Indo Count rallies 7%, hits record high on strong earnings growth prospects

Sunidhi Securities & Finance has initiated coverage on ICIL with a 'BUY' rating and a one-year price target of Rs 524

Shares of Indo Count Industries (ICIL) hit a record high of Rs 327.15 as they rallied 7 per cent on the BSE in Friday's intraday trade, amid heavy volumes, on hopes of strong earnings growth. The stock of the world's largest bed-linen player surpassed its previous high of Rs 319.50 touched on December 5, 2023.

At 12:19 PM, ICIL was quoting 6.6 per cent higher at Rs 325.50 as compared to a marginal 0.07 per cent gain in the S&P BSE Sensex. Average trading volume on the counter more-than-doubled today with a combined 3.3 million equity shares having changed hands on the counter on the NSE and BSE till the time of writing of this report.

The home textile industry in India is at a pivotal moment embracing opportunities both globally and domestically. There is a large opportunity in the global home textile industry for India and ICIL's management believes the domestic industry is ready from capacity and capability perspective to capitalise on this.

In the first nine months (April to December) of the financial year 2023-24 (9MFY24), ICIL reported volume of 68.2 million meters, a growth of 26 per cent. The has management reaffirmed volume guidance of 90 to 100 million meters for FY24 and believes the company will be able to achieve the midpoint of the guidance.

"With India's promising economic growth and the rising disposable income and aspirations of the middle class, there is expected to be increased demand for branded home textile product creating significant opportunities for local brands to prosper," the management had said in Q3FY24 earnings conference call.

The FY24 exit capex has the revenue potential of around Rs 6,000 crore at peak utilisation level which would see FY23 revenue doubling without any capex in medium term. Steady earnings plough back for propelling growth plans ahead of time with minimum reliance on external capital, is the hallmark of ICIL which, analysts at Sunidhi Securities & Finance believe, would re-rate the stock as it would maintain a pole position in the home textiles world for a distant horizon.

The GHCL home textile asset buyout helped cement customer relations, widen the customer base and infrastructure that would spur market reach (+Australia), and grow momentum with the signing of free trade agreements (FTAs) with Australia, the EU, and the UK.

The brokerage firm has initiated coverage on ICIL with a 'BUY' rating, for a 1-year price target of Rs 524 which would factor FY25E EPS of Rs 23.8 by 22 times and 18.5x FY26E EPS of Rs 28.4.

"Western economic statistics suggest that the inflation-led demand softening trend is about to revive discretionary consumption, which would bode well for ICIL. Cotton product imports are set to rise in 2024, as US retailers' inventory replenishment after heightened Covid-19 levels went through a protracted course correction, as per USDA," the brokerage firm said in a report.

The strong cash flows and determination to pare debts are driving a path of debt-free status in the medium term. Revenue/Ebitda/APAT is expected to grow 16 per cent/19 per cent/17 per cent CAGR over FY23-26E as more value-added products, higher operating leverage along the benefit of deleveraging of the balance sheet continue to strengthen earnings. Robust return ratios, FCF generation, and being a futuristic company willing to embrace evolving opportunities would see valuation re-rating aligning to readymade garment (RMG) players, analysts said.