Indo Count extends fall post Q3 results; slips 35% from 52-week high

Shares of Indo Count Industries hit an eight-month low, down 4 per cent at Rs 204 on the BSE in Wednesday’s intra-day trade, falling 14 per cent in the past three trading days after the company's PAT declined 23 per cent year-on-year at Rs 71.2 crore on the back of exceptional expenses worth Rs 21 crore.

The stock of the textiles company was trading at its lowest level since July 2021. In the past one month, it has underperformed the market by falling 22 per cent, as compared to a 2.4 per cent decline in the S&P BSE Sensex. The stock has corrected 35 per cent from its 52-week high level of Rs 315 touched on October 11, 2021.

In Q3FY22, the company’s total income declined 1 per cent YoY at Rs 787 crore. Earnings before interest tax and depreciation and amortization (ebitda) margin improved 60 bps at 18.6 per cent. Volumes declined 12 per cent 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.

“Since late November/December 2021, with the recurrence of third wave of pandemic across our key geographies like US, UK and Europe, the company has been witnessing lower demand. The intensity in the current month continues and that is reflected in the demand projections shared by customers”, Indo Count said.

However, the management remains positive about the demand scenario in the long run on the back of China + 1 strategy, the US prohibition on Xinjiang cotton, and government's steps to support the domestic textile export market. The company expects to achieve revenue guidance of approx. Rs 3,000 crore on an overall basis.

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 a total consideration of Rs 576 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 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

"While near term challenges may persist, we like Indo Count 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+ mn metre in FY23E," analysts at ICICI Securities said in a result update.

The recent bill passed by the US Senate to ban imports of cotton products from China’s Xinjiang region is expected to further fuel ‘China+1’ strategy (80 per cent+ of Chinese cotton is produced in that region) and the focus on increasing share of B2C and D2C segment through its branded portfolio (owned and licenced). This would aid margins, going forward, are key triggers for future price performance, the brokerage fsaid. It maintains ‘buy’ recommendation on the stock with a target price of Rs 300 per share.