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This textile stock hits 52-week-low, brokerage sees 75% upside with ‘BUY’ rating

Indo Count Industries Ltd (ICIL) is a textile-focused small-cap company with a market capitalization of 2,374 crore. The company specialises in the production of pure grey cotton yarn and knitted fabric. The Indo Count network of enterprises today exports to 54 countries and has operations in every part of the world, including the United States, Europe, Asia, and Australia. On the NSE the shares of Indo Count Industries touched a 52-week-low today at 119.55 and closed at 119.60 level down by 2.05% from the previous close of 122.10. In today’s session, the stock reached an intraday high of 128.95 up by over 5%. The stock has been falling for the previous three days and has lost almost 9% in that time. The brokerage company Edelweiss Broking Limited has set a target price of INR 210 for the stock with a buy rating, which implies a potential upside of 75% from the current level.

The two research analysts Kapil Jagasia, CFA and Praveen Sahay of Edelweiss Broking Ltd said “We recently met Mr. Kailash Lalpuria, CEO of Indo Count Industries Ltd. (ICIL), to gain insights on the demand environment for FY23E. The home textiles market is witnessing a slowdown currently owing to a slight shift in demand towards apparel/garments (caused by reopening of economy) and supply chain issues, exacerbated by geopolitical tensions. However, the company considers these issues temporary and expects demand to revive by the end of the year, driven by growth in textile exports.”

The analysts have said in a research note that “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 Dec’21 and Jan’22 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.”

As per the analysts “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, ICIL has hedged its cotton inventory until Sep’22, with the average cotton inventory price at INR80,000 per candy (lower than the prevailing prices of INR95,000–INR1,00,000 per candy). The company’s product mix has also improved over the last one year, resulting in higher realisations. Thus, we expect ICIL to post 16% EBITDA margins in FY23E (FY21: 15%, FY22: 18.3%).”

“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 INR210 per share (previous TP: INR220 per share), valuing it at 11x FY23E earnings estimates,” the analysts have claimed.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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