Indo Count Industries (Indo Count) is one of India’s largest home textile manufacturers and exporters with a product range spanning across bedsheets, quilts and bed linen. It has a presence in the top nine of 10 big-box retailers in the US, having long term contracts with each of them.

In a conference call with analysts, the CEO of Indo Count, Kailash Lalpuria outlined the company’s expansion plans and its growing exports to the US, aided by the China+1 policy by retailers. 

Quick Takes

• Indo Count delivered its highest-ever annual revenues at Rs 2,557 crore in FY21

• It has seen consistent growth in exports to its largest market i.e. US in the last two years on account of the ‘China+1’ policy

• Expansion of capacity from 90 million metres to 108 million metres is expected to be completed by Q4FY22

• The expansion of capacity of its production line is expected to add Rs 600 crore to revenues from FY23

• Indo Count is also exploring new opportunities in Latin America, Russia, Australia and Japan supported by FTAs (free trade agreements) with these countries

Largest export market gets more attractive due to many factors 

Indo Count exports to 54 countries with the US being the largest market, contributing 75% of revenues. The company commands more than 20% market share in bedsheets in the US. One of the factors for its rapid, recent export growth is the policy adopted by US retail companies of ‘China+1’, of diversification beyond Chinese exporters. Another factor is the law passed by the US to ban imports of cotton products from China’s Xinjiang region due to the use of slave labour. Around 80% of Chinese cotton is produced in that region.

The effects are reflected in the FY21 results for Indo Count, which saw its highest-ever annual revenues and net profits. According to the CEO, another driver for sales in the US was the ‘work from home’ policy during the pandemic. This drove home textile demand as people began replacing bed linen more often as they were spending more time at home.

At the beginning of FY21, there was no government clarity on export policies. Exporters got rebates under an existing scheme which ended in FY20, and there was speculation for over a year on the continuation of this scheme or new schemes being introduced for exporters.

The Rebate of State and Central Taxes and Levies (RoSCTL) scheme is an export incentive scheme that was introduced from March 07, 2019 to March 31, 2020, for those who export apparels and made-ups from India. Under this scheme, the maximum rate of rebate for made-ups was up to 8.2%. Indo Count’s products fall under made ups and the rebate was available till the end of FY20. 

Garment and textile exporters were apprehensive of this scheme being replaced by the Remission of Duties and Taxes on Export Products (RoDTEP) scheme. There was no clarity on the rebates that would be offered under the scheme. However, in July 2021, the government approved the continuation of the RoSCTL scheme till the end of FY24. This worked to Indo Count’s advantage as rebates from FY21 onwards can be retrospectively claimed under the scheme. It has recognised the export incentives of Rs 89.6 crore during Q1FY22, for imports in the last two quarters.

According to the CEO, bed sheet sets are the largest product that Indo Count exports to the US. It is now planning to increase its presence in other segments like fashion bedding, utility bedding and institutional segments and expects to replace Chinese products in these segments.

The fashion bedding includes items like quilts, comforters etc. and the growing preference for cotton products against man-made fibres is a growth trigger for this segment. The utility segment includes items such as mattress protectors, which is seeing a shift towards cotton products.

Lalpuria added that the institutional segment was impacted by Covid-19 since FY21. This caters to bulk orders from hospitals and hotels. With most motels in the US closed for a larger part of FY21, there were minimal sales in this segment. Going forward, they expect institutional sales to gain market share in FY22.

India’s competitive advantage gives thrust to exports

According to Indo Count’s CEO, India has a competitive edge in cotton textile exports for a number of reasons. India is the largest producer of cotton in the world. Secondly, labour costs are competitive. Recent events and issues with different exporting countries have made India’s position stronger. The textile ministry is working on FTAs (free trade agreements) with multiple countries like the US, Canada, Australia and the EU.

Pakistan used to enjoy additional duty benefits for exports to the EU as compared to India. Textile exports to the EU from Pakistan are now under review for labour-related issues. The Indian ministry of commerce is under negotiations with the EU for a reduction of duties under the FTA.

Though Bangladesh is a major exporter of readymade garments, Indian cotton is still cheaper than Bangladesh. India has an advantage on raw material costs and is thus competitive even though the labour costs in Bangladesh are lower. 

Vietnam’s export of textiles is a case of labour arbitrage. It does not produce raw material but sources it from China. Labour costs are cheap and textile parks are located closer to ports. FTA’s with developed countries had been an advantage till now. With the ban by the US on the supply of cotton from China’s Xinjiang region, Vietnam no longer enjoys the advantage it previously had.

Responding to a question in the conference call on the Indian government announcing a PLI (production linked incentive) scheme for the textile sector, Lalpuria said that this scheme currently includes incentives for technical fibres and man-made fibres but does not include cotton textiles. This does not have any impact on the company.

He further added that the management of Indo Count has requested the inclusion of cotton textiles in this PLI scheme or in the proposed integrated textile park policy.

Capitalising opportunities and overcoming challenges in FY22

Replying to a question on expansion plans, Lalpuria said that Indo Count has planned a production capacity expansion from 90 million metres to 108 million metres. The expansion is for bed linen and would increase production capacity by 20%. 

This is expected to be completed by Q4FY22 and add Rs 600 crore to revenues in FY23. It has also planned capex (capital expenditure) to the tune of Rs 50 crore for adopting modernisation and upgrading to compact spinning technology.

Another challenge is the rising cotton prices over the past year. Lalpuria said, that the company is adept in dealing with price fluctuations of cotton and has the requisite experience to deal with such variations.

Lalpuria also acknowledged that the company faced a number of challenges in Q1FY22 on the supply chain side. Due to lockdowns, the intra-state movement was restricted and this led to a delay in supplies across the country. 

Internationally as well, the movement of shipments was impacted due to the pandemic. Shipments to the US which used to take 16-18 days of transit time previously, now take 25-30 days. The saving grace is that 70% of the export orders are FOB (freight on board) mode, where any delay in shipping is at the account of the receiving party.

Apart from exports, the company is also making inroads in the Indian market with its ‘Boutique Living’ brand offering products like bedsheets, comforters etc. The product range is available across e-commerce channels.

Considering factors like the China+1 policy, rising exports to the US, growing demand for cotton products as against man-made fibres, Indo Count looks set to capitalise on exports to the US and other countries. In addition, expansion of capacity, favourable government policies, and increasing presence in the Indian market might pique investors' interest in this company.