Indo Count Industries Limited (ICIL) is a textile-focused small-cap company with a market capitalization of Rs. 2,374 crore. The company specializes in the production of pure gray cotton yarn and woven fabric. The Indo Count network of enterprises today exports to 54 countries and has operations in every part of the world including the United States, Europe, Asia and Australia. Shares of Indo Count Industries hit a 52-week low on NSE today 119.55 and closed at 119.60 level down 2.05% from previous close 122.10. The stock reached intraday high in today’s trading session 128.95 up more than 5%. The stock has been falling for the past three days and is down about 9% in that time. Brokerage company Edelweiss Broking Ltd has set a target price of Rs 210 for the stock with buy rating, which means a potential increase of 75% from the current levels.
Kapil Jagasia, CFA and Praveen Sahai, two Research Analysts, Edelweiss Broking Ltd., said, “We recently met Mr. Kailash Lalpuria, CEO, Indo Count Industries Ltd. (ICIL), to get an insight on the demand environment for FY13E can be obtained. The domestic textile market is currently witnessing a slowdown due to slight change in demand for apparel/fabrics (due to reopening of the economy) and supply chain issues, exacerbated by geopolitical tensions. However, the company considers these issues to be temporary and expects demand to improve by the end of the year, driven by growth in textile exports.”
Analysts said in a research note that “the US holiday season creates large revenues for home textile export players. However, during the previous holiday season, the Omicron variant was introduced in the country on December ’21 and January ‘ Demand in the industry remained low due to lockdown restrictions imposed between 22. In addition, supply chain issues induced by a shortage of containers delayed the arrival of home textile products in US markets. These two factors resulted in inventory on retailer shelves. Further, with the reopening of the economy, demand shifted towards apparel/fabrics, further impacting the demand for home textile exports. This is expected to result in de-stocking of channel inventory for a few months The demand in this sector is expected to revive around Sep’22, driven by enhanced buying ahead of the start of the US holiday season.”
According to analysts, “The textile exporting companies have been facing the twin effects of high cotton prices and high freight cost for the last three quarters. Domestic textile companies have raised prices substantially to ease the cost pressure. However, due to the fall in demand, it will be difficult for them to increase further. The government has taken some steps to curb rising cotton prices, including removing the 10% import duty on cotton and banning the export of cotton. In addition, ICIL has hedged its cotton inventory as of Sep’22, with an average inventory price of cotton at INR80,000 per candy (lower than the current prices of INR95,000-INR1,00,000 per candy). The company’s product mix has also improved in the last one year, resulting in higher realizations. Thus, we expect ICIL to post 16% EBITDA margin in FY23E (FY21: 15%, FY22: 18.3%).
“Near-term headwinds such as a potential decline in demand due to channel inventory correction, increased commodity inflation and a higher-than-normal interest rate scenario in the US, impacted discretionary spending. Nevertheless, our outlook for the textiles sector in the medium to long term is positive, as a clear shift in textile export demand towards India driven by China+1 adoption, various government initiatives to support the textiles sector and the high potential for signing Is. FTA agreements with UK and Europe. We continue to maintain our BUY rating on the stock with a revised target price of INR210 per share (previous TP: INR220 per share), valuing it at 11x FY23E earnings estimates,” claimed analysts.
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