Edelweiss Bets On This Textile Focused Small Cap Stock For 75% Gains, Stock Near 52 Week Low

Edelweiss Wealth Research, a well know brokerage, in its report published on June 20, 2022, on Indo Count Industries Ltd. has given a buy call for Rs 210. With a market capitalization of Rs 2,373 crore, Indo Count Industries Ltd is a textile-focused small-cap firm. Pure grey cotton yarn and knitted cloth are the company's specialties.

Stock Overview & Potential Gains

The current market price (CMP) of Indo Count Industries Ltd. is Rs 120.25/share. The stock today felt market turbulence and declared nearly 2.05%. The 52week low of the stock is Rs 119.55, touched today. Its 52-week high was recorded on 11 October 202 at Rs 315/share.

The stocks as fallen 28.89% in the last 1 year. Data shows that the stock has experienced a continuous decline over the last 1 year. In the last 1 month, it has fallen 16.38%, and in the last 3 months, it has fallen 29.6%. However, over the last 3 years of investment, it has gained nearly 266.62% and declined 33.78% in the last 5.

Potential Gains - As per the estimated Target Price of Rs 210/share and CMP of Rs 120.25/share, the stock can witness a potential-jump of 75%.

Inventory de-stocking expected in the coming months

The US holiday season forms sizeable revenues for home textile export players. However, during the last holiday season, demand in the industry remained muted due to lockdown restrictions imposed in the country between December 2021 and January 2022 to curb the spread of the Omicron variant. In addition, supply chain issues induced by shortage of containers delayed the arrival of home textile products in the US markets. These two factors resulted in inventory pileup at retailer shelves. Furthermore, with the reopening of economy, demand shifted towards apparel/garments, further affecting the demand for home textile exports. This is expected to result in de-stocking of channel inventory for a few months. Demand in the sector is expected to revive around Sep'22, driven by advanced purchases before the start of the US holiday season.

Margins to remain resilient despite cost pressures

Textile export players have been facing the dual impact of high cotton prices and high freight costs over the last three quarters. Home textile players have taken adequate price hikes to mitigate input cost pressure. However, it would be difficult for them to take further hikes due to the dip in demand. The government has taken certain steps to keep a check on surging cotton prices, including lifting the 10% import duty on cotton and banning cotton exports. Furthermore, Indo Count Industries has hedged its cotton inventory until Sep'22, with the average cotton inventory price at Rs 80,000 per candy (lower than the prevailing prices of Rs 95,000-Rs 1,00,000 per candy). The company's product mix has also improved over the last one year, resulting in higher realisations. Thus, we expect Indo Count Industries to post 16% EBITDA margins in FY23E (FY21: 15%, FY22: 18.3%)

Long-term drivers in place; buy for target price of Rs 210/share

Near-term headwinds such as channel inventory correction, heightened commodity inflation and potential dip in demand due to the higher-than-usual interest rate scenario in the US affecting discretionary spending persist. Nonetheless, our outlook for the textile sector over the medium-to-long term is positive owing to the visible shift in textile export demand towards India, driven by China + 1 adoption, various government initiatives to support the textile sector and high probability of signing FTA agreements with the UK and Europe. We continue to maintain our BUY rating on the stock with a revised target price of Rs 210 per share (previous Target Price: Rs 220 per share), valuing it at 11x FY23E earnings estimates

Company Overview - Indo Count Industries Ltd

Incorporated in November 1988 as Vishnu Aluminium a public limited company Indo Count Industries acquired its present name in April 1990. The company was promoted by A K Jain S Jain and associates. Indo Count Industries Ltd went public in November 1990 to part-finance a 100% EOU to manufacture combed yarn at Gokal Shirgaon in Kolhapur Maharashtra. Indo Count is a specialized end-to-end bedding provider that is solely focused on creating all-encompassing sleep experiences. The company has a presence in 49 markets. The company is also the preferred partner for some of the best-known retail, hospitality and fashion brands in the world. The company over the past 25 years has established a strong foundation on which it built a strong, healthy and profitable company.

Disclaimer

The stock has been picked from the brokerage report of Edelweiss Wealth Research. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.