Expanding Christy And Spaces Brands Internationally Will Increase Future Market Share

Key Takeaways

• Strategic global expansion and premiumization efforts could lead to higher margins and improved revenue growth.
  
• Diversification into innovative, sustainable products may enhance future revenue streams and increase profitability.
  
• Supply chain disruptions, currency volatility, interest costs, market demand fluctuations, and raw material prices risk impacting Welspun Living's margins and revenue growth.

Catalysts

Engages in the manufacture and sale of home textile products in India and internationally.

• The company is targeting a significant revenue growth of ₹15,000 crores by FY '27 through market leadership and scaling up emerging businesses, which will positively impact future revenue growth.
  
• With brands such as Christy, Welspun, and Spaces expanding internationally and improving product offerings, the company anticipates higher margins and increased revenues through premiumization and market share gains.
  
• The company is focusing on innovative and sustainable products in Advanced Textiles and home care, diversifying its portfolio, which could enhance future revenue streams and margins.
  
• The strategic expansion of domestic and international brick-and-mortar and online retail channels is expected to boost sales volume and revenue in the coming years.
  
• Improvements in operational efficiencies and freight cost reductions due to normalization of supply chain routes should positively impact net margins and profitability.

Welspun Living Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Welspun Living's revenue will grow by 13.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.2% today to 8.0% in 3 years time.
• Analysts expect earnings to reach ₹12.1 billion (and earnings per share of ₹12.53) by about March 2028, up from ₹6.5 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.6x on those 2028 earnings, up from 17.7x today. This future PE is lower than the current PE for the IN Luxury industry at 23.2x.
• Analysts expect the number of shares outstanding to decline by 2.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.65%, as per the Simply Wall St company report.

Welspun Living Future Earnings Per Share Growth

Risks

• The challenges posed by supply chain disruptions, such as those caused by the Red Sea issues and higher freight costs, have affected the company's margins and could continue to impact profitability if not resolved quickly, which may affect future earnings negatively.
  
• Adverse foreign exchange movements, particularly the depreciation of the rupee against the dollar, have resulted in mark-to-market losses. This exposure to currency volatility poses a risk to net margins, as ongoing accounting adjustments may continue affecting profitability.
  
• The increase in the company's interest costs due to higher borrowings for CapEx and working capital needs can strain net margins, especially if interest rates rise further or if the anticipated reduction in working capital is delayed.
  
• Demand fluctuations in key markets, such as subdued urban consumption in India and mixed consumer sentiment in the United States, present risks to revenue growth, as these markets are crucial for Welspun Living's top-line objectives.
  
• Dependence on raw material costs, such as cotton, where price fluctuations can impact gross margins and profitability, poses a financial risk, particularly if anticipated future benefits from current low prices do not materialize due to volatility or supply chain disruptions.

Valuation

• The analysts have a consensus price target of ₹187.625 for Welspun Living based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹210.0, and the most bearish reporting a price target of just ₹157.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹150.9 billion, earnings will come to ₹12.1 billion, and it would be trading on a PE ratio of 21.6x, assuming you use a discount rate of 15.7%.
  
• Given the current share price of ₹120.4, the analyst price target of ₹187.62 is 35.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.