Analysing growth opportunities for Indo Count Industries Ltd

Indo Count Industries Ltd differentiates itself from competitors with its track record of superior product quality and efficient execution of its contracts. Favourable industry dynamics and comfortable capital structure are expected to support the company in achieving above-average growth.

Company overview:

Indo Count Industries Ltd has been categorised as one of leading vertically-integrated bedding providers in country. The company creates greater efficiencies, and provides more value to its clients through controlling all aspects of supply chain (i.e. from spinning to products and sales). Mr. Anil Kumar Jain, who is Executive Chairman of the company, was ranked 10^th amongst India’s Best Top 100 CEOs 2017 by Business Today. Under his guidance, the company has focused on world’s finest fashion, institutional and utility bedding & sheets and the company has built significant presence throughout globe.

Business model of Indo Count Industries Ltd

Indo Count Industries Ltd is largest global home textile bed linen manufacturer. The company was successful in carving out niche for itself and it has become a total bedding resource. Current annual capacity of the company came at ~153 million metres. Its group of companies seems to be strategically created to further solidify its strengths, add to its capabilities, and help in expanding into new markets.

Indo Count Industries Ltd controls every aspect of supply chain i.e., from product design and development to branding and marketing. The company believes this is a main reason for strong momentum and healthy growth in industry.

Track record of management

Mr. Anil Kumar Jain

Anil Kumar Jain founded Indo Count Industries Ltd and is the company’s Executive Chairman and Non-Independent Non-Executive Chairman at Margo Finance Ltd. Apart from these positions, he is on board of Pranavaditya Spinning Mills Ltd., Rini Investment & Finance Pvt Ltd., Indo Count Textiles Ventures Pvt Ltd. and Indo Count Retail Ventures Pvt Ltd. He has received an undergraduate degree from St. Xavier's College (West Bengal).

Mr. Mohit Jain

Mr. Mohit Kumar Jain, son of Mr. Anil Kumar Jain, is presently Executive Chairman of the company. He did Bachelor of Science from Babson College, Wellesley, Massachusetts and has specialised in marketing, international finance, corporate financial planning, policy formation, etc. He has a wealth of knowledge and experience in finance sector too as he was earlier associated with First Public Incorporated, Wellesley, Massachusetts and Loomis Sayles & Company, Boston, Massachusetts.

Mr. Kailash R. Lalpuria

Kailash R. Lalpuria has been designated as the company’s Chief Executive Officer & Executive Director at Indo Count Industries Ltd. Apart from this, he is on board of Confederation of Indian Industry and Vallabh Textiles Co. Ltd. Mr. Lalpuria under-graduated from St. Xavier's College (Mumbai).

Financial performance of Indo Count Industries Ltd

In 1Q24, Indo Count Industries Ltd saw volume & revenue improvement on year-over-year basis. The company laid strong foundation and it is optimistic about future. Going forward, as the company capitalizes on demand in its largest market, it anticipates this to replicate in several other geographies too. With improvement in global economy well-underway and upcoming festive season, the company is expected to see strong revenue momentum in upcoming quarters. With capabilities and capacities and right product offerings, the company is on track to benefit from increased opportunities in Home Textile Industry.

Sales volume for 1Q24 came in at 20.03 million mtrs in comparison to 19.10 million mtrs in 1Q23. The company highlighted momentum in USA total retail sales dynamics. The company’s June retail sales have confirmed that even though economy is cooling, consumers remained on solid footing and they continue to spend on household priorities. Back-to-class spending has been categorised as most important shopping occasions of year, and back-to-school and college spending should be able to set new records. While consumers continue to look for best value and deals, retailers are still well-stocked with key items for families and students.

Indo Count Industries Ltd achieved its volume guidance for FY23, with sales volume of 74.7 million meters. Total income saw an increase of 2% to INR3,043 crore in comparison to INR2,982 crore in FY22. It saw growth in e-commerce side of business, as this business made contribution of ~10% to revenue in FY23. However, inflationary headwinds impacted the company’s profitability. EBITDA saw a marginal fall from INR574 crore in FY22 to INR486 crore in FY23. EBITDA margin came in at 16% in FY23 in comparison to 19.26% in FY22. The company delivered PAT of INR277 crore in FY23.

Post seeing all these headwinds, sector continues to be on track of revival. Lower raw material prices, lower freight cost, and significant improvement in supply chain should improve the company’s overall competitiveness.

Industry analysis

Global textile industry was pegged at US$959.87 billion in 2022 and this industry should touch US$ 1371.84 billion by 2030. Therefore, global textile industry should be able to compound at ~4.05% from 2023-2030. Higher demand from fashion industry and explosion of e-commerce should accelerate market growth. U.S. has been categorised as a largest market for textile products in North American region.

India is a second largest producer of textiles and clothing after China. India is a third-largest exporter of textiles and apparel to global and international markets. India's textile industry is significantly varied in terms of technology and has wide range of applications. Industry remained upbeat regarding export in FY24. Despite slowdown in demand for numerous sectors, which includes textiles too, Indian exporters appear to be optimistic about strong performance in FY24. Industry experts believe that exports should rise by 11- 13%, with cotton textile and apparel exporters anticipating ~8-10% year-over-year growth.

Further, to overcome disadvantages related to costs and to regain position in global market, India targets to compound its textile exports by ~9% by 2026, with target of $65 billion in textile exports. Ministry of Textiles gave a target of ~$100 billion in exports over upcoming 5 years.

Outlook of Indo Count Industries Ltd

Approximately 70% of industry’s output is dependent on cotton in comparison to global average, where goods which are made of man-made fibers have more significant share. Because of technical textiles' low cost, long lifespan, and versatility, India has been categorised as another important market for sector's growth. Healthcare and infrastructure sectors mainly support technical textile business.

Positivity in external ecosystem, and the company’s strengths in terms of its products should help the company achieve healthy growth in FY24. Strong order book position should support the company’s growth prospects.

Further, Indo Count Industries Ltd targets to increase revenue from value-added business in its revenue mix by ~50% in comparison to previous year. As a result, this should help strengthen business value and deliver growth value to its stakeholders.

Strong growth in agriculture, construction and service sector, together with significant rebound in manufacturing should support the company in FY24. Economic growth is expected to revive and should improve Indian consumer’s economic status and their ability to spend money. As a result, this should result in increasing household numbers. Consequently, this should increase demand for home products in medium and long term. Higher disposable income and aspiration of Indian middle class of adopting to branded products should create immense opportunity for the company over medium-term.

Risks

High geographical and customer concentration of revenue, working capital intensive nature of the company’s business, sensitivity of revenues and earnings to fluctuations in raw material prices, etc. are some risks Indo Count Industries Ltd is exposed to. Revenue and earnings of the company might get impacted if there is unfavourable volatility in prices of cotton, yarn and fabric. However, this risk gets partly mitigated by order-backed inventory.

Since it is a net exporter, the company’s revenues and profits might get impacted by foreign currency fluctuation risks, which could adversely impact its margins during high volatility in exchange rates. Over previous 2 years, export incentives made up for ~40%-50% of the company’s operating profits and any reduction might impact margin profile of the company’s business.

Shareholding pattern of Indo Count Industries Ltd

By end of September 2023 quarter, majority share (~58.74%) is being owned by promoters of Indo Count Industries Ltd. This is a positive sign as it means that promoters are optimistic about growth prospects of the company. It means interests of shareholders are aligned with those of promoters.

By September 2023, FIIs made up ~10.24% and DIIs accounted for ~0.12% of the company’s total shareholding. However, ~30.88% of the company’s total shareholding is being held by public shareholders.

Valuation and investment rationale

Stock of Indo Count Industries Ltd. currently trades at ~17.6x of FY23 EPS, which is at a deep discount to sectoral average of ~26.65x. This means that investors have an opportunity to invest in this stock as its price has not realised its full potential. Significant upside is expected in the company’s stock price.

Growth in stock price is expected to be supported by its significant market share in home textile industry, long-term and established relationships with its clients, comfortable capital structure, etc. The company’s major customers are global big-box retailers in US, Canada and Europe like Walmart, JC Penney, Kohl’s, Costco, etc.

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