Welspun India stock had a stellar run last month, ouperforming both the Nifty 50 index and the midcap index by a wide margin.

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Shares of the textile company rallied 30 percent in August compared to a 3.5 percent gain in Nifty 50 and about 6 percent rise in the midcap index.

A lot of share optimism may have to do with the rupee depreciation or rising US dollar as the company gets a large part of its revenue from the US. Indian rupee has fallen nearly 10 percent from 2018 highs against the dollar.

The other major worry related to destocking by the US retailers seem to have ebbed following encouraging quarterly results by companies such as Walmart and Lowe's.

Also the ongoing trade war between China and the US could open up export opportunites for Indian companies.

Despite the optimism, the Mumbai-based company still faces risk from the surging cotton prices and it needs to be seen as to how much of this rise will be passed onto consumers.

India continues to dominate the US towel market

Welspun India could gain from the US economic recovery as the company gets nearly 2/3rd of its sales from the US. In fact every fifth towel and every 10th sheet sold in the US is made by Welspun.

India has more than half of the US sheet market

The impact can be seen in the company's margins, which expanded by 160 basis points in the June-quarter following continuous contraction over past several quarters.

Sustainability is key

The net debt in Welspun India books is at Rs 3,039 crore as of FY18 year end but it is likely that the company is coming to an end of their capital expenditure phase.

The company said it plans to invest around Rs 900 crore in FY19, with a majority of the investment towards flooring solutions project.

Welspun India's vision is to nearly double their revenues from $1 billion in FY18 to $2 billion in 2022 and the company is also aiming to reduce net debt from Rs 3,000 crore to nil in 2022. The company has targetted topline growth between 8-10 percent in FY19 with margin growth at nearly 19 percent.

The valuations are not cheap as the stock trades at approximately 9x EV/EBITDA on a trailing basis.

Shareholding pattern

First Published:Sept 3, 2018 3:00 PM IST