Indocount - Textile Stock


(NMB) #1

Hello friends,

Since I could not find any dedicated thread on Indocount, I am posting my AR notes here.

The AR is HUGE. Lots of info. Here goes.

*Expanding into newer geographies like UK, Australia, Middle East, Japan & EU.
*Focused on inventory management whereby our company tracks the client’s inventory to keep goods at optimal levels.
*Aims to increase share of high margin bed linens from 5% to 25% in next 2 years.
*Have patented technology for bed sheets (Which explains their earnings growth and moat. This could keep rising. This is not a commodity player like Nitin).
*Company is focused on maintaining growth and increasing ROA in coming quarters.

On capacity expansion-
*The company was working at near optimal capacity levels during the year. Hence the company has undertaken capex which would increase capacity by nearly 50% (from 45mln mt to 68mln mts). The additional capacity is available in this year and we shall see improved results over the coming year.

*Promoter shareholding rose from 54.33% to 58.95% over the last 12 months.
*Cash from operating activities remains strong at 197crs Vs 102crs YoY.
*85crs spent on capex (fixed assets and capital advances).

***Conclusion- The company is in a good position. New capex has been completed and it will reflect in FY16 revenues and PAT (only issue is that they have not mentioned or given a topline and PAT guidance post new capex). If we assume a 50% capex should atleast result in 25-30% growth (conservatively), then also we should be very happy.
The AR certainly says that they expect growth they way they are opening sales offices across the world. Also their patents and relationships with major US retailers should help them sign new clients.

Disclosure - Holding Indocount since a long time. Vested interest.

Cheers
Neil


(NMB) #2

Indocount reports SMASHING Q1 numbers…despite first quarter generally being weak for textile companies.

Revenues up 50%
EBIT up 105%
EPS up 102%

I thought they would do 25-30% kind of growth…but this is unreal! WOW!

Disc- I hold Indocount and vested!

Cheers
Neil


(valuequest) #3

Do we know the reasons for the sudden increase in sales n profit?


(NMB) #4

Hey Donald,

Yeah, the company has increased capacity recently by 50% to 68mln mtrs/p.a after exhausting the last capex of 33% to 45mln mts/p.a. They have also opened sales offices in Japan, EU, UK, Australia and the Middle East which is aiding new sales. Even offtake from current clients is increasing. Net debt is lower. Also, they have patents for their main product which has given them some kind of moat apart from general favourable Indian textile industry tailwinds.

Indocount is no more a commodity player. Its now a proper high value product company with loads of entry barriers.

Also, their debt is under TUF just like Nitin Spinners which reduces the interest cost to 6%-7% approx (huge savings).

Company has one of the highest asset turnovers in the entire textiles industry.

Management is saying FY15 wasnt one off and they expect growth to continue strongly in Fy16. They will utilize atleast half of the new capacity added recently this year. The company is perfectly poised.

The investor presentation was released today. -
http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/FA599A02_E1E7_4441_8369_D496D3C469C7_142715.pdf

The presentation is quite detailed. Please have a look for more details.

Cheers
Neil


(Augustine Jos) #5

good article on indo count, its a very informative esp for someone who is new to indo count - it explains how indo count is things differently compared to other home textile players like himatsingke/ welspun/ alok.
link: http://www.business-standard.com/article/markets/indo-count-the-next-symphony-115080300024_1.html

Below is another nice link which explains the sector tailwind

invested in indo count & himatsingke


(PP) #6

Neil, do you have any views on the integrity/honesty/business ethics of the Indo Count management?

Also, any idea of how they treat their labor force? (The treatment of labor force in the textile industry is often apalling http://www.business-standard.com/article/reuters/captured-by-cotton-girls-duped-into-bonded-labour-in-india-s-textile-mills-115080600098_1.html )

Disc. Small investment


(PP) #7

Deleted - as per mod request


(NMB) #8

Hey buddy,

Well no. Never thought about the working condition of the work force. As shareholder, I do not focus on these things.

Suppose there was an issue with how they handle their labor and we hadnt bought…we would have missed a move from 77 to 1000.

Although, I have never heard of any problem with Indocount.

In terms of honesty and corporate governance, I find Indo to be absolutely TOP CLASS. They always update us shareholders with capex plans, product updates etc.

I am a very happy shareholder.


(PP) #9

Deleted - as per mod request


(NMB) #10

Thanks buddy.

Yes you are correct on Bangladesh.


(PP) #11

Deleted - as per mod request


(NMB) #12

Filhaal there are no problems of labour in Indocount. Things are pretty rosy at the moment!


(Heramb Magdum) #13

Dear All,
I am from kolhapur & happen to be an immediate neighbor of Indo Count plant at Gokul Shirgaon Industrial Estate.I often wonder how i could miss such a huge opportunity by not following it until lately, although i have been witnessing its growth for a last few years now.

One thing I can assure you is that there is no kind of ill treatment or bonded labor.
Although they have their share of labor union issue turning its heads up when their payment increments are negotiated.

Some scuttle butting revealed that Permanent Labour has salary well above average that is paid in our industrial area.Their new unit in Kagal 5 star MIDC industrial estate, which is very near to this plant also has similar pay.

With such large workforce its quite obvious to expect, union being formed and they having tussle with management over pay rise.I would assume this comes as a part and parcel of having to deal with such a large number of work force and ALL other textile companies should have such risks looming over.

Indo Count AGM is on 22 August. Please guide me about what questions should be asked as this will be the first time I’ll be attending any AGM.

Disc- Very Small tracking qty. invested


([email protected]) #15

Hi Hiramb and other friends , something I could not understand - the long term debt as shown in latest q1 fy 16 presentation shows 73 cr and short term debt at 209 cr . Even if we assume total 300 cr debt at max 11% , not considering the tuf lower rate , then interest should be 33 cr annually and 8 cr odd for the quarter , wherein company has shown about 15 cr as finance charges . Even if we take last year debt at total 362 cr , then interst should be max 40 cr whereas their total finance charge is 62 cr ?? Could not understand this , can somebody throw light on this and if I am missing something . Normally exporters borrow in foreign currency and maximum interest rate should be 6/7 % and here is upwards of 15%?


([email protected]) #16

Another question for agm , assuming their profit run rate of 50 -60 crores quarterly , and net debt q1 of 282 crore , they should be debt free in 1.5 years about and if any new capex plans they have ?


([email protected]) #17

Hi friends , if somebody attending agm can ask question related to debt and finance charge as above , will be nice . Thanks .


(Amit) #18
  • 70% export from US. Most of the export market is developed country and hence get INR depreciation advantage for this year.
  • Some one can expect 30% EPS growth expected in FY16.
  • Debt can be 0 in FY18 basis if they grow only 15-20% on current earnings.
  • Huge potential at current level at 19 p/e with long term prospect of 3-4 years. Very rare combination we can get for such company.

(NMB) #19

Did anyone attend the AGM guys? Any updates?

The stock is holding up superbly in this volatile period. Some AGM notes would come in handy.


(remonc) #20

The stock seems to have given superb returns…its a 35 bagger in the last two years…from around Rs 26 in Sep 2013 to CMP of Rs 894…how does this stock compare with that of Ambika Cotton ?


(Amit) #21

The business model of Indo is different than Ambika/Nitin Spinner. Ambika mainly into supplier of yarn to customers which is like B2B type while indo is consumer growth story like B2C.

You can’t compare stocks here. Valuation of indo can reach to 40+ p/e in 5 years while B2B biz max P/E can be 25