Indo Count Industries Ltd. share price target

EBITDA declined 17% YoY to INR1,139m, with the margin contracting 270bp YoY to 12.1%. In 2HFY19, we expect revenue growth of 11% YoY, with margin contraction of 100bp. volume growth of 9% YoY in 2QFY19 and 15% YoY in 1HFY19. However, revenue growth and profitability were impacted in 1HFY19 on account of currency volatility (hedged at exchange rate lower than realized translation), product mix changes and raw material (RM) cost pressure. Going forward too, RM cost pressure (cotton prices at INR46k/candy v/s expectation of MSP level prices of 43-44k/candy) and currency volatility are likely to persist. Due to the strong miss on earnings (45%) in 2QFY19 and the likely gross margins pressure in 2HFY19, we cut our revenue/earnings estimates by 3%/24% for FY19 and by 5%/24% for FY20. We also note that strong volumes have not translated into robust revenue growth and operating performance.

6 August 2018 ICNTs revenue increased 5.8% YoY to INR4,569m (est. EBITDA margin shrank 110bp YoY to 14% (est. of 14.7%), as employee expense increased 60bp YoY to 7.1% of net sales and other expenses rose 50bp YoY to 24.1% of net sales. Gross margin was flat YoY at 49.9%. EBITDA declined marginally by 2% YoY to INR641m (in-line). Adj. PAT declined 10% YoY to INR288m (est. of INR309m) in 1QFY19, primarily on account of a higher-than-anticipated tax rate of 38.9%, as against 35.

ICNT's revenue declined 17.4% YoY to INR4,237m (est. of INR4,975m) in 4QFY18. EBITDA margin shrunk 350bp YoY to 14.1% (est. of 13.6%). EBITDA declined 34% YoY to INR596m (est. of INR677m). Accordingly, adj. PAT fell 45% YoY to INR268m (est. of INR356m). For FY18, revenue declined 13% to INR19,582m, the margin contracted 560bp to 13.4% and adj . PAT fell 46% to INR1,253m

Dismal performance in 9MFY18; volume off take a key monitorable Indo Count Industries (ICNT) reported a weak set of numbers for 9MFY18, driven by a) decline in the volume of bed sheets exported to the US, b) INR appreciation and c) higher costs. Margins for 9MFY18 compressed 604bps YoY to multi-year lows. 9M PAT declined 42% YoY to INR 1bn, below our estimates of INR 1.1bn. The company has completed phase-I capex to augment capacity from 68mn mtrs to 90mn mtrs. Management maintained FY18 volume guidance at 56mn mtrs. Cotton price movement and the off take in volume going forward remains the key monitorable. The Board has...

Home textile industry of late has been plagued by destocking, resulting in off-take deferments from large retailers, especially in the US. ICNT, however, has started witnessing better projections from same retailers and customers who had destocked. Also, as the intensity of destocking is reducing, ICNT is witnessing a marginal pick-up in demand as well. Also, with US business growth expected to increase from 1.9% to 2.5% in 2019, ICNT is set to benefit from better demand.

We recently hosted Indo Count Industries' (ICNT) management at our Midcap Conference,' wherein we gained detailed insights into how the overall textiles business environment is shaping up post a muted 1HFY18. We note that the first half of the current fiscal for textiles was plagued by multiple headwinds from sharply higher raw material prices, to a reduction in duty drawback and ROSL rates. However, encouragingly,...

Accordingly, adj. PAT fell 42.8% YoY to INR359m (est. of INR517m). Easing cotton prices a silver lining amid policy headwinds: 2QFY18 witnessed increased pressure on margins on account of a rise in raw material cost by 260bp. Also, the GoI revised the duty drawback rate from 7.5% to 2%, and the ROSL rate from 3.9% to 1.55%, which is expected to result in margin erosion of ~250bp. However, cotton prices have started to correct (-10% to INR38,000 per candy) compared to last procurement by the company, the benefit of which is expected to be visible from 4QFY17....

EBITDA margin fell sharply to 16.4% (our estimate 18.4%). The company has been guiding to maintain its EBITDA margin of atleast 20%; hence, EBITDA margin of 16.4% is a sharp miss in our view. We cut our FY18/19 sales/EBITDA/PAT estimates to factor in weak Q1FY18 and lower guidance; Maintain Buy with lower target price of Rs153. Key Highlights and Investment Rationale Top-line growth disappoints again: Indo Count's net sales were impacted by lower off-take from some of its customers. Although there was no loss of customers, Indo...

Over the FY13-17 period ICIL's revenue, EBITDA and PAT have grown at a CAGR of 16.1%, 44.6% and 67.8% respectively. The company's focus going forward for the current year will be towards efficient utilization of all resources, increased global market share in bedding, promote domestic brand pan India. The company has completed phase 1 capex of increasing its capacity expansion from 68 mn meters to 90 mn meters. Under phase 2 capex, the company is awaiting land approvals from regulatory authorities for its in-house weaving capacity. Going forward the management has guided for EBITDA margins of 20%. For FY18, the company's target...