Buy This Small Cap Textile Stock Post Q3FY22 Result For 82% Potential Upside

Indo Count Industries Ltd is a small-cap stock with a market capitalization of Rs 4,079.26 crore. The firm specialises in textile production and is a chosen partner for some of the world's most well-known retail, hotel, and fashion companies. With a market price of Rs 209.40 when it opened, the stock has risen 3.99 percent today to a current market price of Rs 213.75. Edelweiss Broking Ltd, a brokerage, has issued a buy call on Indo Count Industries Ltd's shares, with a target price of INR 386. At the time of the brokerage's buy call, the stock was trading at a market price of Rs 212, from which it forecasts a spike of 82 percent.

Q3FY22 result of Indo Count Industries Ltd (ICIL)

The brokerage has said that "ICIL's revenue decreased by ~2% YoY to INR780cr, 4% higher than our expectation of INR750cr. Volume declined by ~12% YoY to 21.1mn metres, owing to COVID-19-led disruptions in Dec'21. However, volume was higher than our expectation of 19mn metres, owing to the strong US holiday season till Nov'21. The volume decline was offset by ~11% YoY increase in realisation to INR356/metre (usual run-rate: INR320-325/metre) on better product mix and price hikes by the company."

Edelweiss has highlighted that "Owing to higher realisation and improved product mix, gross margin for the quarter grew by 461bps YoY to 54.3%. EBITDA decreased by ~3% YoY to INR 139cr, 17% higher than our expectations of INR 119cr, with flattish margins at 17.8%. The gross margin improvement was negated by higher employee spends (up 134bps YoY) and other overheads (up 346bps YoY), due to normalisation of operations. PAT declined ~18% YoY to INR76cr, 5% higher than our expectation of INR73cr. ICIL made a one-time provision of INR21cr towards the lower realisation of RoSCTL scrips."

Buy for a target price of INR 386/share

The brokerage has claimed that "With reduction in annual volume guidance for FY22E by the company coupled with uncertainty over commodity inflation (high cotton yarn prices) and container shortage issues, we lower our FY22E revenue, EBITDA and PAT estimates by 9%, 7% and 7% for FY22E and 4%, 4% and 5% for FY23E, respectively. With these earnings cuts, we revise our TP downwards by ~6% to INR386/share (previous TP: INR 411/share). However, we continue to remain positive on the structural story panning out in home textile exports (especially in the US) and expect this trend to continue for at least the next 24 months."

Disclaimer

The stock has been picked from the brokerage report of Edelweiss Broking. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.