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    Indo Count Inds.

    ICILGood
    Textiles·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

    8
    • 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

    1
    • Supply Chain Disruptions (Red Sea issue, container availability, increased transit time)

    Key financials

    Metrics

    9

    Periods

    3

    Headline

    2
    • Net Debt (Sep 30, 2024)
      ₹1,045 Cr
    • Net Debt-to-Equity (Sep 30, 2024)
      0.48 x

    Q2 FY25

    5
    • Total Income
      ₹1,045 Cr
    • EBITDA
      ₹166 Cr
    • EBITDA Margin
      15.9%
    • PAT
      ₹82 Cr
      YoY-28.1%
    • Sales Volume
      27.8 Mn

    H1 FY25

    2
    • Total Income
      ₹1,995 Cr
      YoY+12.1%
    • PAT
      ₹159 Cr
      YoY-15.4%

    Guidance & targets

    11
    CategoryTargetPriority
    Volume
    Sales Volume
    110-115 million meters
    Medium
    Margin
    EBITDA Margin
    15-16%
    Medium
    Revenue
    Branded Business Revenue
    US$100 million
    High
    Revenue
    Acquisition Revenue Potential
    US$85 million
    High
    Revenue
    Double Revenue
    double
    High
    Capacity
    Acquired Facility Utilization
    75%
    High
    Capacity
    Indian Capacity Utilization
    153 million meters
    High
    Capacity
    Indian Capacity Utilization Threshold
    144-145 million meters
    High
    Capex
    CAPEX
    ₹413 crores
    High
    Capex
    Solar Energy & ZLD Projects
    implementation
    High
    Debt
    Working Capital Days
    normalize
    Medium

    Risks & concerns

    7
    RiskSeverity

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

    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

    high

    EBITDA Margin Compression from Upfront Investments

    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

    medium

    Inflation and Rising Costs in India

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

    medium

    Geopolitical Volatility and Uncertainties

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

    medium

    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

    3

    “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

    3 min read7 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    06

    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.

    07

    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. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.