Indo Count Industries hosted a conference call on Aug 04,2021. In the conference call, the company was represented by Mr K R Lalpuria-Executive Director and CEO and Mr K Muralidharan-CFO.

During this unprecedented time the company remained committed to all its stake holders, employees and front-line workers. The company believes vaccination is the only way to defeat the virus and revive the economic activity. The company has successfully covered its employees with vaccination with at-least one dose. The company hopes that the situation will be under control with the rapid vaccination drive across the country.

Opportunities

The company believes that the long-term growth story of the Indian textile industry is intact. The key export market focusing on shipping to India for a long-term supply along with government support policies provide scope for textile industry to post robust growth in the long run.

Global Companies have stepped up efforts to implement the China+1 strategy of diversifying the supply chain in the wake of Covid 19 induced disruption and US China trade tension. Also, the trade conflict between China and developed world has further intensified due to cotton coming out of Xinjiang province. The province contributes 80% of Chinese cotton production and 20% of global cotton production. This is a big impact on China export on cotton manufactured goods. This has resulted in bed linen in India market share growing to 61% from 50%. This will also provide opportunity for India to increase its market share in both textile and apparel and it looks good in the medium term of 3-5 years.

Working from home has become a new norm resulting in increased consumption of home textile.

India also enjoys a comparative advantage with respect to skilled manpower and production cost related to major textile production in south east Asia. The recent government notification of extension of RoSCTL up to FY2024 is a big boost for textile exporters which will further help increase the competitiveness of Indian products and provides stability and predictability to the industry players. The other textile products which are not covered under RoSCTL are covered under RODTE benefit which will further boost the industry.

Coupled with this various other factor like review of GSP+ status of Pakistan by European Union adds a silver lining to India's trade performance.

India has begun trade talks with European union and other countries and the company believes that the deal will be beneficial for India. India's main focus in the talks is to secure more market access for its exports. The company remains confident that the company is well prepared to cease every opportunity on the back of healthy balance sheet, financial prudence and focused approach.

Europe (USD 31 billion retail market) is a much bigger market than US (USD 28 billion retail market). If India's FDA agreements is through than India will get a huge opportunity as it has very low market share in Europe.

The end market is supporting which lead to strong rebound in Q1FY2022, it is very important to note that this growth is a result of conscious strategy laid out in the last few years. Having entered the largest sub segment of fashion, utility, institutional bedding, the company has continued all round efforts with respect to innovation, service, delivery and utilization to grow the brand equity in these segments. The company is making lot of efforts on digital marketing, e-commerce, developing health and hygiene products and other innovative ways to reach to its customers there by strengthening its relationship with its customers. The company continues to remain laser focused on increasing its market share on e-commerce and branded business both locally and globally. The company's focus offering of integrated bedding solution with innovation keeping customer preferences in mind has resonated well with all of its customers. Along with this, the company's value-added products on health and hygiene contributed to the rising trend.

The company has entered into new partnership with a licensed brand, Jasper Conran O.B.E. for an exclusive bed and bath collection, launching in Spring 2022. The range will be marketed international under the Japer Canron London brand exclusively through Indo Count. This partnership will support the company's long-term vision to be the corner stone in home textile across the globe. The agreement signed is for a five-year period. The royalty ranges from 5-6% globally on the business done.

The company is strongly moving towards B2B and B2C segment through high quality products offering at various price points, building visibility through digital campaign and leveraging omni channel and e-commerce distribution. The company is focusing on brand promotion in US, UK, Middle East and India through 10 active brands.

The company during the quarter has been awarded 2 Gold trophies for the second consecutive year by Texprocil.

The company's brand ‘Boutique Living' has been felicitated by The Economic Times as “ET iconic brand of 2021” and its another brand ‘layers' has been recognized as ‘The femina power brand of the year 2021'.

The company has been recognized as ‘Top performer' for supplier at Walmart sourcing sustainability summit.

On sustainability side, the company continue to remain an ESG focused organization with well defined principles, road map and target.

Performance highlights:

The company has achieved sales volume of 18.13 million meter in Q1FY2022. Volumes during the quarter was impacted due to covid induced lock down resulting in shut down of manufacturing facilities from May 15,2021 to May 21, 2021. The companies order book remains healthy and expect volumes for FY2022 to be in the range of 85-90 million meters.

Total income stood at Rs 759 cr in Q1FY2022 v/s Rs 336 cr in Q1FY2021 a growth of 126% YoY. Normalized total income stood at Rs 709 cr v/s Rs 336 cr a growth of 111% YoY. Normalized total income excludes RoSCTL incentives of Rs 49.99 cr for the period Jan 1 to Mar 31 2021.

The company expects to reach USD 1 billion revenue in next 4-5 years.

Retail sales in India is around 1% of the total sales and the company plans to take it to 3% on the increased sales going forward.

Average realization has increased from Rs 315-320 to Rs 360 which is due to passing on the increase in raw material price and better product mix. However, it is apt to look at average realizations on an annual basis.

Increase in other income is due to foreign exchange gains. Foreign exchange gains are around Rs 30.0 cr in Q1FY2022. The company hedges around 70% of its position.

EBITDA stood at Rs 178 cr in Q1FY2022 V/s Rs 39 cr in Q1FY2021 a growth of 357% YoY. EBITDA margin stood at 23.4% in Q1FY2022 v/s 11.6% a growth of 1184 bps YoY.

Normalized EBITDA stood at Rs 128 cr in Q1FY2022 v/s Rs 39 cr in Q1FY2021 a growth of 228 %. Normalized EBITDA margin stood at 18.0% in Q1FY2022 v/s 11.6% a growth of 644 bps. EBITDA margin of 18% is after absorption of higher raw material prices and freight cost.

The company is in continuous engagement with its customers and has passed on the increase in cotton prices to most of its customers.

The company expects EBITDA margin for FY2022 to be in the range of 18-20%. This will include forex gains and RoSCTL benefits.

PAT stood at Rs 117 cr Q1FY2022 v/s Rs 18 cr in Q1FY2021. PAT margin stood at 15.4% in Q1FY2022 v/s 5.3% in Q1FY2021. PAT includes RoSCTL incentive of Rs 49.99 cr for the period Jan 1 to Mar 31,2021.

Net debt stood at Rs 291 cr v/s Rs 263 cr as on Mar 31,2021 resulting in Net debt/Equity of 0.21x.

Container availability: It is a challenge which the company is facing. It is a big issue as such the company is investing on supply chain. Company believes that the issue will get back to normal in next 2-3 quarters once things normalize.

Capex: The company is undertaking a Brownfield expansion to take its capacity to 108 million meters from the current capacity of 90 million meters. The same is expected to be completed in Q4FY022.

Management Comment:

Commenting on the results, Mr. Anil Kumar Jain, Executive Chairman said, “The results of the first quarter of FY22 demonstrate our unique strategic vision and the resilience of our Company's operating performance, coupled with intuitive management.

We are witnessing a demand momentum in our end markets. We continue to remain laser focused on increasing our share in the global and domestic market.

As a leading Indian home textile brand and one of the largest international end to end bed linen providers, we are dedicated to our principles of community living and sustainability”