Welspun Living Ltd Q2 FY2026 Concall Summary

Key Takeaways

• Revenue hit hard by tariffs, not demand destruction: Consolidated revenue fell 16.4% YoY as a 50% U.S. tariff on Indian exports disrupted trade flows and retailer buying patterns, while Welspun absorbed part of the tariff to protect customer relationships.
• Margins compressed sharply but deliberately: EBITDA margin contracted 748 bps YoY to 6.8% , driven by tariff-led volume pressure, adverse mix, and partial tariff absorption; management frames this as a temporary investment in customer retention.
• Market share held despite industry collapse: U.S. towel exports from India fell 44% and sheets fell 8% per OTEXA data, yet Welspun maintained its share, citing structural advantages in scale, reliability and quality.
• Christy and Ohio Pillow are bright spots: Christy grew over 40% YoY with gross margins above 50%, while the Ohio Pillow facility reached nearly 50% utilization and is on track for a ~\$30 million annual run-rate.
• What to watch next quarter: Whether Q3 top line lands at the guided "similar to Q2 or 10% less," how much of the 50% tariff burden shifts to customers as negotiations progress, and any Q4 visibility that emerges in the next month.

Tariff Impact & Customer Strategy

• Volume, not direct cost, drove the Q2 hit: Management stated there was minimal direct tariff impact in Q2; the revenue decline came primarily from volume disruption as retailers adjusted buying patterns to the new 50% tariff regime.
• Tariff burden sharing escalates in Q3: Actual shipments at the full 50% tariff rate were not large in Q2; that impact will materialize from Q3 onward, making the next quarter the real test of margin resilience.
• Customer retention over margin recovery: Welspun chose to absorb tariffs partially rather than lose customers, a deliberate trade-off management defends as strategic.
• U.S. cotton sourcing as a mitigation lever: Management is working on first-sale arrangements with one of the "big four" retailers using U.S. cotton, which would mitigate tariff risk on those orders.
• Normalization timeline is one quarter: If the 50% tariff is removed in Q3, management expects to start seeing benefits by Q4; the business needs roughly one quarter to normalize after a tariff change.

Dipali Goenka: "Margins can recover, customers once lost, cannot."

Segment Performance

Margin Walk & Cost Environment

• Cotton price headwind: Cotton prices rose from INR44,000 to INR53,000-INR55,000, adding cost pressure independent of tariffs.
• Forex provided partial offset: Realized USD/INR of 87.14 versus 84.29 in the prior period helped cushion the blow but was insufficient to offset the volume and tariff drag.
• Working capital discipline intact: Cash conversion cycle at 88 days is the lowest since FY22; free cash flow improved to INR152 crores, which management called one of the best working capital positions ever.
• Long-term margin target maintained: Home textile EBITDA margin target of 15-16% remains the anchor; management expects normal margins to return once the tariff disruption passes.
• New CFO mandate: Incoming CFO Manish Bansal (effective January 1, 2026) will focus on cost realization, operational efficiencies through automation and digitalization, market diversification, and product strategy to improve margins.

Competitive Position & Diversification

• India's structural advantage intact: Management argued India remains the largest cotton home textile exporter; Vietnam does not compete in bath towels and sheets (fashion bedding only), Turkey's capacity is small, and the real contest is between China and India, where Welspun believes it can capture the delta.
• Category breadth as a moat: Welspun operates across towels, rugs, bedding, and flooring with volumes of 2,400+ containers, a diversification peers lack; management cited this when deflecting a peer comparison question.
• U.K.-India FTA signed, awaiting ratification: Once ratified, the FTA is expected to provide strong impetus for diversifying the export footprint beyond the U.S.
• India-U.S. bilateral trade agreement progress: Management expects this to bring clarity and restore stability to trade flows.
• Jacquard plant commenced operations in July 2025: Positions Welspun as the leading terry towel manufacturer globally.

Dipali Goenka: "India continues to be the biggest cotton home textile exporter because also of the cotton that we have... between China and us, we can actually take on the delta. So I'm not that worried about."

Domestic & Brand Strategy

• GST rate rationalization a net positive: Nearly 30% of the domestic portfolio now benefits from the 5% GST slab; the short-term channel adjustment dip is behind, and both Spaces and Welspun brands are expected to grow post-GST.
• India business target intact: The INR1,000 crores target within the next two years remains, with anticipated 20% growth and breakeven EBITDA initially, then gradual improvement.
• Christy global expansion: The brand will continue growing with strong placements across UK and U.S. markets.
• Flooring recovery thesis: Soft flooring expected to grow more than 20%; hard flooring expected to see upside as housing activity gradually revives on Fed easing.

Guidance & Commitments

Dipali Goenka: "Maybe the numbers in the terms of the numbers that we've given could go one year or two here and there because of the challenges that you see this year."

Key Metrics