Q4 and full year FY’17 results are scheduled for tomorrow. Since 2014 IndoCount is reporting significant better ROE as compared to other textile export companies. Some broad ranging discussion has already taken place on the stock thread, with some wide conclusions.
Whats better than a DuPont analysis to understand what is differentiator - variable that is moving the needle in favor of IndoCount. Below is a comparison between Welspun, Trident and IncoCount. Understandably this is not an entirely like to like comparison. Trident being 50-50 between Export and Domestic with added twist of paper business. Welspun has found the range between bedding and bath both. Indocount on the other hand is still predominantly in beddings.
What DuPont analysis of ROE re-affirms in this case is that this claimed asset light model is helping them report better than peers ROE numbers.
In the mid to long term, my assessment is that with the planned and under progress CapEx of 175 + 300 Cr. proposed for mid-future will reduce the assets turnover metric (due to addition of new assets to books). However, at the same time Financial leverage metric will go up by an even bigger extent due to exponential effect of lower denominator (net-worth /equity). (current networth of 551.39 Cr against total assets of 1317.29 Crs.). Provided that they go for partially/fully debt funding for CapEx, and this is very likely since FY’16 Operational FCF was 167 Cr only)
Note: Have used the reported numbers on the face value for calculating the Operational efficiency, assets efficiency, equity multipliers and eventually the DuPont calc, without digressing into establishing veracity (triangulation etc.) of the reported numbers, for the time being.
Hope we will have few new pointers to ponder upon from the results tomorrow. Or at least we will be equipped to put a pointed finger for correct reason code, just in case drop on ROE.
Thanks,
Tarun
Disc: Not invested as of date.