Buy Indo Count Industries | NSE: ICIL | Long Term Investment Advice | Textile Sector | 22 Nov 2024 | Upside Potential 30% – 35%

The US bed and bath linen market is projected to experience significant growth in the coming years. As of 2024, the market size is estimated at approximately $10.73 billion, with expectations to reach $13.14 billion by 2029, reflecting a compound annual growth rate (CAGR) of 4.14% during this period.

Several key players dominate the US bed and bath linen market:

1. Indo Count Industries Ltd.: As the largest manufacturer of home textile bed linens globally, Indo Count is a significant player in the US market, known for its extensive product range and commitment to sustainability.
2. Brooklinen: This brand offers modern and luxurious bedding products, appealing to consumers seeking comfort and style.
3. Peacock Alley: Known for its premium quality and craftsmanship, Peacock Alley focuses on high-end bed and bath linens.
4. Crane & Canopy: This company provides stylish yet affordable options for a wide range of consumers.
5. Tempur Sealy International, Inc.: A leading player in the bedding industry, known for its innovative mattress solutions that complement bed linen offerings.
6. American Textile Company: Offers a variety of bedding products with a focus on quality and comfort.

• With a staggering 97.5% of its revenue generated from the US and UK markets, Indo Count Industries Limited has established itself as a prominent global player in the home textile industry.
• The remaining 2.5% of its revenue comes from domestic Indian sales.

• Sales volume and revenue decline YoY due to supply chain issues, leading to higher inventory.
• Anticipated clearance of 2.5 million meters of deferred shipments in upcoming quarters.
• Revised EBITDA margin guidance: 15-16% due to upfront HR and brand promotion costs.

• Despite near-term challenges, Indo Count Industries Limited's management remains upbeat, fueled by a strong demand outlook and solid market positioning.
• Strategic investments in branded segments are expected to yield returns within the next four years, driving improved margin guidance.
• To further propel growth, the company is focused on enhancing operational efficiencies and scaling up operations in high-potential segments.

Indo Count Industries Limited has revised its FY25 capital expenditure (CAPEX) upwards to ₹413 crores, a significant increase from the initial estimate of ₹165 crores, driven by strategic acquisitions and investments.

• Recent acquisitions of Fluvitex Inc. and Modern Home Textiles, enhancing U.S. manufacturing footprint.
• Acquisitions strengthen presence in critical U.S. regions, expanding customer base without overlapping existing clientele.

• Over a prolonged consolidation phase, the stock price developed a Cup & Handle pattern.
• Following a breakout, the stock surged sharply, hitting an all-time high near the 448 level.
• Nevertheless, it faced significant resistance and retraced to the previously established breakout level.
• Currently, the price is at a crucial point that could act as an important support zone.
• There is strong anticipation that the stock may rebound from this level and begin to rise again.

Year-on-year

• Indo Count Industries Limited reported strong growth in Fiscal Year 2024, with revenue reaching ₹3,557 crore, an 18% increase from ₹3,012 crore in FY23.
• EBITDA surged to ₹562 crore, up from ₹455 crore, while the EBITDA margin improved to 16% from 15%.

P/E Ratio

The company's present price-to-earnings (PE) ratio stands at 20.3, lower than its 1-year median PE of 21.4.
When we look at the industry average PE of 26, it indicates that the stock might be considered somewhat undervalued at this time.

P/B Ratio

ICIL's P/B ratio of 2.86 indicates considerable overvaluation compared to the industry average of 1.46.

PEG Ratio

A PEG ratio of 0.49 suggests that the stock is undervalued relative to its expected earnings growth.

Intrinsic Value

Indo Count Industries is currently trading at ₹307, which is nearly 1.1 times its intrinsic value of ₹279, indicating that the stock is fairly valued at this moment.

The operating cash flow for Indo Count Industries Limited experienced a notable decline from ₹755 crore in FY23 to ₹146 crore in FY24. This decrease can be attributed to the strategic allocation of capital towards acquiring prominent brands, such as Wamsutta, as part of the company's expansion and growth initiatives.

ICIL's debt of ₹1,461 crore and debt-to-equity ratio of 0.66 indicate robust financial health. Furthermore, its impressive interest coverage ratio of 5.74 suggests the company is well-positioned to manage its debt obligations, ensuring greater financial flexibility and stability.

• The promoters have maintained their 58.74% stake for the last two years.
• Foreign Institutional Investors (FIIs) have maintained their stakes since June, now holding 10.69%.
• Domestic Institutional Investors (DIIs) have continuously increasing their stakes from June 2023 and now holding 3.67%, significantly up from 2.16% from the June quarter.
• At the same time, retail investors have been consistently selling their shares over the past few quarters.

Additionally, Mukul Mahabir Agarwal, a veteran investor, places a strategic bet on Indo Count Industries Limited, acquiring 1.17% of the company's shares, a move poised to reap rewards.

Indo Count Industries Limited witnessed increased institutional interest in October 2024, with thirteen funds holding 70 lakh shares, representing a 9.3% rise from September's 64.1 lakh.

Based on our analysis of key technical and financial metrics, Indo Count Industries Limited's strategic focus on diversification, acquisitions, and premium products positions the company for sustained growth and long-term value creation.

We anticipate that this positive trajectory will be reflected in its stock price performance.