Indo Count Industries Continues To Dazzle Investors

Market Intelligence

Indo Count Industries Continues To Dazzle Investors

India's home textile exports have been largely restricted to cotton bed linens. A market where India has been careful to tread is fashion, utility and institutional bedding. This market is valued at US$ 10 billion, in USA alone, which is India's largest home textile market. China dominates the market, fulfilling 85% of the US market requirement.

And Indo Count has identified this specialised segment for its growth strategy over the next two years. The company is clearly focused on moving up the value chain, and is among the very few Indian textile companies to have successfully launched home textile brands in the international market. At a recent conference call on the company's financial performance in FY 2016, and the first quarter of 2016-17, KK Lalpuria, Executive Director, Indo Count Industries Ltd, outlined the company's expansion plans and its move into the high end value added segment. He informed that the Board of Directors has considered a total capex of Rs 475 crore in two phases, in Kolhapur, Maharashtra.

The board has approved the capex of Rs 175 crore for Phase I, which entails increasing the processing capacity from the current 68 million metres per annum, to 90 million metres per annum, at an estimated cost of Rs 70 crore. Phase I also includes investment towards setting up a water effluent treatment plant at an estimated cost of Rs 50 crore. The company will invest in automation of its cut-and-sew operations and warehousing , at an estimated cost of Rs 55 crore.

"Our expansion plans are progressing as per schedule, and Phase I is expected to be complete by the third quarter of the 2017 financial year," said Lalpuria. This will enable the company to update the global marketplace of their new products and capacities, during Heimtextil in Frankfurt, the largest international home textiles show.

The board has also approved the capital expenditure plan for Rs 300 crore for the second phase of expansion, he informed. "In the second phase, we will upgrade the existing spinning facilities, invest in additional weaving capacity by installing 256 specialised looms, and other value added equipment for delivery of fashion and utility bedding. This phase will be completed by March 2018."

The company presently has an in-house weaving capacity of 9 million metres. The additional weaving capacity for value added products will take the total weaving capacity of Indo Count to 25-27 million metres. "We follow an asset light strategy wherein our weaving capacity stands lower than our processing capacity. Majority of the incremental weaving capacity will go towards specialised high value added products, catering to our branded made-ups segment, and the fashion and utility bedding that we launched in 2014."

The total investment will result in revenue of almost Rs 900-1000 crore, on full ramp up at 100% utilisation. Going into financial details, he said, "Our internal EBITDA hurdle rate expectation for this revenue shall be in the region of 23-25%. The total project cost of Rs 475 crore for this expansion will be funded by long-term borrowings of Rs 250 crore and balance will be funded through internal accruals. We have proposed to the board for an enabling resolution to raise funds based on our medium-term financial strategies, to grant the company financial flexibility. Our proposal was based on our view that the company has come out of the CDR situation in the recent past and follows an extremely conservative approach towards any debt. However, board feels that Rs 250 crore of additional debt for the capex is miniscule to the strong balance sheet we have for March 2016. Therefore, this expansion of Rs 475 crore can be funded with debt equity which comes to 1:1 approximately."

Indo Count accepted as one of the top fashion players internationally

The company is optimistic that the new categories will perform well in the future, and hence has decided to invest in strengthening its capabilities in this segment. Lalpuria further said, "In order to do well in the value added category, we recently launched three new brands in the US market, these are our own life style brands, it will cater to the high premium segment products because so far we have not been attacking the premium segment of the market. The brands are Boutique Living, Revival, The Pure Collection."

Indo Count was able to sell 54 billion metres of home textile in FY 2016, against an installed capacity of 68 million metres.

Explained Lalpuria, "We are trying to increase our fashion bedding and utility bedding - the higher value realisation fabric which takes a little bit of more time. Secondly, we are catering now to the premium segment where the runs are smaller. We expect that we should be doing well and we have made a business plan of almost 62-63 billion metres for the ongoing financial year.

Brand building

Indo Count has ventured into the Indian market too, with its aspirational brands. Last year, the company floated a retail SPV that is owned 80% by Indo Count and 20% by Asim Dalal who has good retail experience through Bombay Stores. "We will be launching our brand `Boutique Living' in the domestic market this year and we are targeting the mid-to-high segment as well as the premium segment. The total outlay for this domestic brand is Rs 25 crores which we will spend over the next 2-3 years and this has been approved by the Board as well as," said Lalpuria.

For the lifestyle brands, the company has targeted the premium segment of the market as well the US and other international markets. "We have taken on board good designers within US and UK and we are building on this new brand strategy, so we can enter the premium segment and get ourselves recognised as a player in the fashion area.

It will definitely give us an advantage to call on new customers, provide end-to-end solutions, strengthen our brand team here and also improve our image globally.

Further, to strengthen the product portfolio, we are looking at licensing the brand, and will soon make this announcement as we are in discussions with some licensing brands both in the US and UK.

This will complete our new brand strategy. We have gained market acceptance, and are considered among the key players in the fashion arena."

Indo Count performance continues to dazzle investors

Indo Count continues to perform significantly well. During financial year 2016, the company earned a revenue of Rs 2213 crore, a growth of 24% over the previous year. EBITDA was Rs 474 crore, up 51%. EBITDA margin improved from 17.6% to 21.4%, an improvement of 380 basis points. Profit before-tax was Rs 400 crore, a growth of 93%. Profit before-tax margin improved from 11.6% to 18.1%, an improvement of over 650 basis points. Profit after-tax was Rs 265 crore, a growth of 81%, profit margin improved from 8.2% to 12% an improvement of 380 basis points. Earnings per share improved from Rs 38.95 to Rs 67.04 a growth of 72%.