Welspun Living Gets Price Target Cut From Jefferies — Here's Why

Jefferies has maintained its 'Hold' rating on Welspun Living Ltd., on the back of a possible profitability washout due to the Trump tariff impact. The analyst has slightly lowered the price target to Rs 120 from Rs 130.

The firm cites the near-term challenges caused by the imposition of 50% tariffs on Indian home textile exports to the United States as the primary reason for the price cut. The brokerage is cautious, as the management expects a profitability washout in the short term until the punitive tariff is resolved.

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 prioritise 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Jefferies estimates this strategy will lead to a complete washout of profitability until the penalty tariff is withdrawn.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.

Despite absorbing the penalty tariff, the prevailing uncertainty has made US retailers cautious about building inventory. Management expects this retailer caution to result in a 15-20% decline in US revenue during the second and likely third quarters, which translates to a low-double-digit decline in overall revenue for the company.

In the medium term, however, Welspun remains confident. The company believes its decision to absorb the 25% penalty tariff will minimise market share loss, an advantage reinforced by its strong integration with key customers.

Further, competing countries like Pakistan and China operate at different price points or lack the capacity to scale quickly in Welspun’s product segments. Management is hopeful for a recovery beginning in the fourth quarter, provided the 25% penalty tariff is lifted, anticipating healthy profitability even with the permanent 25% reciprocal tariff.

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 also seeing increased customer traction.

In the near term, capital expenditure plans will be limited, and the company is confident its limited leverage will allow it to withstand the temporary profitability pressures.