Welspun India Ltd- Analysis​​

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Welspun India introduced its  flooring solution in FY19 through its subsidiary Welspun Flooring Ltd. This is something unique to Indian market.  The plant was commissioned in September 2019 with an investment of ₹880 cr in Hyderabad, Telangana. The plant has a capacity of 27 million square metres per annum. Flooring will be altogether different venture than the home textile one and the company has been creating the supply chain for distributing its product in India. As of Q1FY21 the company had  a presence in 475 outlets including 100 plazas. At full capacity, the plant will have sales with asset turnover of 1.5x.   

The product in this category include Luxury vinyl tiles(LVT)(hard flooring) as well as soft flooring(Carpet Tile flooring , Wall to wall carpets, Artificial Grass). 

Let me give you a brief about these products. 

LVT & Carpet flooring is quite popular in the US. Vinyl flooring itself is about $20bn market in the US and soft/carpet flooring is much larger at about $50bn. Vinyl flooring market is growing at about 10% compared to 5% of that of soft flooring solution. Among vinyl flooring types, LVT or hard tiles are the fastest growing category even in the US. This is the product where Welspun Flooring has set its eye on.  All major US flooring companies Shaw Industries, Mohawak Industries have been rapidly expanding their manufacturing capacity of Luxury Vinyl Tiles. Over the years, China has become the largest market for these products both in terms of production & consumption. If it is happening globally, it will definitely come to India. Hard flooring find application in residential houses whereas soft carpet tiles are used in commercial spaces.

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This kind of flooring solution is at a very nascent stage in India and most or entirety of the products available in the domestic market is imported from China.  Welspun’s plant will be the first of its kind in India with the only manufacturer of all these products. The company has priced its product at par with imports at around ₹175-200 per sq/feet.

Benefits of these alternate form of flooring:

1. Can be done in a few hours compared to weeks or months for traditional flooring

2. Lot of variety & design

3. Easily replaceable, even a single piece

4. Done over the existing surface

Vinyl & Carpet tile flooring solution is targeted at the replacement market. Renovation and floor replacement activities in a residential and commercial application will be a growth driver.

The market is still very small in India & highly fragmented with a very small market size. Most likely it will be around 2000-3000 cr. The management of Welspun India expects it to grow very fast.

I PERSONALLY FEEL THE BIGGEST CHALLENGE FACED BY THESE SEGMENT(IN PARTICULAR LVT) IS OF AWARENESS THAT SUCH PRODUCTS EVEN EXIST IN THE MARKET followed by the spending capability of residential houses for these products. I guess with time, the cost will come down. 

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In terms of Commercial space such as offices, retail spaces, hospitals, warehouses, industrial flooring, schools, sports offer greater opportunity. 

NOW IN ORDER TO CREATE THE SEGMENT OR BRING AWARENESS, requires a lot of marketing and advertisement.  Given the size of Welspun India, I am pretty sure they will start doing the advertisement aggressively (Guess roping in Mr. Amitabh Bachchan is a part of the process). 

Also, to win over the customer, they are  providing product warranty upto 5 years. Given the reputation of the company, it gives assurance of quality to compete with imports and unorganized sector.

I am assuming that the company is trying to gauge the market before launching the advertisement campaign.

The plant is ready and they have large unused capacity. So, they are using them for exports and the management expects 50% of flooring revenue to come from exports for the year FY21. China+ strategy for importers from developed countries will help the company. Icing to the cake: US reimposed a tariff of 25% on China-made LVT products on August 7th, 2020. This would be a big positive for Welspun’s hard flooring manufacturing solution. Already, the company has entered into long term arrangement with a US based large distributor for its 50% of hard flooring capacity.

Welspun Flooring Ltd had a revenue of ₹13 cr and EBITDA loss of 27.5 cr in FY19 and Revenue of 87.2cr and EBITDA loss of ₹142.3cr in FY20. 

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In the listed space, Responsive Industry is another company who is trying to gain advantage of being an early mover in vinyl tiles space.

In order to understand how vinyl carpet & carpet tiles work, I came across a few videos on Youtube. 

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Shekhar Yadav

Shekhar Yadav

It was only during the third semester in Engineering that Shekhar overheard a Gujarati guy in his class discussing stocks. After a few discussions with him, he realized that this was what he wanted to do in his life.
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