Welspun India Ltd. (WELSPUNIND) Q4 FY22 Earnings Concall Transcript

Welspun India Ltd. (NSE: WELSPUNIND) Q4 FY22 Earnings Concall dated May. 10, 2022

Corporate Participants:

Nihal Jham — Edelweiss Securities — Analyst

Abhinandan Singh — Head – Group Investor Relations

Dipali Goenka — Chief Executive Officer and Joint Managing Director

Sanjay Gupta — Chief Financial Officer

Rajesh R. Mandawewala — Managing Director

Analysts:

Abhishek Nigam — B&K Securities — Analyst

Biplab Debbarma — Antique Stock Broking — Analyst

Akshay Kothari — Envision Capital — Analyst

Prathamesh Sawant — Axis Securities Limited — Analyst

Kalpesh Gothi — Valentis Advisors — Analyst

Prerna Jhunjhunwala — Elara Capital — Analyst

Niraj Mansingka — White Pine Investment Management — Analyst

Vikash Jain — Equirus Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Welspun India Q4 FY’22 Earnings Conference Call, hosted by Edelweiss Securities Limited. [Operator Instructions] I now hand the conference over to Mr. Nihal Jham, from Edelweiss Securities. Thank you, and over to you, sir.

Nihal Jham — Edelweiss Securities — Analyst

Yes, thank you, Chandni. On behalf of Edelweiss, I would like to welcome you all to the Q4 FY’22 earnings conference call Welspun India Limited. I would now like to hand over the call to Mr. Abhinandan Singh, Head – Group Investor Relations at Welspun Group, to introduce the management and take it further. Over to you Abhinandan.

Abhinandan Singh — Head – Group Investor Relations

Thanks, Nihal, and good afternoon, everyone. On behalf of Welspun India, I welcome all of you to the company’s Q4 FY ’22 earnings conference call. We have with us today, Mr. Rajesh Mandawewala, Managing Director; Ms. Dipali Goenka, CEO and Joint Managing Director; and Mr. Sanjay Gupta, the company’s CFO. As usual, we will start the forum with some of the remarks by our leadership team and then we will open the floor for your questions. Once the call gets over, should you have any queries that remain unanswered for the earnings call, feel free to reach out to either myself or Sanjay Gupta. And with that, I would like to hand over the floor to Ms. Dipali Goenka, our CEO and Joint MD. Over to you, Dipali.

Dipali Goenka — Chief Executive Officer and Joint Managing Director

Thank you. Good afternoon, everyone, and thank you for taking the time to join us today. We hope that you are safe and in good health. I would like to share some perspectives on the operating highlights of our performance during FY’22, after which Sanjay would take you through the financial matrix.

The Company has delivered a strong top line performance for FY’22 with revenues growing at 26.6% to INR9,377 crores. In quarter four, revenues grew by 3% year-on-year to reach INR2,247 crores. Having crossed $1 billion revenue mark for the total company the core business of Home Textiles crossed the milestone of US $1 billion mark this year, with these revenues of INR8,791 crores growing 23.3% year-on-year. Innovation continued to be a key enabler propelled by our patented products and processes accounting for 27% of HT revenues in FY’22, growing by 6% year-on-year. We now have 35 patents filed globally, largest for any home textile player.

Emerging businesses of brands, e-commerce, Flooring, and Advanced Textile continued on a strong growth trend, up by 44% year-on-year, accounting for 26% of total revenues of the company, up from 23%. Domestic retail businesses grew by 66% year-on-year in FY’22 to reach the highest ever revenues and also grew by 23.5% year-on-year in quarter four. We have seen a 150% growth in awareness for brand Welspun from 6% to 15% this year. Each brand under domestic spaces and [Technical Issues] has independently become power brands. The reach of brand Welspun now covers 482 towns and 6,642 stores, adding 1,218 stores in quarter four. We launched a new product category, mattresses [Indecipherable] to Home Textile products. Despite the unprecedented increases in cost of products, we are able to maintain the margins in our domestic business.

Welspun D2C initiatives globally is steadily making us an FMCG of home textiles, with e-commerce and branded business continuing its upward trajectory during the year, growing by 40% and accounting for 16% of total revenues. [Indecipherable] we had a successful launch of three brands during the course of the year. Welhome [Technical Issues]

Operator

This is the operator. Sorry, Dipali Ma’am, we can’t hear you. [Operator Instructions] [Technical Issues] This is the operator, we have the line from management reconnected. Ma’am we just request you to please proceed.

Dipali Goenka — Chief Executive Officer and Joint Managing Director

Yeah. The Flooring business continued to achieve new milestones growing by 107% in FY’21 to INR661 crores, [Indecipherable] 7% of the topline, and in quarter four, grew by 60% year-on-year. Continuing on our focus on innovation in Flooring as well, we have now two patents to our name. Near geographies in Africa, Middle East and Far East have been added and repeat orders from existing large customers is very encouraging. Domestic business is shaping up very robustly with the brand reach of $260 million in FY’22. There has been considerable marketing investments on both offline side in terms of [Indecipherable] related branding and social media, and on the online side with a refreshed site and improved traffic.

True to our sustainability goals, Flooring also is embedding ESG and circularity like zero landfill company from day [Indecipherable] achieved Zero Waste certification from SCS Gloabl team for training, certification with 98% waste diversion from landfill. We have conducted lifecycle assessment for all products and have verified third party environmental product declaration. 15% of total energy is from renewable energy [Indecipherable] and target taken up to 25% by 2025 and 50% by 2030. Zero-liquid discharge operation from the day one of operation. Welspun has been at the front-runner in the industry encompassing sustainability and ESG in ever realm of operations. We are clearly differentiated in the industry due to our sustainability work and have set benchmarks for the industry as a whole, like multilevel traceability solution of WEL-TRAK, allows the consumer to track a finished bed-bath product to its raw materials source using blockchain. We had the first Dow Jones Sustainability Index, DJSI this year, with an ESG rating of 48, which is 62% higher than the average industry score. We have set a ESG Compass and integrated ESG digital platform, an automated data dashboard covering over 90 indicators, extending to all sites locations and subsidiaries in India. We have joined SBTi business ambition for 1.5 degrees centigrade campaign and is committed to set a robust emission reduction target at a pace and scale required by climate science. Our Anjar facility had the first price in the Best Industry Category and the Union Jal Shakti Minister, Third National Water Award 2020 for our STP operations and zero fresh-water usage. TESCO, UK’s leading retailer [Indecipherable] awarded sustainability and community of exceptional focus on community initiatives and for outstanding ethical performance.

Other emerging businesses of advanced textiles recorded a revenue of crores in quarter four, growing 17% quarter four, quarter-on-quarter, despite the headwinds that the business space due to higher logistics costs and spunlace demand remaining muted due to stock corrections. These headwinds resulted in the yearly revenues of advanced textile INR297 [Phonetic] crores, 4% below last year. In March 2022, we commenced commercial operations in our Telangana facility, which has an installed capacity of 1,729 metric tons per annum of spunlace. This augurs well for this segments [Indecipherable]

During the second half of the year and also during quarter four FY’22, we faced multiple headwinds that include extraordinary macroeconomic factors such as sharp and unprecedented rise in key raw material prices, increase in energy costs and disruptions in the global supply chain, which has further worsened due to Ukraine, Russia conflict. To give you a snapshot, [Indecipherable] index has moved up from 92.5 [Indecipherable] cents pound in March ’21 to $1.42 [Phonetic] cents in March ’22 and currently is at 159 [Phonetic], an increase of 75%. In India, [Indecipherable] has reached an of INR93,000 per candy currently, the highest level ever recorded, up almost 100% as compared to March ’21. Today, the prevailing rate is INR100,000 per candy. Coal price index as per ICI [Indecipherable] 4,200 increased by almost 150% in last one year. In addition, the ocean freight of coal imports during the same time tripled. Ocean freight rates during the year, similarly, has increased about three times during the last year. Spot rates for USC [Technical Issues] load from 4,500 container in quarter four FY’21 to 11,000 containers in quarter four FY’22, a 144% increase. In addition, container shortages [Technical Issues] congestion and a shortage of truckers in the United States, which is our primary end market have all resulted in noticeable, albeit, transitory operating challenge. Therefore, management’s [Technical Issues] factors have, as you may have noticed weighed on our operating performance, especially during the latter half of the year, which is reflected in our quarter four [Technical Issues] results as well.

During quarter four FY’22, the company’s revenues grew 3% [Phonetic] year-on-year. On a sequential basis, however, revenues witnessed a slight decline of 8% quarter-on-quarter on account of some rebalancing of demand due to correction in stocks, as indicated by us during the last quarter, precipitated primarily by logistics and supply chain challenges. The global economic situation has further worsened in the latter half of quarter four. And as we enter the new financial year, high inflation [Technical Issues] investments economies leading to the decade’s high interest rates and slackening of demand across categories, logistical challenges getting more acute with non-availability of containers, leading to continually rising ocean freight and cotton index scaling newer historical heights every day.

In such unparalleled turbulent times, we are taking the steps [Technical Issues] to ensure that we continue our dialogs and long-term partnerships with our customers, keep keen eye on operating costs and further innovate and value engineer our products. We believe that the business sentiments which have deteriorated for last few months [Technical Issues] would take a few quarters to resolve and ease itself. Hence, while the medium to long-term fundamentals of the business remains strong, the next couple of quarters, are a bit challenging for the business. [Technical Issues] following the global [Technical Issues] currently. As and when the commodity prices normalize and inflationary pressures abate, our operating performance would reflect that.

With this, I would now like to hand over to Sanjay, who will quickly take you through the financial highlights. Over to you.

Sanjay Gupta — Chief Financial Officer

Thank you, Dipali. Greetings ladies and gentlemen. Before we open the forum for questions, I will briefly discuss the financial highlights for the quarter and full year financial year ’22. During quarter four financial year ’22 we reported revenues of so INR247 [Phonetic] crore, an increase of 3% year-on-year. For the fiscal year financial year ’22 revenue increased by 27% to INR9,377 crore, up from INR7,408 crores in financial year ’21. I’m particularly pleased to share that during the financial year ’22, the company achieved highest ever sales volume in Bath Linen, Bed Linen and Rugs and Carpets. Bath linen sales volume in Bed — Bath Linen sales volume increased by 1%, Bed Linen sales volume increased by 6% and Rugs 19% in quarter four in financial year ’22.

We reported an EBITDA of INR246 crore in quarter four, which is 11% of sales as compared to INR358 [Phonetic] crore at 15.5% year-on-year. For the full fiscal year of financial year ’22, EBITDA stood at INR1,425 crore translating into an EBITDA margin of 15.2%, as compared to INR1,420 crores last year, which was 19.2%.

During the year, input costs have been increasing significantly and the situation has escalated very adversely in the last two quarters with commodity prices touching historical highs and logistical challenges becoming an insurmountable. Coupled with this, the entire global economy is affected due to the Russia, Ukraine conflict and the inflationary pressures which has gripped investment in the war zone after decades. These have put untoward pressure on margins of the company, especially in second half of financial year ’22. In spite of these headwinds, with our drive towards cost optimization, use of technology and improved efficiency, we have been able to reach the same rupee EBITDA for the year as last year.

Going forward, changes in the government’s quarter import duty structure may deliver some net benefit for the industry in general. But any major shift in corporate costs might be seen only once the new crop season begins. Further, the cotton demand situation in India is further impacted by continuing exports of cotton from India. I’m also pleased to share that profit after tax, after minority interest of financial year ’22 rose by 11% to INR601 crore, compared to INR540 crore last year, despite the challenging environment in second half of financial year ’22. PAT for quarter four of financial year ’22 was INR54 crores as compared to INR130 crores year-on-year. Our consolidated earnings per share for the year financial year ’22 stood at INR6.06 per share, which is 13% higher as compared to last year, EPS of INR5.37. EPS for quarter two stood at — quarter four stood at INR0.53 per share vis-a-vis INR1.3 in the corresponding quarter last year.

On the forex front, we have been consistently following the Board-approved policy to hedge around two-thirds of our receivables on a rolling 12-month basis. Our average exchange realization for the U.S. dollar during quarter four was INR77.43 compared to INR76.14 in the corresponding quarter last year. For the financial year ’22, it was INR76.31 vis-a-vis INR74.2 last year.

Let me now share some balance sheet analysis. We continued our focus to reduce our net debt position, and at the end of quarter four and financial year ’22, the company’s net debt stood at INR2,229 crores, down by INR104 crores, from INR2,333 crore as on 31st March ’21. Excluding the Flooring business related net debt, net debt stood at INR1,399 crore as compared to INR1,637 crore, a reduction of INR238 crore. As on March ’22, we have in hand the scripts of RoSCTL and RoDTEP amounting to INR377 crores. Monetization of the same could have brought down our net debt further. Over the last five years, our net debt to equity has come down to 0.5 times as of 31 March, ’22 versus 1.27 times as on 31 March, 2017.

Gross block split INR6,824 crore, and we spent INR543 on capex during the year. Return on equity for the company’s business stood at 15.8% in financial year ’22 as compared to 16.3% last year. And return on capital employed stood at 13.4% vis-a-vis 13.3% in financial year ’21. In spite of investments in our growth businesses and buyback of shares done during the year, net debt has remained below 31 March, ’21 levels.

Turning to segmented results. Home Textiles has been stood at INR2,073 crore in quarter four, representing a year-on-year increase of 1%. For the full year financial year ’22 the Home Textile business clocked revenues of INR8,791 crores as against INR7,128 crore in the preceding year, recording a growth of 23%. EBITDA margins for the Home Textile segment stood at 11.6% in quarter four vis-a-vis 18% year-on-year, and 16.1% in financial year ’22, which is down from 20.9% [Phonetic] in financial year ’21. The Flooring business revenues stood at one end at INR89 crore in quarter four, representing a year-on-year increase of 60%. During financial year ’22, the Flooring business clocked revenues of INR661 crore recording a growth of 107% year-on-year. The business had a small EBITDA loss of INR2.9 [Phonetic] crore during quarter four, as compared to a loss of INR19 crore last year. For the full-year ’22, EBITDA is substantially improved to a loss of only INR14 crore as compared to a loss of INR100 crore last year.

The expansion projects of Flooring, Advanced Textile and Home Textile businesses which were in different stages of progress got near completion in financial year ’22 with some balance capex remaining. Capex spend in financial year ’23 to complete these projects and for maintenance capex is expected to be around INR230 crores. In spite of the capex, the net debt of the company is expected to be around INR2,100 crores in March 2023. We are providing the guidance in terms of capex and net debt for financial year ’23. However, in view of uncertainties around factors which we have discussed earlier, for example, fluctuations in input cost, including cotton, coal and other raw materials, logistical turbulence [Phonetci] and related costs there too and rising inflation in our target markets, the company is not in a position to provide any firm guidance for financial year ’23 at this point in time.

At its meeting held today, the Board has approved a dividend of 15% that is INR0.15 per share. The total outflow for dividend would be INR148 million and this translates to 2% — 2.5% payout on consolidated bank. With this, I will leave the floor open for your questions and hand over to the moderator. Thank you.

Questions and Answers:

Operator

Thank you. [Operator Instructions] The first question is from the line of Abhishek Nigam from B&K Securities. Please go ahead.

Abhishek Nigam — B&K Securities — Analyst

[Technical Issues] Sure, is this better?

Operator

Yes, much better.

Abhishek Nigam — B&K Securities — Analyst

Okay. Perfect. So couple of questions, starting off with the revenue decline in the Home Textile segment. I was just going through the presentation. It looks like a fairly broad-based slowdown across categories. So, if you could just give some color on why utilization numbers are also down and what should we expect in the coming quarter for first quarter, second quarter, that will be very helpful.

Dipali Goenka — Chief Executive Officer and Joint Managing Director

I think I’ll take this question. So the important thing, let me just put you through, is that I think there has been a complete glut in the whole logistics that we have seen. I think if you would know, in United States of America, the West Coast was completely choked. East Coast was also completely in a slowdown. Looking — having said that, the holiday season goods also reached the retailers in the quarter four. As a result, there has been a glut in their inventories, their warehouses are choked. So there is a correction happening in the stocks as well. So while having said that — now, if I look at the whole costs that we’re seeing in the terms of commodities, they are also playing a lot of — they are also instrumental in the impact in the whole revenue. But fundamentally, it is because of the stock correction that happened and hence, this is where you are seeing the slowdown in quarter four.

Looking at the the onward perspective as well, definitely, the commodities are going to play a major role, and saying that, I think everything is doubled over what it was, and hence, an inflation reaching — like the Fed rates going up in America, the ECB in Europe, the ROFO in India, I think overall, the situation doesn’t look that good right now. So, definitely, demand would be a little muted.

Abhishek Nigam — B&K Securities — Analyst

Okay. So some timing issue, some demand slowdown and logistics broadly goes…

Dipali Goenka — Chief Executive Officer and Joint Managing Director

Yes.

Abhishek Nigam — B&K Securities — Analyst

Seems to be responsible.

Dipali Goenka — Chief Executive Officer and Joint Managing Director

And commodities. Cotton today is INR100,000 today, and of course, I think the energy costs and everything also are playing a — impact on everything what we do.

Abhishek Nigam — B&K Securities — Analyst

Okay. Fair enough. And if you can just talk about — given the cotton prices have been so strong, what kind of price hikes were you able to push through the fourth quarter and first quarter? And how is looking now?

Dipali Goenka — Chief Executive Officer and Joint Managing Director

So, I’ll tell you, we’ve already taken two rounds of price increases. And I think we all are consumers, and when we buy a product there is a ceiling to a price that you buy. So, definitely you can pass on all the price to the consumer, because then the demand is anyway going to slow down.

Abhishek Nigam — B&K Securities — Analyst

Yes. No, I agree with that, more or less. Fair enough. And just last question from me and I’ll probably come back in the queue. Flooring has again stepped into a marginal loss. It’s a small one, but I thought it was kind of turning around. So, just what has happened over there and what should we expect for first quarter?

Rajesh R. Mandawewala — Managing Director

So it’s the same story. Our cost on commodities, which have been relentless through the year and also the ocean freights, which have — and it makes it difficult. See this — whether it is our home business or whether it is the Flooring business or the Advanced Materials business, bulk of our business is actually coming from the international market. So when you — on an average, let’s say, stock $30,000, $40,000 of merchandise in a container and end up paying $6,000 to $12,000 in freight. So, it impacts the cost of ownership for our customers and consequently, the retail prices have gone to a point now where, let’s say, this topline is affecting. Same thing has happened on the Flooring side as well. So, there is a commodity push, also, let’s say, this ocean freights have gone up, and they continue to go up as we speak. So, we are trying our best to just collaboratively work with our clients, and this — on the one hand, you have to maintain or, let’s say, just maintain your client profile, the strategic relationships that you have with them, and on the other, let’s say this, also manage the bottom line. So we have been trying to do this balancing act and just taking our decisions accordingly the loss here. We would have broken even there some extraordinary charge, we had some merchandise, which got damaged in transit. We had to take provision on that otherwise would have been positive EBITDA, but unfortunately, it happened in March and the insurance claim was not filed and approved. So, we provided for the damage, but the consequent credit was not accounted for. Which is why, otherwise we would have been in positive.

But this we could have been much better had those commodity situations not been there. And to be honest, I think the situation is going to be — this is going to continue the way we see it now [Technical Issues] two because we don’t see the commodity pressure abating. In fact, the ocean freights, they are actually going up because our long-term contracts run out in April, some in May, some in June, and so consequently the freights are actually continuing to move up. So we’ll have to manage. It’s a juggling act that we’ll need to manage and wait for an appropriate time to go aggressively after margins than top line. I guess we are a quarter or two away from that and so, what we’re trying to do across our businesses is to manage, let’s say, the top line and the margin, so that as we get out of this with our topline, with our business intact, with our clients intact and relationships intact.

Look, what we’re seeing is extraordinary. Now, whether it be cotton or PVC or whatever, we are seeing prices at an all-time high. They can’t sustain at these levels. Also, this — the demand side where people were actually locked down into their homes because of COVID. So the people consume more products and less of services. I think, the consumption of services is now growing, and consequently, let’s say, the disposable spend for discretionary product is reducing, and also this increase in prices have not helped. So, all in all, I think this over a — things will settle down — it looks like they will settle down, but we don’t see it coming in the next quarter or two. But eventually, this — we have to come to long-term averages or thereabout, and the margins will certainly resurrect once we get to that situation. But right now this — since we are actually right there is in the eye of the storm and so, it’s a difficult situation and it’s actually navigating week-to-week, day-to-day, month-to-month and client-to-client. So, that’s the way we are trying to manage our business.

Abhishek Nigam — B&K Securities — Analyst

Yeah. No, I totally agree and appreciate it such a [Technical Issues] I mean, everyone in the industry. Sir, just one last, follow-up question. This one-off cost we linked to the damage, how much was it in this quarter?

Rajesh R. Mandawewala — Managing Director

I think about INR4 crores or so. So our EBITDA loss is about INR3 crore and we provided for about INR3 crore, INR4 crores on account of the damaged merchandise.

Abhishek Nigam — B&K Securities — Analyst

Okay. Perfect. That’s it for me. Thank you so much.

Operator

Thank you. The next question is from the line of Biplab Debbarma from Antique Stock Broking. Please go ahead.

Biplab Debbarma — Antique Stock Broking — Analyst

Good afternoon, again. Sir, my question is related to demand. How — what is the demand outlook in terms of [Technical Issues] we’ll get cost and there are some challenges in the logistics.

Dipali Goenka — Chief Executive Officer and Joint Managing Director

Biplab, you’re not clear. You’re not clear, please.

Biplab Debbarma — Antique Stock Broking — Analyst

Hello.

Operator

Yes. Please proceed now.

Biplab Debbarma — Antique Stock Broking — Analyst

Good afternoon. So my question is on the demand outlook in the net — one is, how do you see the demand across the segments in terms of volume? Do you see the same level of [Indecipherable] remaining, going up, going down, any idea on the demand outlook?

Dipali Goenka — Chief Executive Officer and Joint Managing Director

The demand outlook, definitely looks muted. It doesn’t look very encouraging for the next couple of quarters, that is quarter one, quarter two and I think, quarter three as — because definitely, there is going to be that kind of a — the visibility right now looks very muted because of the commodities also. And I think, post the holiday season is the time, we definitely will see something — the green shoots coming in. Anything from your end?

Biplab Debbarma — Antique Stock Broking — Analyst

Ma’am, so we recently read that we have signed — India as a country has signed ETA with FD — with Australia. And so, do you think it would have any positive impact on Home Textile business? Secondly, we expect — we are optimistic about FTA with Europe. So that would have any [Indecipherable] impact?

Dipali Goenka — Chief Executive Officer and Joint Managing Director

Let me just put it to you. Of course, they both will be very, very positive. Australia we anyway do business, so definitely that’s going to be encouraging for that business that side. And FTA for UK also would be — will put us being competitive to the other countries that we compete with. Having said that, USA remains the biggest market, and the biggest economy of consumption. So I think that will play a very big role in the terms of the whole demand as well. But yes, to your question with UK, FTA we — India is here to gain, and Australia, definitely is encouraging too.

Biplab Debbarma — Antique Stock Broking — Analyst

Okay. Thank you, Ma’am. And one final question if I [Technical Issues] Ma’am, we know that the cotton cost are — it is still all-time high. But besides the cotton cost, what other factors are significantly impacting our margin? We know energy cost for logistics, but are they too impacting our margin? What are the factors that are significantly impacting the market?

Rajesh R. Mandawewala — Managing Director

Most definitely, Biplab, when ocean freight is 30% or thereabouts of your container value, it is going to impact the business. So every element see this. And finally, this everything adds up, isn’t it? So your raw materials, your fuel, the other commodities, the ocean freight, everything adds up. And finally it shows up at the door of the customer, where the cost is already — the landed cost is already moved up by 50%, 60% or maybe in some cases even double from where they were when the — when all this commodity cycle changed. So it’s obviously going to impact both the topline as well as well as the bottom line.

See, the good thing which I want all of you to know is that, the overall India story is playing out. So, this — we have a dominant share, for example, in the U.S. where we have a level playing field with our competing countries, and we have in fact, this — our share has continued to either get maintained or only grow as a country. So, that’s — the overall story is intact. Now, if the consumption based on whether the consumption is going to increase or reduce, these are a few quarter issues. As things correct, as prices correct, this consumption will automatically come back in our key consuming markets like the U.S. And when it comes back, let’s say, both the topline and the bottom line will resurrect. So, it’s a time, it’s a period where you have to wait out. But let me assure you that at the bottom, this — I think, the story is intact. There is nothing wrong this — beyond a point you can’t move or increase prices without actually seriously damaging the top line, and this unfortunately we are right now caught up in that situation. So we have to wait it out.

We’ve had some great years in the past and some great quarters in the past. It’s okay if we have a few rough quarters. You have to ride through it and be true partners to our clients and make sure that together, we are able to ride over this difficult period. There is a quarter or two here and there, but eventually, as I said, the story is intact. India is in a very favorable position, our cost structures are good, our market share is intact, everything is — so the underlying story doesn’t really change. And with the FTAs it will only improve now. Also our minister has gone on record to say, next year we are hoping now that the FTA with Europe would also materialize, and we have discussions, one with Canada. And so, all these markets, which are currently — let’s say, this week we have a disadvantage over some of the countries like Bangladesh, Pakistan. Now if these FTAs also materialize, it opens up another third of oil consumption as a level playing field for all of us. Hopefully, as and when that happens, this — as a country this — our position in the marketplace will improve.

So repeating for the third time, I think the underlying story is intact. These are, let’s say, just transitory challenges. They can be a few quarters here and there but the underlying story is intact.

Biplab Debbarma — Antique Stock Broking — Analyst

Thank you, sir. I’ll fall back in the queue.

Operator

Thank you. The next question is from the line of Akshay Kothari from Envision Capital. Please go ahead.

Akshay Kothari — Envision Capital — Analyst

Yeah. Thanks for taking my questions. I wanted to understand — right now you mentioned that countries like Bangladesh and Pakistan — if there are FTAs. What I had been hearing is, I think U.S. had sanctioned Bangladesh for some issue and that is likely to get reversed. So would there be impact? And which are the other countries like Vietnam — or which are the other countries we are competing with?

Dipali Goenka — Chief Executive Officer and Joint Managing Director

I’ll just tell you that with USA, we are in a strong position compared to countries like UK and Europe where the FTA has an advantage for them. And the category that we play with is the middle to the upper segments vis-a-vis Bangladesh and Pakistan are at the OPC. So, definitely — I think — for us, we maintain a position there. I think we wouldn’t be anyway impacted by that.

Akshay Kothari — Envision Capital — Analyst

Okay. Okay.

Rajesh R. Mandawewala — Managing Director

In fact, if the FTAs come about, we will actually have an advantage.

Dipali Goenka — Chief Executive Officer and Joint Managing Director

Yeah. We’ll add on more to our portfolio.

Akshay Kothari — Envision Capital — Analyst

Okay. And what would be the revenue from the top 5 or 10 customers? The customer concentration, how much would it be contributing?

Dipali Goenka — Chief Executive Officer and Joint Managing Director

I think that would be major of the number that we talk about it. So that is something that — I think we are doing around $782 million in Home Textiles.

Rajesh R. Mandawewala — Managing Director

It’s about 40% 45%, yeah, so, we have a good mix of customers and that’s why big customers always remain important and strategic, but I think our risk is pretty well spread. And so, it will be about 40%, 45%.

Akshay Kothari — Envision Capital — Analyst

Okay. Okay. Thanks a lot. I’ll join back in the queue. Thanks.

Operator

Thank you. The next question is from the line of Prathamesh from Axis Securities. Please go ahead.

Prathamesh Sawant — Axis Securities Limited — Analyst

Yeah, hi. My question is regarding the truckers issue in U.S. and Canada. This problem was, I think, because of COVID related reasons. So I think with all COVID gone, do you think this problem is about to end in like next quarter or two?

Dipali Goenka — Chief Executive Officer and Joint Managing Director

I think it is not just because of the COVID. It is also because of the demand and the Amazon — Amazon factor. They have basically hired most of the truckers, and prices are far dear. I think you would have heard about the $150,000 that they paying the truckers. So, I think there is an issue of availability of truckers, and that’s still persists. And that is a concern. And there is a lag there, because a lot of goods, after reaching the ports have have a concern and there is lot of detention by the time it reaches the warehouses as well.

Prathamesh Sawant — Axis Securities Limited — Analyst

Okay. And coming to the cotton prices. 1 lakh is definitely not going to be a sustainable price, but what according to you would be a ballpark figure? Like two, three quarters down the lane, where will be a ballpark figure? And do you think — are you going to plan any backward integration for this thing — this thing has been giving trouble to you?

Dipali Goenka — Chief Executive Officer and Joint Managing Director

I think we are — I think for us the cotton — see, if I can look at it right now, where it is at INR100,000, we are very sure that it’s not going to be the price. It’s at its peak. But I think every time it defies that norm. We were looking at INR65,000, then INR75,000, then INR85,000, then INR90,000, and today it’s over INR100,000. But I think, as the sowing has started, the harvesting will be in September, and the acreage has increased. But I still feel the floor will open at INR70,000, not lesser than that. That’s what it looks like at the moment.

And when you talk about backward integration, I think for us, at Welspun, we’re completely integrated as a company. Whether it’s in our towel, whether it’s in our sheets or whether in our rugs, in fact right now.

Prathamesh Sawant — Axis Securities Limited — Analyst

So you are partly integrated, if I am not wrong.

Dipali Goenka — Chief Executive Officer and Joint Managing Director

Beg your pardon?

Prathamesh Sawant — Axis Securities Limited — Analyst

You are partially integrated, right? That — only 40% of your raw material used by your own…

Rajesh R. Mandawewala — Managing Director

No, no.

Dipali Goenka — Chief Executive Officer and Joint Managing Director

No, no.

Rajesh R. Mandawewala — Managing Director

We don’t grow cotton. We make our yarns, yes. But we don’t grow any cotton.

Prathamesh Sawant — Axis Securities Limited — Analyst

Yeah, yeah. That’s what — I’m talking about the yarn. So you’re using only 45% of your total capacity — of that you can use only 45% right?

Rajesh R. Mandawewala — Managing Director

Yeah, about 60% or thereabouts, yeah.

Dipali Goenka — Chief Executive Officer and Joint Managing Director

60% or 70%.

Prathamesh Sawant — Axis Securities Limited — Analyst

Okay. Okay. And in the current quarter, there was a 8% de-growth. What amount of — what was the actual volume de-growth? Was there any offset because of some price increase? What was the actual — if you can bifurcate between the actual de-growth and…

Rajesh R. Mandawewala — Managing Director

I think — look, this quarter-on-quarter, we don’t even analyze — we don’t even bother analyzing. So these things can happen and this — our contracts runs one for multiple years. So we don’t look at our business on a quarter-on-quarter basis. And see, with the inventory up and down, things can — one quarter can be extraordinary, the other, let’s say, the inventory corrections can happen. So, I wouldn’t read too much into into that.

Prathamesh Sawant — Axis Securities Limited — Analyst

Okay, sir. That’s it from my end. I’ll get back in the queue.

Operator

Thank you. The next question is from the line of Kalpesh Gothi from Valentis Advisors. Please go ahead.

Kalpesh Gothi — Valentis Advisors — Analyst

Yeah. Good evening, ma’am. In the last couple of quarters we are focusing more on ESG front. So my question is, your ambition is to become a carbon neutral and fresh water [Indecipherable] by 2030. Can you elaborate more on this, on ESG side? And what’s the status of our wastewater treatment initiative?

Dipali Goenka — Chief Executive Officer and Joint Managing Director

No, but I think for us, I would say, our water — we are water positive today as well. We just got the President’s Award for that. The carbon-neutral, we have a road map for 2030. And that’s what we are looking at, and that’s where we’re working towards. So, definitely — and I think it is on our website. If you go, and you can look at our goals there, they are quite intact in the terms of milestones that we’re wanting to achieve.

Kalpesh Gothi — Valentis Advisors — Analyst

Yeah. Yeah. [Indecipherable]

Dipali Goenka — Chief Executive Officer and Joint Managing Director

I think I [Technical Issues] that clear. Can you…?

Kalpesh Gothi — Valentis Advisors — Analyst

Yeah. Am I audible now?

Dipali Goenka — Chief Executive Officer and Joint Managing Director

Yeah, go ahead please.

Kalpesh Gothi — Valentis Advisors — Analyst

Yeah. And also you are looking into renewable energy.

Dipali Goenka — Chief Executive Officer and Joint Managing Director

Yeah. So, we are working on that project, and you will hear from us in a couple of months on that as well. Having said that, our goals towards the renewable energy also remain intact because it is not only a commitment towards what we do in the environment, but it is also a commitment towards our retailers that — and those are the things that we’re going to fulfill as well.

Kalpesh Gothi — Valentis Advisors — Analyst

Okay. Thank you.

Operator

Thank you. The next question is from the line of Prerna Jhunjhunwala from Elara Capital. Please go ahead.

Prerna Jhunjhunwala — Elara Capital — Analyst

Thank you for the opportunity. My first question is on your capex plans. Your bench — towel capacity expansion of 25% to reach 1,00,2000 tonnes per annum. Where is it, and by when can we expect that to come in?

Rajesh R. Mandawewala — Managing Director

So, the — this quarter — end of this quarter we’ll be there. And by and large — in fact, most of the capital expenditure is either concluded or will get concluded by September of the current year. So, we are very close to completing almost everything.

Prerna Jhunjhunwala — Elara Capital — Analyst

But will it…

Sanjay Gupta — Chief Financial Officer

To answer that, Prerna, the new capacity that we were thinking of, that we have put forward a bit by a year.

Prerna Jhunjhunwala — Elara Capital — Analyst

Okay. Yeah, because — and…

Sanjay Gupta — Chief Financial Officer

So what we’ll be completing is roughly 90,000 tons — we’ll complete by quarter two. And the new capacity setup we’ll do after a lag of a year or so.

Prerna Jhunjhunwala — Elara Capital — Analyst

Okay. Okay. Sir, I understand the demand concerns in the U.S. But considering that we have long-term contracts, should we see the 67% utilization that you’ve done across majority of your product range, as the number that we’ll be sustaining for this next one year?

Dipali Goenka — Chief Executive Officer and Joint Managing Director

So, it all depends on the demand that comes in from the consumer. While we have the replenishment program — but it also depends on the front end demand that is there. Definitely, those contracts are there, but it will depend on what the final — the last mile demand is, actually. So with the goods, see, there is a glut, as I spoke about earlier, and there’s a stock correction that is happening. So that is again something. And also, the COVID saw a peak of demand and now the wallet share also is getting divided.

Prerna Jhunjhunwala — Elara Capital — Analyst

Okay. Okay. And ma’am, can you give some color on the inventory with your customers, something in transit, so that we can take a track how — if retail sales are there and how the demand can come in? Some color on the inventory days with your key customers?

Dipali Goenka — Chief Executive Officer and Joint Managing Director

So, I’ll tell you one thing, we work very closely with customers. To that extent we do vendor managed inventories for few retailers as well. And we actually are in touch with all our retailers in the terms of retail analysis — the whole point of sale analysis as well. So I think for us, we are today — in fact, you can look at it, Prerna, from the perspective that I will not spin an extra towel or I’ll not weave an extra sheet because the prices anyway — the cotton is too expensive. So for me to control the inventory, not only at the factory, the goods on the sea, the goods in my warehouses is far more utmost important for for me than anything else. So, our supply chain analysts, at the point of sale, give us the visibility — our supply chain and production planning team here give us the visibility, what could be the demand. We actually rationalize everything. So, there is a very close watch on anything what we make and what we do.

Prerna Jhunjhunwala — Elara Capital — Analyst

Okay. Okay, understood. Ma’am, my last question is on — in working capital cycle. This year, your debtor’s days have reduced substantially, and your inventory days have also come back to normalcy, around 74, 75, 78 days. Just help us understand whether — is it just that collection has happened faster or if this is the new norm in the debtor’s days.

Dipali Goenka — Chief Executive Officer and Joint Managing Director

Over to you, Sanjay.

Sanjay Gupta — Chief Financial Officer

Yeah. Yes, Prerna. So, yes, there has been constructed effort to realize the debtors — overdue debtors. So, done a good job and we have been able to reduce the debtor days substantially, and we hope to maintain at these levels because our average deal with the debtors is 45 days and we want to be below that number going ahead. Similarly for inventory. So, inventory also had increased to some extent in — during quarter two, quarter three. We had brought down that through substantial better planning, and we wish to maintain this level of inventory going ahead as well.

Prerna Jhunjhunwala — Elara Capital — Analyst

Okay. Thank you so much, sir. I’ll come back on the question queue for further questions.

Operator

Thank you. The next question is from the line of Niraj Mansingka from White Pine Investment Management. Please go ahead.

Niraj Mansingka — White Pine Investment Management — Analyst

Thank you for the opportunity. I had question on the Flooring side. Can you share with us capacity of the soft and the hard flooring and what was the utilization for the last quarter?

Rajesh R. Mandawewala — Managing Director

So Niraj. Good question. The capacity is also a work in process. So while we are at about we have overall capacities are at about 25, let’s say this about 25 million. But there is some balancing equipment that we have chosen to defer as for sales to actually pick up, So, we are currently clocking about — we have a current run rate of about 10 million. So, we have between 40% — of 40% or thereabouts. By and large we are there. But just don’t look at the utilization levels because look, this is a new business and mind you, the first two years of operation were all done in the period of COVID, where none of our boys could get in front of their customers, forget about this developing a market. So, [Foreign Speech] our two years have passed in that. So right now, see this — all we have done is open doors with some great clients all over the world. And the product — there’s still a lot of product mix richness which is going to manifest itself. We are right now at the — by and large at the lower to the middle end of the market. And over a period of two, three years, even the product mix will get richer. So the same amount of yardage will actually deliver a higher, let’s say, this unit value realization apart from, of course, better utilizations in the future. I hope that answers your question.

Niraj Mansingka — White Pine Investment Management — Analyst

Yeah. Sir, few — some more related. I think, when we put up this plant, after that, we had got some positive surprise or some improvement in the demand from the U.S. markets after some China exports to the U.S. being slowly streamed down. What is the status of that? And how can we see — do we see a visibility of that exposed to the U.S. scaling up on this Flooring business?

Rajesh R. Mandawewala — Managing Director

Absolutely, absolutely, clearly, Niraj. So at this time, it is not only about prices. We have seen this — with this China things happening in the past as well, but this time, I tell you, it is different. So, these large clients are actually afraid that their businesses might actually get disrupted if they are completely depending on China. So they are — there is a strategic intent and a program to de-risk their sourcing. And we are continuing to see that. In fact it’s getting more and more visible from more and more clients. And so this time, it looks like that it is here to stay.

Niraj Mansingka — White Pine Investment Management — Analyst

And the demand would be more from the soft flooring or the hard flooring from the U.S. market…?

Rajesh R. Mandawewala — Managing Director

I think it is more of hard, Niraj, because [Foreign Speech] in the office, obviously the soft flooring goes more into offices and cinemas and hotels, and all that. [Foreign Speech] It has remained closed for about 2.5 years. So that part — it kind of was slow and that also needs a physical contact with the clients, which unfortunately we could not make over the last couple of years. Our boys have just started traveling from January and getting in front of the customers. And also, offices are opening up, they have opened up hotels, this running to some decent capacities. So now we are seeing, let’s say, this good traction build up. I think, by the end of this year, we should have our feet firmly on the ground on the soft flooring side. So right now, I think, we’re seeing more throttle on the hard side than on the soft side.

But I want to qualify, let’s say, this my statement by saying that we are seeing the same kind of margin pressures in this business as well that we are seeing with the home business. And this cost push is just so relentless that it’s every day job to do this balancing act between top line and margins, and which we are trying to just exercise our best judgment and just push it forward. But it is — just on the margin front we are struggling and you have seen that even at INR180 crores, INR190 crores, we have just barely managed to break even at EBITDA. And the intent and the quality of the business is much better than that, Niraj, but unfortunately this — the pressure of commodities ocean freight is putting a lid on the margins in this business as well.

Niraj Mansingka — White Pine Investment Management — Analyst

Got it. Thank you very much, Rajesh, sir.

Operator

Thank you. The next question is from the line of Vikash Jain from Equirus Securities. Please go ahead.

Vikash Jain — Equirus Securities — Analyst

Thank you. Thanks for the opportunity. The first question is in continuation to one of earlier participant’s answer, when you said that you do have a very good analysis on how the sales at a retailers end are progressing. So, any color as to what is the end market — or the end customer demand looking like, as in — more in terms of how are the teams just [Indecipherable] here to even out in what period of time is the best estimate that this can even out?

Rajesh R. Mandawewala — Managing Director

Good question again. This– we are this one thing we are definitely seeing is that it’s a steady trickle. The curve is actually in the reverse direction. So, I’m afraid what we’re seeing is a constant, let’s say — so the demand is reducing and that — I’m seeing, it is not only from our clients, but our client’s clients, which is the final consumer. And the increased retail prices are — and look, our product is discretionary, so the increased retail prices are impacting. And then the other factor is also that this consumption of services is now, let’s say, catching up. So, the last year and a half, two years in the lockdown period, the services were not as much consumed. So some catch-up is happening on that side also. So, we’ll get a clearer picture, I think, in the next three, four months when things even out, when the world returns to a steady state, services to product consumption pattern, and hopefully, by that time, the commodity prices also correct. So, I think, we’ll get a better sense, a better handle on that, but right now, over the last two, three months, what we have witnessed is a steady decline on the point of sale. So we see some occasional spikes when products get promoted very aggressively. We see these occasional spikes, so, that kind of levels and averages things out. But on a general basis, let’s say, this — the curve is tracking down.

Vikash Jain — Equirus Securities — Analyst

Okay. Okay. Okay. And one more question. Sir, you mentioned in your opening comments or rather in one of your comments that the long-term contracts for this — these containers are just about to end in April, May. Can you just give a color as to whenever you enter some new contracts, how much surge that you can witness in these [Indecipherable] of contracts?

Rajesh R. Mandawewala — Managing Director

See, normally, if you ask — if you had asked me this question a year and a half back, it would have been the other way around, every contract was at a lesser price. And now, it’s the turn of the shipping companies to draw blood and we are — I must confess doing it brilliantly. So — but this — from where we were last year to now, it’s almost 250% up. So, it’s a very, very steep increase. And we are also — we even right now currently under negotiations with the shipping lines. And all in all, this overall, this — and there was one renegotiation that happened in the middle of last year as well. The freight rates have been constantly growing up, but this — the things don’t look very good. Overall, from one point from April or May of last year to now, looking like at least 200%, 250%, particularly to the U.S. It’s not as bad to the other parts of the world. In fact, in the other parts, freight rates have already started correcting to some extent. For example, Latin America rates are already tracking down, far East the rates have started tracking down, Europe has kind of settled down, Mediterranean is kind of settling down. But America, this — unfortunately is very, very strong right now. So we’ll know as we close the contracts over the next few weeks. But from point-to-point, from May to May, it’s 200% 250%.

Vikash Jain — Equirus Securities — Analyst

Right, right. And just one follow-up. Sir, almost all of our shipments that we sent to our retailers are come under the long-term contract or do we have something open — or we send it in open contracts?

Rajesh R. Mandawewala — Managing Director

See, 85% to 90% of our business is replenishment. So, it’s like your white shirt that you keep shipping this. As the customer sell, they reorder, and so the program continues till such time, let’s say, the productivity on their shelf space is good. And then when the productivity on the shelf space starts dipping, that’s when, let’s say, the transition of the program happens. Or 85 — Dipali, 85% to 90% of our business would be like that, right?

Dipali Goenka — Chief Executive Officer and Joint Managing Director

Yeah, yeah. It is. And over to, I think, FOB and CIF is another combination. So I think for us — at Welspun, primarily 80% is FOB and 20% CIF as well. So that’s again a very important part of our impact on our freight costs that have impacted us.

Vikash Jain — Equirus Securities — Analyst

Correct. Correct. Correct. Okay. Thanks for the — answering the questions. Thank you.

Operator

Thank you very much. In the interest of time, this was the last question. I now hand the conference over to Ms. Dipali Goenka, Joint MD and CEO, Welspun India Limited, for closing comments.

Dipali Goenka — Chief Executive Officer and Joint Managing Director

Thank you. So I would like to thank you all for your insightful questions. As we stated earlier on this call, while our medium-term performance is likely to reflect the impact of a challenging commodities and logistics environment, as a business, we remain focused on transitioning from being a manufacturer to a direct to consumer company and FMCG of home textiles, enabled by investments, innovation and technology, and a strong traction we are already seeing in our B2C initiatives, our brands and our digital channels. And we will achieve this while also ensuring that sustainability and circularity remains embedded across the value chain. I would like to conclude by thanking each one of you for your continued interest in Welspun India.

[Operator Closing Remarks]