Indo Count Industries Ltd - Research Report

 

Private Client Research

Rating

Buy

Sector

Textile

Company

Indo Count Industries Ltd

Reco Price
Rs. 605
Price Target (1.5 - 2 Years)
Rs. 1200
Upside
98.35%

Date

June 10, 2015
Sensex
26840.5
CNX Nifty
8124.45

Exchange

Code

NSE
ICIL
BSE
521016

Asset light business model with strong financial growth will lead to rerating of stock.

Large Player in bed linen segment:
Since its venture into home textiles in 2008, Indo Count has established a strong position in this segment with more than 20% share in bed linen exports to the US. The company derives its competitive strength through domain expertise in printing and designing of bed sheets and established clientele of global retailers such as Wal-Mart, JC Penny and others. Home textiles revenues grew at a CAGR of more than 29% during FY09-15; the segment is expected to continue to be a key growth driver as the company plans to expand to new geographies and premium product segments, which will be diversifying the product portfolio other than bed sheets. Company is the 4th largest supplier for Bed sheets in the USA and 3rd largest manufacturer and exporter of bed sheets from India. Currently capacity is 68 million meters per annum for the company.

Strong client relationship:
Indo Count is strongly placed in the Indian bed linen exports market with more than 20% share in the organised sector. The company derives its competitive strength from strong client relationship coupled with its focus on product quality, product innovation, and timely deliveries. Over the years, the company has developed strong domain expertise in the designing and printing of bed linen products that are critical processes in developing innovative varieties. It has also received patents for a few bed linen products. It services clientele of global retailers including Wal-Mart, Target, and Bed Bath and beyond.

Globally reputed suppliers:
Company’s manufacturing units for both Home Textile and Spinning segment are equipped with top quality machineries which is supplied by leading global suppliers. Their Home textile equipments are imported from Benninger (Switzerland) , Tsudakoma (Japan), Monforts & OSTHOFF (Germany), Juki (Japan), Mathis (UK), Zimmer (Austria), Airoli (Italy) and Spinning segment equipments are imported from XORELLA & USTER (Switzerland ), Rierter (Switzerland), SCHLAFHORST (Germany) & LMW (India).This ensures that product quality is at superior level meeting international quality standards.

US economy to boost demand in home textiles:
One of the key reasons for strong home textiles exports from India is the growing demand from the US, which is the second largest import market (22% of global home textiles imports) after the European Union (EU). We expect the demand for home textiles to continue to reflect the improvement in the US economy.

Indo Count is expected to be a key beneficiary as it derives more than 70% of its sales from the US.

Strongly Player in the bed linen exports market:
The Rs 5000 crores domestic home textiles market (60% exports) is highly fragmented with small and medium enterprises (SME) comprising 70-75% of the overall turnover. The organised players cater to demand for higher quality products from large organised retailers such as Wal-Mart, Target and Bed Bath and beyond. The organised market is closely held between small groups, dominated by few players including Welspun, Alok Industries, Trident and Indo Count. Welspun is the biggest home textiles Indian exporter, focusing on terry towels and bath linens and rugs. In contrast, Indo Count is specifically focused on bed linen exports and Trident on terry towel exports. Hence Indo Count is considered one of the strongest player in the Bed sheets export market.

Inventory Check:
Indo Count’s key strengths is its effective raw material procurement policy which enables it to maintain a lean working capital cycle. The key raw materials are cotton for the yarn business and yarn for the bed linen business. The company outsources its raw material requirements to local suppliers. However, the inventory days are high because of change in product mix. The company has to keep more inventory of grey cloth; it typically keeps grey cloth inventory of around two-three months, and two months of cotton and yarn. It compensates high inventory days with better credit terms from its raw material suppliers, thereby keeping its working capital in line with the home textile peers.

Debt Reduction:
Derivative losses and slowdown in demand for home textiles in the US drove the company into CDR in August 2008. Since then, its financial liquidity has improved significantly aided by traction in the home textiles business and an asset light business model. Net debt to equity declined from 3.5x in FY08 to around 0.80x in FY15 and is expected to decline to 0.5x in FY16. As a result, the company is continuously focusing on reducing their interest burden and improve their overall business growth. ROCE of more than 30% and Fixed asset turnover of more than 2.30x in textile industry shows how well has company has performed in in the last few years.

Stock Data

CMP (Rs)
616.75
Face value (Rs)
10
52 Week Range (Rs)
620 - 69.60
Market cap (Rs Crores)
2432.95
Price To Book Value (x)
7.72
P/E Ratio (x)
16.72
EV/EBIDTA (x)
9.04

One Year indexed Stock Performance

Indo Count Industries LtdSensex
Indo Count Industries Ltd
Performance (%)
1m
6m
12m
Absolute
35.97
81.18
587.19
Sensex
-2.42
-3.56
4.91

Shareholders

(in %)
31-Mar
Promoter
58.95
FII
6.88
DII
1.8
Others
32.37
Total
100

+91 22 6639 3000
research@stockaxis.com

 

Industry

The United States of America is the largest market for the Company accounting for a major share of total exports of the home textile products. The Company has its own showroom on the prestigious Fifth Avenue in New York and a warehouse in Charlotte, NC. The Company has been consistently engaging with the top retail chains and brands and has built deep and lasting relationship with them. Being closer to its key customers has enabled the Company to emerge as a preferred supplier of choice. The Company has received accreditations from prestigious customers in the USA.

The Company has been consistently building on its capacity and capabilities over the last few years. Their home textiles plant is the only integrated plant in Maharashtra, comprising of the best-in-class men and machines. The capacity at the plant is being enhanced keeping in view the increasing demand for quality woven cotton bed linen from across the globe.

Profile

Indo Count is an integrated textile player with a presence across the value chain from spinning and weaving to processing. The company is promoted by Mr Anil Kumar Jain. The company has three businesses – home textiles, yarn and electronics. The company is a net exporter with ~70% of its clientele in the international markets. The company exports to international clients such as Walmart, JC penny, Target, Bed Bath and Beyond, Macy’s, John Lewis and Debenhams.

Initially, the company manufactured only yarn. In 2004, it diversified into EMS of electronic equipment for MNC brands such as LG, Samsung, etc. In 2007, the company forayed into the high-margin home textiles business.

Profit & Loss Statement:- (Consolidated)
(Rs Crores)
Particulars
Mar 13
Mar 14
Mar 15
Mar 16E
Mar 17E
Income:-
  • Net Sales
  • Growth (%)
  • Total Expenditure
  • EBITDA
  • EBITDA Margin (%)
  • Other Income
  • Operating Profit
  • Interest
  • PBDT
  • Depreciation
  • Exceptional Item
  • Profit Before Taxation & Exceptional Items
  • Provision for Tax
  • Tax Rate (%)
  • Profit After Tax
  • PAT Margin (%)
  • Adjusted EPS
  • 1217.10
  • -
  • 1097.05
  • 120.05
  • 9.86
  • 30.32
  • 150.37
  • 49.80
  • 100.57
  • 18.48
  • -15.69
  • 66.40
  • 6.57
  • 9.89
  • 59.83
  • 4.92
  • 8.24
  • 1497.91
  • 23.07
  • 1308.81
  • 189.10
  • 12.62
  • 30.27
  • 219.38
  • 49.89
  • 169.48
  • 19.56
  • -
  • 149.93
  • 9.26
  • 6.18
  • 140.67
  • 9.39
  • 30.96
  • 1781.80
  • 21.41
  • 1468.14
  • 313.66
  • 17.60
  • -
  • 313.66
  • 65.02
  • 248.64
  • 15.97
  • -25.74
  • 206.93
  • 61.05
  • 29.50
  • 145.88
  • 8.19
  • 36.89
  • 2102
  • 17.97
  • 1722
  • 380.00
  • 18.08
  • -
  • 380.00
  • 38
  • 342.00
  • 22
  • -
  • 320.00
  • 112
  • 35.00
  • 208.00
  • 9.90
  • 52.60
  • 2480.00
  • 17.98
  • 2025.00
  • 455.00
  • 18.35
  • -
  • 455.00
  • 31.00
  • 424.00
  • 21.00
  • -
  • 403.00
  • 141.00
  • 34.99
  • 262.00
  • 10.56
  • 66.25
Source: Stockaxis Research, Company Data

Valuation

Company has recently moved out of CDR cell and have been improving since that. Company’s ROCE of more than 30% and Fixed asset turnover of more than 2.30x in textile industry justify how well company is performing compare to its peers. Company is well placed in the Indian bed linen exports market with more than 20% share in the organised sector and is expected to improve its share in next three years.

We assign valuation of P/E of 18.11x to FY 2017 Earnings indicating target price of Rs 1200 which is fair valuation of company in long term horizon.

 

Disclaimer

This report is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person.

This material is for the personal information of the authorized recipient, and we are not soliciting any action based upon it. This report is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It is for the general information of the users of stockaxis.com. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual users.

While reasonable care has been taken in the preparation of this report, it does not purport to be a complete description of the securities, markets or developments referred to herein, and we do not warrant its accuracy or completeness.

Neither stockaxis.com, nor any person connected with it, accepts any liability arising from the use of this document. The recipients of this material should rely on their own investigations and take their own professional advice. Price and value of the investments referred to in this material may go up or down. Past performance is not a guide for future performance. Certain transactions -including those involving futures, options and other derivatives as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. Reports based on technical analysis based on studying charts of a stock’s price movement and trading volume, as opposed to focusing on a company’s fundamentals and as such, may not match with a report on a company’s fundamentals. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our users that reflect opinions that are contrary to the opinions expressed herein.

Opinions expressed are our current opinions as of the date appearing on this material only. While we endeavour to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice.

We and our affiliates, officers, directors, and employees may: (a) from time to time, have long or short positions in, and buy or sell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn fees or other compensation or act as a market maker in the financial instruments of the company (ies) discussed herein or act as advisor or lender / borrower to such company (ies) or have other potential conflict of interest with respect to any recommendation and related information and opinions.

The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.