scorecardresearchIndo Count Industries rallied 990% from March 2020 lows; is there more

Indo Count Industries rallied 990% from March 2020 lows; is there more upside left?

Updated: 23 Aug 2023, 02:36 PM IST

Indo Count Industries, India's largest home textile manufacturer, is poised for a steady recovery in FY24E. Despite challenges in the home textile export market in FY23, the company displayed resilience and maintained a healthy EBITDA margin.

ICICI Securities continued with its 'buy' rating on the stock, setting a 12-month target price of  <span class='webrupee'>₹</span>295 apiece.

ICICI Securities continued with its 'buy' rating on the stock, setting a 12-month target price of 295 apiece.

Textile stocks have been performing well on exchanges, buoyed by favourable conditions both domestically and globally. One such notable performer in this space is Indo count Industries (ICIL), which has seen its shares set new highs with each passing day.

During Wednesday's trading session, the company's shares achieved a fresh 52-week high, reaching 251.5 apiece. In the current month, they have recorded an increase of nearly 12%, and year-to-date (YTD), the shares have yielded a remarkable return of 84%. Notably, the shares have surged by a substantial 990% from their low point of 22.75 back in March 2020.

Indo count Industries is India’s largest home textile manufacturer and exporter, with an extensive product range that spans across bed sheets, quilts, and bed linen. It has a presence in the top nine out of the 10 top big-box retailers in the US. The company exports to nearly 54 countries, with the US being the prime market.

Domestic brokerage firm ICICI Securities said that government initiatives like the signing of FTAs with multiple countries and stability in export incentive policy will provide robust opportunities for Indian exporters. Leveraging its substantial capacity, ICIL is strategically positioned to capitalise on the potential within the global home textile trade, the brokerage emphasised.

Stock price chart of Indo Count Industries.

Most of the negatives behind; poised for steady recovery in FY24E: India’s home textile export market in FY23 was marred by various challenges, such as significantly higher domestic cotton prices and excess inventory build-up with US retailers.

Despite several headwinds, the brokerage said Indo Count displayed a resilient show in FY23 as volume de-growth was restricted to a mere 1% as compared to industry de-growth of 32% (partly aided by the GHCL acquisition). More importantly, the brokerage highlighted the company's efforts towards enhancing the share of value-added products and hedging cotton prices. This, according to brokerage, has helped the company maintain a healthy EBITDA margin of over 15% in FY23.

The brokerage pointed out that the textile industry is witnessing demand green shoots as inventory levels at global retailers are gradually correcting. Furthermore, it said, India has regained its lost market share (for cotton sheets) in the USA from 50% in CY22 to 58% in YTD-23 (Jan-June 2023).

Likewise, Indo Count Industries is also experiencing incremental business, bolstered by an improved order book for the upcoming holiday season. ICICI Securities foresees an 18% YoY volume growth in FY24, reaching 88 million pieces with 57% capacity utilisation.

Further, the brokerage anticipates the company to cross 100 million pieces mark by FY25E, translating into a CAGR of 16% in FY23–25E. With positive operating leverage and stabilised cotton prices, the brokerage forecasts an EBITDA margin expansion of 125 basis points during FY23–25E, resulting in an EBITDA CAGR of 19%.

Expect B/S strength to solidify going forward: On the balance sheet front, the brokerage said the company generated a healthy operating cash flow of 750 crore in FY23, driven by the reduction in working capital days from 175 days in FY22 to 130 days in FY23, attributed to the normalisation of global supply chain dynamics.

Subsequently, despite higher capex requirements of 385 crore in FY23, Indo Count generated free cash flows (FCF) of 365 crore, it said.

The company reduced debt by around 460 crore in FY23, resulting in a D/E ratio of 0.5x in FY23 compared to 0.8x in FY22. With minimal maintenance capex over the next two years ( 50–60 crore annually) and steady cashflow generation ( 560 crore in FY24–25), the brokerage expects debt levels to further reduce by 420 crore in FY25E, leading to a D/E ratio of 0.2x.

In light of these positive factors, the brokerage continued with its 'buy' rating on the stock, setting a 12-month target price of 295 apiece. This indicates an upside of 19.4% for the stock from its current trading price of 247.

03 analysts polled by MintGenie on average have a 'buy' call on the stock.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.


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First Published: 23 Aug 2023, 02:36 PM IST