Indo Count Industries Limited — Q2 FY25 earnings call

Call held 8 Nov 2024

Management summary

Indo Count Industries reported a 12% YoY increase in H1 FY25 total income, reaching ₹1,995 crores, despite a decline in PAT due to upfront investments and supply chain issues. The company is embarking on a 'Version 2.0' growth phase, marked by strategic acquisitions in the US utility bedding market and a focus on premium and branded segments. These investments, while impacting current margins, are expected to drive significant revenue growth and market share expansion in the coming years.

Highlights

  • Total Income for H1 FY25 rose by 12% to ₹1,995 crores, up from ₹1,780 crores in H1 FY24.

  • Q2 FY25 Total Income stood at ₹1,045 crores.

  • EBITDA for Q2 FY25 was ₹166 crores with a margin of 15.92%; H1 FY25 EBITDA was ₹320 crores with a margin of 16.03%.

  • EBITDA margin was impacted by 150 bps due to upfront costs for human resources, brand promotion, and new utility bedding business infrastructure.

  • PAT for Q2 FY25 was ₹82 crores (down from ₹114 crores in Q2 FY24) and H1 FY25 was ₹159 crores (down from ₹188 crores in H1 FY24).

  • Sales volume for Q2 FY25 was 27.8 million meters, and H1 FY25 was 53.1 million meters.

  • Net debt as of September 30, 2024, stood at ₹1,045 crores with a net debt-to-equity ratio of 0.48x.

  • Revised CAPEX for FY25 to ₹413 crores (from original ₹165 crores) to fund strategic acquisitions and investments.

Concerns

  • Supply Chain Disruptions (Red Sea issue, container availability, increased transit time)

Key financials

3 periods

Headline

  • Net Debt (Sep 30, 2024)
    ₹1,045 Cr
  • Net Debt-to-Equity (Sep 30, 2024)
    0.48×

Q2 FY25

  • Total Income
    ₹1,045 Cr
  • EBITDA
    ₹166 Cr
  • EBITDA Margin
    15.9%
  • PAT
    ₹82 Cr
    YoY -28.1%
  • Sales Volume
    27.8 million meters

H1 FY25

  • Total Income
    ₹1,995 Cr
    YoY +12.1%
  • PAT
    ₹159 Cr
    YoY -15.4%

What they filed

Q1 FY27: revenue up 11.7%, net profit up 67.5% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue991 1,009 865 733 828 −16%779 −23%758 −12%819 +12%
EBITDA150 122 52 88 81 −46%63 −48%67 +29%114 +30%
Net profit83 67 8 40 42 −49%25 −63%37 +363%67 +68%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Guidance & targets

Volume

  • Sales Volume Volume · FY25 · Medium confidence 110-115 million meters
    I think we are on track at the moment for the guidance, which may result into achieving the lower end of the guidance.

    — K. R. Lalpuria, Executive Director and CEO

Margin

  • EBITDA Margin Margin · next year · Medium confidence 15-16%
    that is why we have given a revised margin guidance of 15% to 16% because we were impacted in this current H1 to the extent of 150 bps.

    — K. R. Lalpuria, Executive Director and CEO

Revenue

  • Branded Business Revenue Revenue · next three years · High confidence US$100 million
    We expect the contribution from the brands to add almost US$100 million to our top line annually over the next three years

    — K. R. Lalpuria, Executive Director and CEO

  • Acquisition Revenue Potential Revenue · at full capacity · High confidence US$85 million
    These acquisitions establish our manufacturing footprint in U.S. to 13 million pillows and 1.5 million quilts with a combined annual revenue potential of US$85 million at full capacity.

    — K. R. Lalpuria, Executive Director and CEO

  • Double Revenue Revenue · FY '26 and '27 · High confidence double
    as we indicated in FY '24 that we will double the revenue. We still are on track towards that.

    — K. R. Lalpuria, Executive Director and CEO

Capacity

  • Acquired Facility Utilization Capacity · FY '26 · High confidence 75%
    So, as far as Fluvitex is concerned, it is operating at 50% capacity, and as far as Modern Home is concerned, because it started this year only, it is operating at 35% capacity. So, this we should be able to ramp up to 75% in FY '26.

    — K. R. Lalpuria, Executive Director and CEO

  • Indian Capacity Utilization Capacity · March '27 · High confidence 153 million meters
    we are confident that, say, by FY '27 we should be able to utilize the capacity till March '27.

    — K. R. Lalpuria, Executive Director and CEO

  • Indian Capacity Utilization Threshold Capacity · future · High confidence 144-145 million meters
    It should be in the range of around 145 million in textiles. You can't reach 153. So, it should be in the range of, say, 144, 145 should be considered in my view depending upon again the product mix.

    — K. R. Lalpuria, Executive Director and CEO

Capex

  • CAPEX Capex · FY25 · High confidence ₹413 crores

    Previously ₹165 crores → ₹413 crores

    CAPEX estimated for FY25 was originally Rs. 165 crores. However, due to the additional strategic acquisitions and investments, we have revised this CAPEX for FY '25 to Rs. 413 crores.

    — K. R. Lalpuria, Executive Director and CEO

  • Solar Energy & ZLD Projects Capex · FY '26 · High confidence implementation
    The solar energy projects and zero liquid discharge system will be taken up for implementation in FY '26.

    — K. R. Lalpuria, Executive Director and CEO

Debt

  • Working Capital Days Debt · year-end · Medium confidence normalize
    We expect to see the working capital days normalize by the year-end.

    — K. R. Lalpuria, Executive Director and CEO

Risks & concerns

  • Supply Chain Disruptions (Red Sea issue, container availability, increased transit time)

    high

    Increased transit time by almost 25 days due to Red Sea issues and container availability, leading to higher inventory levels and working capital requirements.

    Management acknowledged

  • EBITDA Margin Compression from Upfront Investments

    medium

    EBITDA margin impacted by 150 bps in H1 FY25 due to upfront costs for human resources, brand promotion, and infrastructure for the new utility bedding business.

    Management acknowledged

  • Inflation and Rising Costs in India

    medium

    Rising labor costs and withdrawal of 2% interest subvention by the government from July onwards are increasing operational costs.

    Management acknowledged

  • Geopolitical Volatility and Uncertainties

    medium

    Geopolitical issues and volatility necessitate pre-poning shipments to secure supply chains, contributing to inventory buildup.

    Management acknowledged

Areas of evasion (3)

  • Specific quantification of recurring vs non-recurring costs for branded business
  • Precise impact of Red Sea on freight cost in monetary terms
  • Specific forecasts on US political changes impact

Q&A highlights

2 direct
Inventory buildup and deferred shipments impacting Q2 volumes Direct
there were two accounts of the additional tariffs and the shipments which were supposed to happen which could not happen due to the supply chain issue, it was close to around 2.5 million meters.

This explains the lower reported sales volume and increased inventory, suggesting a potential for higher sales in subsequent quarters as these deferred shipments are liquidated.

Asked by Jatin Damania

Strategic rationale behind acquiring US manufacturing facilities (Fluvitex, Modern Home) Direct
the utility bedding business in particular, the pillows are light in weight, and they are fluffier and full of fiber. And they occupy a large volume in a container. So, the logistic cost if you supply from India will be much, much higher per unit cost, whereas if we produce in the U.S. to the retailer's distribution center, it will be less.

Management clarified that US acquisitions for utility bedding are driven by significant logistics cost savings for bulky products and the need for proximity to market, rather than just labor cost differences.

Asked by Gunjan Kabra

Impact of US elections (Trump) on the US economy, inflation, and business Partial
it will be appropriate to mention here that let Mr. Trump take offices by end of January 2025. Then he will start formulating the policies. I can only say that with the current Prime Minister, India enjoys a good relationship, and there is a positive outlook...

Management adopted a cautious, wait-and-see approach regarding the potential impact of US political changes, deferring specific forecasts until policies are formulated, highlighting the uncertainty in the geopolitical landscape.

Asked by Simranjeet Bhatia

3 min read 7 chapters

Detailed narrative

Q2 & H1 FY25 Financial Performance Overview

Indo Count Industries reported a Total Income of ₹1,045 crores for Q2 FY25. For H1 FY25, total income increased by 12% year-over-year to ₹1,995 crores, up from ₹1,780 crores in H1 FY24. EBITDA for Q2 FY25 was ₹166 crores, with a margin of 15.92%, while H1 FY25 EBITDA stood at ₹320 crores, with a margin of 16.03%. PAT, however, saw a decline, with Q2 FY25 PAT at ₹82 crores (vs ₹114 crores in Q2 FY24) and H1 FY25 PAT at ₹159 crores (vs ₹188 crores in H1 FY24), partly due to upfront investments and supply chain challenges.

Strategic Acquisitions and 'Version 2.0' Growth Phase

The company is entering a 'Version 2.0' phase, focusing on diversified product portfolios and premium segments. Recent acquisitions of Fluvitex Inc., USA, and Modern Home Textiles, key players in the US quilt and pillow market, establish a manufacturing footprint in the US. These acquisitions add a combined annual revenue potential of US$85 million at full capacity, with plans to ramp up utilization to 75% by FY26. The branded business segment is expected to contribute an additional US$100 million to the top line annually over the next three years.

Revised CAPEX and Funding Strategy

Indo Count has significantly revised its CAPEX estimate for FY25 to ₹413 crores, up from the original ₹165 crores. This increase is primarily driven by the strategic acquisitions and related investments. The revised CAPEX will be funded equally through internal accruals and debt. Additionally, solar energy projects and a zero liquid discharge system are slated for implementation in FY26, aligning with the company's sustainability goals.

Inventory Buildup and Supply Chain Challenges

The company experienced an increase in inventory levels and working capital due to supply chain issues, including the Red Sea situation and container availability. Approximately 2.5 million meters of shipments were deferred due to these issues, contributing to the inventory buildup. Management expects these inventory levels and working capital days to normalize by the year-end as the supply chain situation improves and deferred orders are liquidated.

Margin Outlook and Cost Pressures

EBITDA margins were impacted by 150 basis points in H1 FY25 due to upfront costs associated with human resources, brand promotion, and infrastructure for the new utility bedding business. The company has revised its margin guidance to 15-16% for the next year. Management acknowledged rising labor costs and the withdrawal of a 2% interest subvention by the government, which are increasing operational expenses. Efforts to maintain competitiveness include value addition, automation, and technology investments.

US Utility Bedding Market Opportunity

The acquisition of US manufacturing facilities for utility bedding, particularly pillows, is a strategic move to mitigate high logistics costs associated with shipping bulky, light-weight products from India. Producing in the US allows for direct supply to retailer distribution centers, offsetting additional labor costs. This strategy also addresses geopolitical volatility and customer preference for onshore suppliers, positioning Indo Count to capture a larger share of the US utility bedding market.

Indian Textile Sector Outlook and Competitiveness

India is increasingly positioned as a major manufacturing hub in the textile sector, benefiting from the 'China Plus One' sourcing strategy and government support through free trade agreements. The company believes India has a complete value chain to support the supply chain, which is crucial for retailers. Indo Count aims to utilize its Indian capacity, targeting around 144-145 million meters, and expects to fully utilize its 153 million meters capacity by March 2027, leveraging India's competitiveness in cotton-based products.

This is an AI-generated summary of a publicly available earnings call transcript.
View original transcript

More Textiles earnings calls