DEMAND SLOWDOWN IMPACTS INDO COUNT'S VOLUMES; 15% EBITDA MARGINS MAINTAINED

News: Marred by demand slowdown in key export markets (US) and logistical issues resulted in volumes for ICL declining by 19% YoY to 17.6 million in Q4FY22. The dip in volumes was on expected lines as management in the previous quarter had revised it volume annual guidance downwards from 85 million meters to 75+ (FY22: 75.6 million meters). Higher ASP’s (up 16% YoY to Rs 356/meter) owing to better product mix resulted in revenues declining by 5% YoY to Rs 653.8 crore. Despite significant pressure on RM prices (cotton) and supply chain related challenges, company maintained  its gross margins levels of 50%+ (up 130 bps YoY) and also its EBITDA margins at ~15% in Q4FY22. Better hedging of raw materials and higher contribution from value added products supported margins. Absolute EBITDA grew by 4% YoY to Rs 95.6 crore. PAT grew by 48% YoY to Rs 85.3 crore which was aided by higher other income.

Views: For FY22, company has clocked in 75.8 million meters which is in line with the revised guidance provided by the company with average realisation of Rs 360/meter. Despite significant cost inflationary pressure, company has been able to maintain its EBITDA margin for FY22 at 15.3%. Share of branded business improved by 400 bps YoY to 14% and share of fashion/utility segment improved by 400 bps YoY to 19%. Company has charted out capex worth Rs 270 crore towards backward integration (addition of 68000 spindles by March 2023). The yarn would be mainly value added and would be utilised towards supporting recently acquired GHCL capacity.  While the company expect short term challenges to persist, it remains positive about the demand scenario in the long run on the back of China + 1 strategy and government steps to support the Indian home textile export market. With the latest acquisition of GHCL’s home textile business (~45 million meters), Indo Count has become the largest Home Textile Bedding company, globally, with annual capacity ~153 million metres.

Impact: Neutral