Indo Count hits 16-month high; surges 36% in four days on strong Q4 results

Shares of Indo Count Industries (ICIL) continued their upward movement and rallied 11 per cent to hit a 16-month high of Rs 214.40 on the BSE in Monday’s intra-day trade. In the past four sessions, the stock has surged 36 per cent after the company reported robust March quarter (Q4FY23) earnings. It was quoting at its highest level since February 2022.

ICIL is one of India’s largest home textile manufacturer and exporters with an extensive product range, which spans across bed sheets, quilts and bed linen. It has a presence in top nine out of 10 top big box retailers in the US.

In Q4FY23, ICIL’s profit after tax (PAT) grew 11 per cent year-on-year (YoY) and 2.5 times sequentially to Rs 94.70 crore. Revenue jumped 23 per cent YoY to Rs 807.1 crore. Earnings before interest, taxes, depreciation, and amortization (EBITDA) margin increased 324 bps YoY to 17.9 per cent.

The company’s sales volume (including GHCL unit) grew 16 per cent YoY to 20.4 million meter against 17.6 million meter in Q4FY22. Average realisations grew 6 per cent YoY to Rs 387/metre.

The demand trajectory for home textiles, which had materially slowed down in key geographies such as the US, UK and Europe were gradually picking up pace (although Inventory at retailers level continue to remain higher levels).

ICIL reported a healthy improvement in operational performance in Q4FY23. Gross margins expanded significantly by 381 bps YoY to 56 per cent, which came in as a positive surprise.

With greenshoots visible, the company has guided for volume of 85-90 mn metre in FY24E (up 17 per cent YoY). The company remains positive about the demand scenario in the long run on the back of China + 1 strategy and government steps to support the Indian home textile export market (FTA signed with Australia, expectation of signing of further FTAs with UK, Canada and EU), ICICI Securities said in a result note.

The stock price witnessed a healthy recovery in anticipation of gradual restocking by global retailers (home textile was the worst impacted) and India’s market share gain in US bedsheet (from 50 per cent in CY22 to 57 per cent in Q1CY23).

Furthermore, the company has been able to prune its debt (from Rs 1,300 crore in FY22 to Rs 840.9 crore) through reduction in working capital days. With majority of the capex behind us (capex in FY23: Rs 385 crore, FY24-25E: Rs 130 crore), the brokerage firm expect b/s deleveraging to accelerate even further. Order book momentum is expected to improve in the ensuing quarters, analysts said.

Analysts at Nuvama Wealth and Investment are positive on the textile export theme in the medium-to-long term on the US ban on cotton imports from China’s Xinjiang region, which fortifies the China+1 strategy; signing of FTAs with Australia and the UAE and a higher likelihood of an FTA signing with the EU and the UK; and various government initiatives to aid textile exports.

The home textile export market, especially the bed linen segment, faced headwinds such as higher cotton prices, lower demand on higher inflation rates, inventory build-up at the retailers end in the US, and supply-chain disruptions. The tailwinds have started to ease and retail demand has sustained in the US despite higher inflation. We expect the demand environment to improve from here on. India has started to gain market share in US bedsheet imports (around 58 per cent in January-March from 49 per cent in 2022) from the RoW (especially China).