Buy Indo Count Ltd For Target Rs.635 by Motilal Oswal Financial Services Ltd
Strong growth; momentum to sustain in 2HFY27
Indo Count (ICNT)’s revenue grew 57% YoY to INR16.7b in 2QFY27, led by 33% growth in the core business and 177% growth in the new business. Bed linen volumes rose 12% YoY, partly aided by the execution of orders delayed in 1Q. EBITDA grew 125% YoY, with margins expanding to 13.9%, driven by revenue growth and operating leverage despite higher RM costs. Management retained its FY27 revenue targets of INR40b for the core and INR15b for the new businesses. The Bhilad facility was hit by flooding, with INR450m inventory loss and a corresponding insurance claim recognized as exceptional items; insurers have approved an interim payment of INR150m.
Strong growth across core and new businesses
ICNT’s revenue jumped 57% YoY to INR16.7b in 2QFY27, with the new business surging 177% YoY to INR5b, while the core business grew 33% YoY. Bed linen had strong volumes growth at 12% YoY reaching 28m mtrs of sales, partly driven by the fulfillment of orders delayed in 1Q because of container unavailability. Bed linen realizations grew 19% YoY and 17% QoQ to INR426 per mtr, led by market share gains, increased wallet share and an improvement in the product mix in the core business which had deteriorated in 1Q. Utilization for the quarter was 73% for the core business. Utilization at all three utility bedding facilities in the US combined stood at 65%. ICNT has also expanded Wamsutta’s presence beyond D2C into the broader US retail market. 1H revenue growth stood at 42%, with the core business growing 17% YoY, while the new business surged 186% YoY. Bed linen volumes grew 5% YoY, while realizations grew 12% YoY. Management expects momentum to sustain in 2H, and remains confident of achieving INR40b revenue in the core business and INR15b revenue in the new business, with bed linen volumes of 105-110m mtrs.
Higher RM costs impacts gross margins, EBITDA Margin improved 420bp
In 1Q, gross margin contracted 260bp YoY and 500bp QoQ, hit by higher cotton and cotton yarn prices. Gross margins are expected to improve as cotton and cotton yarn prices ease. EBITDA grew 125% YoY to INR2.3b, with EBITDA margin at 13.9% (+420bp YoY), despite employee expenses and other expenses growing 55% and 25% YoY, respectively. The strong growth was primarily driven by robust topline growth and partly supported by operating leverage from the scale-up of the new business. We expect gross and EBITDA margins to reach 53.6% and 13.6%, respectively, by FY28, driven by new business ramp-up.
Valuation and view: Reiterate Buy
We expect ICNT’s growth to be driven by new business, followed by the core business with the latter expected to post a 15% CAGR over FY26-28, while the new business is well positioned to deliver ~67% growth. We expect a CAGR of 27%/52%/100% in revenue, EBITDA, and PAT, respectively, over FY26-28. We have raised our earnings estimates and reiterate our BUY rating with a revised TP of INR635, valuing the stock at 15x FY28E EV/EBITDA. Key risks: customer and geographic concentration and commodity price movements
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