Welspun Living Price Target Cut by Jefferies: A Detailed Analysis
Jefferies, a leading financial services company, has maintained its ‘Hold’ rating on Welspun Living Ltd. while cutting the price target to Rs 120 from Rs 130. This decision comes on the back of a possible profitability washout due to the Trump tariff impact on Indian home textile exports to the United States.
Understanding the Trump Tariff Impact
The core issue stems from the new 50% tariff structure imposed on Indian home textile exports to the US, which comprises a 25% reciprocal tariff and an additional 25% penalty tariff. Welspun Living’s management has chosen to prioritize defending its market share in the US, which accounts for about 60% of its total revenue, by absorbing the entire 25% penalty tariff. Customers are bearing the base 25% reciprocal tariff.
Jefferies’ Concerns and Revised Estimates
Jefferies estimates that this strategy will lead to a complete washout of profitability until the penalty tariff is withdrawn. Consequently, the brokerage has sharply cut its financial year 2026 EPS estimates, building in a recovery only for fiscal year 2027. The prevailing uncertainty has made US retailers cautious about building inventory, and management expects this retailer caution to result in a 15-20% decline in US revenue during the second and likely third quarters.
Welspun Living’s Medium-Term Prospects
Despite the near-term challenges, Welspun remains confident about its medium-term prospects. The company believes its decision to absorb the 25% penalty tariff will minimize market share loss, an advantage reinforced by its strong integration with key customers. Competing countries like Pakistan and China operate at different price points or lack the capacity to scale quickly in Welspun’s product segments.
Strategies to Mitigate Tariff Burden
To mitigate the tariff burden, Welspun is undertaking internal cost control measures, including increasing imports of US cotton. The company is also set to diversify its export mix toward alternative locations like the UK, Europe, and Japan, where it already has established supply chains and is seeing increased customer traction.
Investor Implications and Key Takeaways
For Indian investors and traders, it is essential to understand the implications of the Trump tariffs on Welspun Living’s financials and the company’s strategies to mitigate the impact. While the near-term prospects may seem challenging, Welspun’s strong market position and diversification plans could lead to a recovery in the medium term.
Key takeaways for investors include:
- Welspun Living’s price target cut by Jefferies due to Trump tariff impact
- Near-term profitability washout expected due to penalty tariff absorption
- Company’s medium-term prospects remain positive due to strong market position and diversification plans
- Investors should monitor the company’s progress in mitigating the tariff burden and diversifying its export mix
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