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Strong demand trends to spur revenue growth…

About the stock: Indo Count (ICIL) is one of India’s largest home textile manufacturer, exporters with extensive product range spanning across bed sheets, quilts, bed linen. It has a presence in top nine out of 10 top big box retailers in US.

* ICIL is an integrated bedding solution provider, boasting a capacity of 90 million metre per annum of dyeing/processing and cutting /sewing

* It exports to nearly 54 countries with US being the prime market (~75% of revenues and commanding ~20%+ market share in bed sheets)

Q1FY22 Results: ICIL reported a resilient performance amid a challenging scenario.

* In a seasonally weak quarter, ICIL reported volumes of 18.1 mn pieces (down 16% QoQ), higher than its average run-rate (14-15 mn pieces)

* Recognised RoSCTL incentive worth | 90 crore during quarter, of which | 50 crore pertains to Q4FY21

* Revenue grew 3% QoQ to | 714 crore (adjusted growth: (-)8%). Higher other income (~3x QoQ) resulted in PAT growth of 2x QoQ to | 117 crore.

What should investors do?

Since our initiation report, the stock price has appreciated by 62% (from | 170 in June 2021 to | 270 in August 2021).

* We maintain BUY recommendation on the stock

Target Price and Valuation: We value ICIL at | 350 i.e. 18x FY23E EPS.

Key triggers for future price performance:

* Extension of RoSCTL rates (8.2%) till FY24 would be structurally positive in enhancing the global competitiveness of home textile players like ICIL

* Recent bill passed by the US senate to ban imports of cotton products from China’s Xinjiang region is expected to further fuel ‘China+1’ strategy (80%+ of Chinese cotton is produced in that region)

* Demand for home textile products in US markets to sustain owing to strong demand in value added categories such as health and hygiene

* Maintained healthy volume guidance of 85-90 million (mn) metre in FY22E owing to a strong order book

* Brownfield capex worth | 200 crore (enhancing capacity by 20% to 108 mn metre) to fuel revenue growth (potential revenue: | 600 crore)

* Asset light nature of the business (2.5x asset turn) and strong EBITDA margins would translate into RoCE of 23% in FY23E.

Alternate Stock Idea: Apart from ICIL, in our textile coverage we also like KPR Mills.

* KPR Mills is among select vertically integrated textile players in India that has displayed consistent operating margins with strong return ratios

* BUY with a target price of | 2310

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