs 13.81 crores before tax.
What Are Welspun India’s Prospects?
I believe that any investment in Welspun India should be made only after reading its charts because the fundamentals do not justify an investment. The following negatives are clearly visible:
- A recession in the EU and UK is likely to impact the company’s exports. Already, its export contribution to revenues has fallen from 75% in March 2022 to 71% in September 2022.
- The flooring business is a niche business and it has to compete with traditional flooring (tiles), which is not going out of fashion anytime soon. Moreover, the flooring business needs a lot of nurturing as it is too early to say if it will become a bestseller.
So, any positive news in Welspun India’s prospects will first be reflected on the charts because price action almost always precedes fundamentals.
Welspun India Chart Levels To Watch
Currently, Welspun India is in a bear zone as it is below its 200-week SMA. If and when the company’s fortunes turn around, the development will get reflected in the stock’s price. Therefore, I would wait for the stock to cross the following levels (WITH VOLUMES).
Rs 82.50 (200-week EMA)
Rs 88 (23.6% Fibonacci retracement level)
But remember, the crossover should be accompanied by increasing volumes.