Smallcap Textile Company Sets Record Date for Buyback. Participate or Not?

In the past couple of quarters, the Indian textile sector was under pressure owing to elevated cotton prices, weak demand, and sizeable premium in domestic cotton prices relative to international prices.

Despite facing significant headwinds, the sector is poised for a comeback thanks to a range of factors including lower cotton prices, expanding yarn-cotton spreads, and renewed demand from key markets like China.

Against this backdrop of positive sentiment, one textile company is under investor's radar because it recently announced a share buyback through a tender offer.

The company is none other than Welspun India.

The textile company recently announced buyback of shares on 27 April 2023. After the announcement, its share price rallied more than 20% in just five days!

The company will buyback share through the tender offer route.

There are two ways in which companies can execute buybacks - the tender offer route and the open market offer.

In a tender offer, the company makes an offer to buy back shares at a particular price.

Here, the price is usually fixed at a premium and investors having shares of the company on record date can part with their shares by filling out respective forms over a given period.

In an open market offer, however, investors don't get much excited. In the open market offer, everything is routed through the stock exchange, and the price isn't fixed. It can vary.

With that explainer out of the way, here are the key details about Welspun India's share buyback:

1. The company has fixed 10 May 2023 (tomorrow) as the record date.
2. The textile company will buy back shares at Rs 120 per share. This is around 25% higher than its current market price of Rs 96.
3. The aggregate amount of buyback is up to Rs 1,950 million (m).
4. The total number of shares to be bought back shall be up to 16,250,000 shares representing 5.85% of the total paid-up equity.

Welspun India Buyback Details

Buyback Price (Rs per share)	120
Current Price (Rs per share)	96
Buyback Premium (%)	25%
No of shares proposed for buyback (million)	16.3
Buyback as proportion of total equity (%)	5.85
Buyback aggregate amount (Rs million)	1,950
Buyback method	Tender offer route
Record date for buyback	10-May-23

Source: Equitymaster

This is not the first time Welspun India is conducting a share buyback. Earlier in May 2021, the company bought back shares for the first time.

The last buyback was worth Rs 2,000 m between 22 June 2021 to 5 July 2021. During the buyback, it had tendered 16.7 m shares.

The share buyback price was Rs 120 per equity share which was at a 32% premium compared to the closing price on the date on which the buyback was announced i.e., 14 May 2021.

After taking a look at the company's history of buybacks, let's take a look at the past performance.

Welspun India's financial performance

In the past five years, the company's revenue has grown at a steady pace except for the Covid-19 year.

In financial year 2022, the company total revenue grew by 26.9%. However, the rise was negated due to rising cotton price resulting in low profit margins.

This year, the company has failed short of expectations on the export front as demand remains weak due to excess inventory, global uncertainties, and due to inflation.

Welspun India financial snapshot (2018-2022)

Particulars	18-Mar	19-Mar	20-Mar	21-Mar	22-Mar
Total Revenues (Rs in m)	60,494.0	65,266.0	67,411.0	73,402.0	93,115.0
Growth in revenues		7.9	3.3	8.9	26.9
Gross profit (Rs in m)	11,234.0	8,002.0	12,581.0	13,520.0	13,587.0
Gross profit margin (%)	18.6	12.3	18.7	18.4	14.6
Net profit (Rs in m)	3,982.0	2,262.0	5,244.0	5,507.0	6,066.0
Net profit margin (%)	6.6	3.5	7.8	7.5	6.5

Data Source: Ace Equity

In the most recent quarter ended March 2023, Welspun India more than doubled its consolidated net profit to Rs 1,254 m. This is against a consolidated net profit of Rs 522 m in the corresponding quarter last financial year.

The board also recommended a dividend of Rs 0.1 per equity share for the financial year 2022-23.

Going forward, the management has guided for softening of raw material prices and reduction in ocean freight.

The company is also a beneficiary of the China plus one megatrend, given its integrated nature of home textile business and its strong market position.

Investment takeaway

Welspun India is part of the well-known Welspun group. The company has a wide presence in more than 50 countries.

It places a strong focus on innovation. It already has 35 patents and has entered into collaborations with technology partners and industry associations. Welspun India aims to sell products by direct to customers (D2C) approach through own global and domestic brands & license portfolio.

The company also has a strong e-commerce platform and is placing importance on growing e-commerce business through multi-pronged e-commerce strategy.

However, things could take a turn for the worse if there's a shift in the macro environment. Unseasonal rains may cause damage to cotton crops and once again cotton price will rise.

How Welspun India share price has performed recently

In 2023 so far, Welspun India share price is up around 24.6%

Welspun India touched a 52-week high of Rs 104.9 on 5 May 2023 and a 52-week low of Rs 30 on 29 March 2023.

About Welspun India

Welspun India Limited is a textile company based in Mumbai, Maharashtra. It is a flagship company of the Welspun Group.

Welspun India is engaged in the business of home textiles offering utility bedding, bed sheets, and fashion bedding products. It also offers flooring solutions through the Spunlace, Needlepunch, and Wet Wipes product categories.

The company incorporates non-woven technologies, metallic needling, and high-temperature bonding to manufacture innovative materials, for a wide range of customer applications, including personal hygiene, homecare, medical, and industrial among other segments.

Its brand list includes Christy England, Spaces - Bed, Bath & Rugs, Welhome, Living by Christy, Welspun Flooring, Scott Living, and Kingsley.

Welspun India is Asia's largest and the 2nd largest terry towel producer in the world. It exports around 94% of its home textile products to 50+ countries.

For more details, see the Welspun India fact sheet and quarterly results.

You can also compare Welspun India with its peers on our website.

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