Buy Indo Count Ltd For Target Rs.360 - ICICI Direct
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Acquisition to aid aspiration of market share gain….
About the stock: Indo Count is one of India’s largest home textile manufacturer and exporter with an extensive product range which spans across bed sheets, quilts and bed linen. It has a presence in top 9 out of 10 top big box retailers in USA
* Indo Count is an integrated bedding solution provider, boasting capacity of 90 million meters p.a. of dyeing/processing and cutting /sewing.
* Company exports to nearly 54 countries with USA being the prime market (~75% of revenues and commanding ~20%+ market share in bed sheets)
Company event: Indo Count (ICIL) acquires home textile business of GHCL
* Approved acquisition of GHCL’s home textile business (which includes manufacturing facilities and land in Vapi, Gujarat) by way of slump sale
* With addition of almost 50% (45 million meters) new capacity, Indo Count would become the largest Home Textile Bedding company, globally, with annual capacity ~153 million metres.
* Acquisition could incrementally add potential revenue of |1300-1500 crores over next two three years
* On an annualised basis, the valuation stands at ~ 6.0x FY22 PBT, which we believe is fairly reasonable (purchase consideration: | 576 crore)
What should investors do? Since our initiation report, the stock price has appreciated by 53% (from | 170 in June 2021 to | 260 in December 2021).
* We maintain BUY recommendation on the stock with revised TP
Target Price and Valuation: We value ICIL at | 360 i.e. 17x FY23E EPS
Key triggers for future price performance:
* With the acquisition ICIL would be able to add a whole new avenue of customer base which is untapped, thereby leading to gain in global market share. Currently GHCL services certain large big box retailers which are not over lapping with ICIL’s clientele.
* It would de-risk the manufacturing facilities with twin state geographical diversity. The acquired land in Vapi has sufficient space to double the capacity.
* ICIL plans to cross sell its value added categories (fashion, institutional and utility categories) to the existing clientele of GHCL.
* Demand for home textile products in US markets to sustain owing to strong demand towards value added categories such as health and hygiene
Alternate Stock Idea: Apart from ICIL, in our textile coverage we also like KPR Mill
* KPR Mills is among select vertically integrated textile players in India that has displayed consistent operating margins with strong return ratios
* BUY with target price of ₹ 575
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