Arihant Capital's research report on Indo Count Industries
Recently, we attended the plant visit of Indo Count Industries Limited (ICIL) which is the leading home textile manufacturer and exporter in India. The company has 2 manufacturing and 1 stitching unit in Kolhapur. With the recent acquisition of the home textile division of GHCL, ICIL acquired 1 more manufacturing unit in Vapi. The total production capacity is 153 Mn meters. Indo Count specializes in Fashion/Utility/ Institutional bedding, and its main market is the US and UK. Industry Highlights and Rationale: Cotton prices are at an all-time high. The industry has been facing pressure at input prices which would impact margins in the near term. However, the company is optimistic about a recovery in the future. The current retail sentiment in the US toward home textiles is positive as the pandemic has encouraged spending time at home. The spending on home textiles has gone up. This has been aided by the china +1 strategy and the recent ban on Xinjiang cotton to the US. India stands to gain market share from China in the years to come. The home textile market in the US is expected to grow at a CAGR of 6.5% from 2021 to 2026. Bed Linen is 50% of the total Linen Market. ICIL has a market share of 4% in the EU bed linen market and 10-11% in the UK. The share of Bangladesh in the UK for the same is around 20%. In the US, India has a 60% market share in utility (simple) bedding. FTAs would be key for higher market share in the EU & UK markets. China mostly dominates the global fashion bedding market as it is more synthetically derived rather than cotton-based. It also requires a great deal of skill as it is more complex to make. Fashion bedding is a USD 5.5 Bn market. China had an 85% market share a decade ago, which is now 75%. India currently has a 10% market share in the space. Fashion bedding will grow at a rate of 9-11% annually. India is more dominant in the utility bedding industry. The production of 60, 80, and 100 thread count fabrics are prepared here. India also has a structural advantage in terms of domestic demand. Utility bedding also takes 2-3x less time to produce than fashion bedding.
At CMP of INR 151, ICIL is trading at a PE of 11x/10.3x to its FY23E/24E EPS of INR 13.7/14.6. Margin pressures will continue to persist in the near term with no chance of softening at least for the next 6 months, container shortages continue to prevail, and the capacity utilization of the new GHCL acquisition is also low. Any recovery expected will be later on in FY23. We assign a TP of INR 175 valued at a P/E of 12x based on the FY24E EPS, and downgrade our rating from “Buy” to “Accumulate”.
At 12:31 hrs Indo Count Industries was quoting at Rs 161.40, up Rs 10.55, or 6.99 percent.
It has touched an intraday high of Rs 163.65 and an intraday low of Rs 150.85.
It was trading with volumes of 93,694 shares, compared to its thirty day average of 66,911 shares, an increase of 40.03 percent.
In the previous trading session, the share closed down 2.39 percent or Rs 3.70 at Rs 150.85.
The share touched its 52-week high Rs 314.80 and 52-week low Rs 117.85 on 11 October, 2021 and 19 April, 2021, respectively.
Currently, it is trading 48.73 percent below its 52-week high and 36.95 percent above its 52-week low.
Market capitalisation stands at Rs 3,186.03 crore.
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