Indo Count hits 52-week high on ICICI Securities’ ‘buy’ call

The brokerage house says the worst is behind the textile company which is set for a steady recovery in FY24. Hopes of better prospects have supported a 53 percent surge in the stock in the past three months and 82 percent this year

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Indo Count shares hit a 52-week high of Rs 248.65 in the morning session on August 21 following ICICI Securities “buying” call, with brokerage house saying the worst is behind the textile company which is set for a steady recovery in FY24.

ICICI Securities set a target price of Rs 295, valuing the stock at 13 times its FY25 earnings per share and implying an upside potential of 19 percent from the day’s high.

At 11.08 am, Indo Count was trading percent 4.7 higher at Rs 246.10 on the BSE.

The domestic brokerage firm said the steps taken by the government such free trade agreements with several nations and a stable export incentive policy would create strong chances for Indian exporters to thrive.

“ICIL (Indo Count) through its sizeable capacity is well poised to capture the export opportunity in global home textile trade,” ICICI Securities analysts wrote in a note on August 21.

Hope of better prospects has supported a 53 percent surge in the stock in the past three months and 82 percent jump this year.

Indo Count has an extensive product range, which includes bed sheets quilts and other bed linen. It has a presence in top nine of the 10 top big box retailers in the US. It exports to nearly 54 countries. The US is its prime market, accounting for about 75 percent of revenue, and commanding more than 20 percent market share in bed sheets.

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Negatives baked in

In FY23, India’s textile export market faced challenges due to higher domestic cotton prices and excess inventory with US retailers. Despite these difficulties, Indo Count showed resilience, with only a percent drop in volume compared to the industry’s 32 percent decline.

It maintained strong operating margins of over 15 percent by effectively managing cotton price hedging and focusing on higher-value products (around 19 percent). The industry is now recovering, as global retailer inventories stabilise.

India has also regained its market share in the US for cotton sheets, rising from around 50 percent in CY22 to 58 percent up until now, the brokerage firm said.

Strong balance sheet & debt reduction

The country’s largest home textile manufacturer and exporter reduced its debt by around Rs 460 crore in FY23. In fact, with minimal maintenance capital expenditure over the next two years, of around Rs 50-60 crore annually, and steady cash flow generation of Rs 560 crore in FY24-25, ICICI Securities expects the debt level to fall further by Rs 420 crore in FY25.

Its net debt in FY23 stood at Rs 589 crore, the company said in its latest investor presentation.

Indo Count achieved a robust operating cashflow of Rs 750 crore in FY23, benefiting from a decrease in working capital days from 175 in FY22 to 130 in FY23 due to global supply-chain improvements.

Despite increased capital expenditures of Rs 385 crore in FY23, the company still produced a free cash flow of Rs 365 crore.

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