Welspun Living margins recover for three straight quarters after tariff shock

The move

On 23 September 2026 the promoter trust, Welspun Group Master Trust, sold 2.45 crore shares (about 2.6% of the company) at ₹214.90, worth ₹525.88 crore. The shares were picked up by Fidelity International Small Cap Fund and Quant Mutual Fund. The promoter group goes from 66.4% to roughly 64%.

1. Summary

Welspun Living is India's largest home textile exporter. It is the number one supplier of towels and bath rugs in the US and top two in sheets. FY26 was a bad year: US tariffs pushed EBITDA margin down to 9.1% and profit fell from ₹639 crore to ₹204 crore. Since then margins have improved for three straight quarters, from a trough of 6.8% to 12.5% in Q1 FY27. Revenue in that quarter grew 23.5% and profit nearly doubled. The balance sheet held up through the downturn. The open question is whether margins get back to the 15% the company calls normal.

2. Business model

• Home textiles (93% of revenue): bath linen, bed linen and rugs, mostly made for large global retailers under their own labels. B2B is about 73% of sales.
• Brands (about 18% of sales): Christy (whose towels are used at Wimbledon), Welspun and Spaces, growing about 25% a year.
• Flooring (7%): a newer business that has struggled. EBITDA margin was 3.2% in Q4 FY26 and has recovered to 10.4%.
• Other: a US pillow business (target of $60 million revenue this year) and technical textiles such as wet wipes.

The advantage is scale, vertical integration from cotton to finished product, long retailer relationships, and an S&P Global ESG score of 90 (first globally in textiles). About 75% of revenue comes from outside India.

3. Financial performance

Margins are cyclical. They move with cotton, freight and US trade policy, and have ranged from 19% (FY21) to under 7% in a single quarter. Operating cash flow still improved to ₹1,175 crore in FY26 (₹688 crore in FY25).

One detail from the Q1 call: an analyst noted bath volumes grew about 2% and bed linen volumes fell, so much of the 26% home-textile growth came from pricing and mix. Management said volume also contributed.

4. Balance sheet

• Gross debt fell from ₹2,469 crore to ₹1,802 crore in FY26. Net worth is ₹4,917 crore.
• Interest coverage dropped from 5.0x to 2.9x on lower profit.
• CARE reaffirmed its AA rating but moved the outlook from positive to stable.
• Inventory days rose from 76 to 84.
• Return ratios are weak for now: ROE 4.2% and pre-tax ROCE 5.6% in FY26, against 13.7% and 12.9% the year before.
• Capital allocation: a ₹346 crore buyback in FY25 and another ₹252 crore buyback at ₹175 in May 2026. Capex guidance for FY27 is ₹400-500 crore, mainly automation and debottlenecking, with no big new plant.

Two numbers that don't match:

1. The annual report headline says net debt is ₹775 crore. The capital-management note in the same report puts consolidated net debt at ₹1,664 crore. The headline treats liquid investments as cash; the note counts only cash and cash equivalents. 2. The company reports free cash flow of ₹956 crore. The cash flow statement gives ₹1,175 crore operating cash flow minus ₹451 crore capex, which is ₹724 crore.

5. Growth outlook

Management guides for double-digit revenue growth and "low teens" EBITDA margins in FY27, with 15%+ as the normal level. The main drivers:

• US: India now faces the same 10% Section 301 tariff as Pakistan and Bangladesh, and lower than China, Vietnam and Turkey (12.5%). Management says the tariff cost has already been passed on to customers.
• UK and Europe: the India-UK trade deal took effect in July 2026. Pakistan holds over 50% of UK home textile imports, and India now competes on equal terms. Welspun's UK and Europe business grew 20%+ in Q1. The India-EU deal was concluded in January 2026.
• Utilisation: bed linen ran at only 60% in Q1. Management expects above 80% across categories for the year, so a lot of growth can come from existing plants.

6. Risks

• Raw materials: Q1 gross margin fell on cotton and crude-linked costs.
• US trade policy: the tariff gap with competing countries can change quickly, and 59% of revenue is still from the US.
• Customer concentration: Costco alone is more than 10% of revenue.
• Flooring: one good quarter at 10% margin follows years of weak returns.
• Promoter selling: the promoter trust sold 2.6% in September. The group still holds about 64%.

7. Valuation

At ₹223.5 (late September 2026), market cap is about ₹21,000 crore.

For its own history: the stock averaged about 15x FY24 earnings during 2023 and about 23x FY25 earnings during 2024. The trailing P/E is high because it is measured against a trough year, so what the multiple really looks like depends on how quickly profit returns to FY24-FY25 levels.

Peers on trailing numbers: Indo Count 58x P/E (26x EV/EBITDA), Trident 29x (15x), Vardhman Textiles 19x (12x), Himatsingka Seide 15x (10x). Indo Count, the closest peer, went through the same tariff hit.

Sources: Welspun Living FY26 Annual Report, Q1 FY27 earnings presentation and call transcript (13 Aug 2026), CARE rating, exchange block and bulk deal data (23 Sep 2026), market data as of late September 2026.