Stock Idea

Presentation on

Indo Count Industries Ltd.(ICIL)By: Kalpesh Gothi

About ICILIncorporated in November 1988, Indo Count Industries Ltd. (ICIL) is one of Indias leading vertically integrated textile companies.

Business Segment includes Home Textile, Spinning and Consumer Durables

Emerged as one of the leading player in the Home Textile Segment 3rd largest manufacturer exporter of bed sheets from India 4th largest supplier of Bed Sheets into USA 14th Largest Home textile supplier to USA from across the globe

Global distribution network spanning 49 countries across 5 continents

Clientele includes Top Global Retailers and Renowned International Brands

Business ModelIt has integrated the entire value chain of textiles from spinning to weaving to processing, cutting and sewing.

Revenue Break-Up (FY14 & FY15E)Revenue Mix (Rs. in Cr., % Contribution to total revenue)

Business DivisionSpinning

Home Textiles

Consumer Durable (Discontinued from Q2FY15)

Spinning Division Total Capacity 80,016* spindles

Cotton Yarn Production is 14,000 tn

Internal Usage is 15-25%

* Of which listed subsidiary Pranavaditya Spinning has 20,496 spindles

Spinning DivisionSpinning is one of the older businesses of the Company that commenced production of yarn over two decades back.

The Company has 3 manufacturing units in Kolhapur.

The Company had acquired Pranavaditya Spinning Mills Limited (PSML) in 2007.

The Company has a total of 80,016 spindles (including 20496 spindles at PSML) producing around 14,000 tonnes of cotton yarn annually. The company had also installed 8 knitting machines to produce grey knitted fabric

~15-25% of this yarn is for in-house usage and the rest is sold to outside players.

100% Combed Yarns and Knitted Grey Fabrics

Home Textile DivisionCurrent Capacity 45 mln meters

Expanded Capacity 68* mln meters

Output leads to 17 mln meters of bed sheets

100% exports

* Expanded capacity to be operational in Q4FY15

Home Textile DivisionManufacturer of Bed Sheet, Pillow Cases, Duvet Covers, Bed Skirts, Comforters, Quilts, Fashion Bedding, Utility Bedding and Institutional Linen

Current Capacity of 45 mn meters per annum leading to 12 mn Bed Sheets per annum

Expanding capacity to 68 mn meters per annum 17 mn Bed Sheets per annum will be operational by end of Q4FY15

Global Presence -United States, Canada, Brazil, France, Germany, Austria, Spain, UAE

Expanding Presence in United Kingdom, Japan, Australia and Russia

Consumer Durable Division - DiscontinuedAssembly for large MNC`s LG, Samsung etc.

Started to earn VAT refund

Discontinued from Q2FY15

Consumer Durable DivisionThe Consumer Durable division was an assembling operation that the company did for the larger MNCs including LG, Samsung, etc.

Although it earned a lower margin, but this was intended towards taking the benefit out of the Maharashtra governments Industrial Promotion Scheme (IPS) wherein it was liable to earn a VAT refund against the operations it did from this plant.

The duration for the scheme was 7 years and this period got over in Q2FY15.

Hence the company is closing down this business and henceforth there will be no more income accruing from this division anymore.

Home Textile Segment - Key growth driver:Manufacturer of Bed Sheet, Pillow Cases, Duvet Covers, Bed Skirts, Comforters, Quilts, Fashion Bedding, Utility Bedding and Institutional Linen

Currently, 70% of the Home textile exporting to USA

Emerged as one of the leading player in the Home Textile Segment 3rd largest manufacturer exporter of bed sheets from India 4th largest supplier of Bed Sheets into USA 14th Largest Home textile supplier to USA from across the globe

Global Presence -United States, Canada, Brazil, France, Germany, Austria, Spain, UAE

Expanding Presence in United Kingdom, Japan, Australia and Russia

India - AdvantageChinas ChallengesImporter of cotton

Losing export Competitiveness

Wage inflation

Rising power costs

Stricter environmental compliance Shift to higher value-added products Focus on domestic consumption

Yuan appreciation

Indias AdvantageSecond largest producer of cotton

Competitive Cost structure

Rising government focus and favourable policies

FTA with ASEAN countries

Proposed FTA with EU

Rupee depreciation

Textile sector imports by USAMade-ups- an article manufactured and/or stitched from any type of cloth, other than a garment

Growth in Made Ups Imports to USA

Home Textile Business in USACurrent addressable market which contributes 95% of its HT BusinessNew product segment will contribute 50% of incremental sales

Shifting Product PortfolioInstitutional Bedding Hotels - Hospitals - OthersFashion BeddingWide range of productsUtility or Basic Bedding Bed & Pillows filled with poly fill fibreExisting Bed Linen

Cotton Bed Sheets exports to USAIndias share increased by 20 percentage points in 5 years

Expanding Capacity

New Product Leading to growth in MarginHome textile revenue mixHome Textiles EBIDTA & Margin trend

Company to come out of CDR in Q4FY15: After the company went into CDR in Aug 2008 on the back of demand slowdown and derivative loss to the tune of ~Rs.80 cr, it has been making sustained and continuous efforts to get out of the CDR.

In this process the promoters infused funds and followed proper corporate practices to come out of the CDR in the quickest possible time.

At the same time the company has been focusing on its core competencies and growing the business in leaps and bounds through new product development, new client acquisition and geographical expansion.

Once out of the CDR, ICIL will be able to witness better growth prospects along with ease of working environment.

Peer Comparison:

FinancialsFig: Revenue Trend EBIDTA and MarginPAT and Margin

FinancialscontFig: ROANW Trend ROACE TrendTurnover Ratios

FinancialscontFig: D/E Trend Cash flow from Operation

ValuationIncreased share of home textiles to overall revenue and forayed into value added product will lead to margin expansion.

Higher EBITDA margins on account of change in revenue mix and a decline in interest expenses on gradual debt reduction will significantly expand ROACE going further.

At the expected EPS of Rs.44.4 for FY16E and Rs.57.2 for FY17E, the stock to trades at attractive valuations with a P/E(X) of 8.97 and 6.95 for FY16E and FY17E, respectively.

We assign a PE multiple of 10x on FY17E and arrive at a value of Rs.572 per share. We maintained BUY rating on Indo Count Ind. Ltd. with a target price of Rs.572, an upside of 44%.

Risks and ConcernsSignificant exposure to United States

Volatility in raw material prices

Currency fluctuation risk

Slowdown in developed world markets

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