Indo Count soars 10% on completing acquisition of home textile biz of GHCL

The acquisition would potential see addition of around Rs 1,300 - 1,500 crore per annum to the topline of the Company at peak capacity.

Shares of Indo Count Industries soared 10 per cent to Rs 186 on the BSE in Monday’s intra-day trade, gaining as much as 17 per cent in the past two trading sessions after the company completed the acquisition of the home textile business of GHCL. Indo Count has now become the largest global home textile bedding manufacturer.

In December 2021, Indo Count Industries and its subsidiary acquired the home textile business of GHCL in India and identified assets (inventory and intellectual property) of its US subsidiary Grace Home Fashions LLC (GHF) for an all-cash consideration of Rs 593 crore.

With the latest acquisition of GHCL’s home textile business (~45 million metre), Indo Count would become the largest home textile bedding company, globally, with annual capacity ~153 million metre. The acquisition would see potential addition of around Rs 1,300 – 1,500 crore per annum to the topline of the company at peak capacity.

The company would be able to add a whole new avenue of customer base, which is untapped, thereby leading to gain in global market share. Indo Count plans to cross sell its value added categories (fashion, institutional and utility categories) to the existing clientele of GHCL.

Despite the sharp gains in the past two days, the stock of Indo Count has underperformed the market by falling 35 per cent in the past three months, as compared to 1 per cent rise on the S&P BSE Sensex. The stock had hit a record high of Rs 315 on October 11, 2021.

At 02:39 pm; the stock traded 9 per cent higher at Rs 184, as against a 2.2 per cent gain on the benchmark index. The trading volume at the counter more-than-doubled with a combined 1.5 million equity shares changing hands on the NSE and BSE.

In the October-December quarter (Q3FY22), the company’s volume declined 12 per cent year-on-year (YoY) to 21.1 million metre on account of unprecedented supply chain challenges and lower demand in key geographies on account of third wave of pandemic.

Judicious price hikes and better product mix translated into average realisations increasing by 9 per cent YoY to Rs 344/metre. Revenue de-grew 3 per cent YoY to Rs 756.4 crore. Conscious effort to sell value added products has allowed the company to combat inflationary pressure and maintain 50 per cent plus gross margins (up 380 bps YoY). EBITDA margins declined 176 bps YoY to 15.3 per cent.

While near term challenges may persist, we like Indo Count Industries as a structural long term story to play the home textile export space. We expect capacity utilisation from the existing plant to improve from 70 per cent in FY22 to 85 per cent in FY23E and factor in 50 per cent capacity utilisation from the new acquisition taking the overall volumes to 110 plus million metres in FY23E, ICICI Securities said in result update.