Couple of reasons can be:
1) Probable impact of cotton price rise on its margins and bottomline going ahead
2) Stock was trading at peak multiples at the same time when its main RM Cotton was bottoming out. Maybe a case of mean reversion (mean reversion in stock price and a possibility of mean reversion in cotton prices). Mean reversion on both fronts at the same time can be a deadly combination for somebody who enters at peak multiples [not saying that this has happened in the case of Indo Count (as cotton prices haven't gone up too much yet) and this is just a thought].
Talking about mean reversion and valuations - I am still learning on this front.
Cotton Prices - Globally prices seem to be stable but look like bottoming out at 7-9 year lows. China is the major driver of demand and Chinese have a policy of building up inventory but they have been buying locally and I think (can't recollect properly) that they had put in some minimum support price too, to support the local cotton farmers. Seems like if no supply side constraints then global cotton prices should remain stable (if not venturing lower). Indian cotton prices I think had rebounded from lows of last few years (can't find the chart now) and again look like have bottomed out. But from what I had gathered few days back prices should remain stable to go down mildly after going up in the recent past. I think fears around supply side constraints have waned down in the last few days and therefore should act as a cap on further price rise. However, I had read earlier that some companies are importing cotton as it has become cheaper to import because domestic prices were higher than global prices. In short doesn't look like in future there would be much of a margin expansion due to cotton prices falling much.
Most important thing to figure out seems to be the composition of cotton and yarn cost as a part of their total RM and Component Costs and then assessing the impact of cotton price rise on their margins. They would also be utilising yarn as their RM but yarn prices usually (I think) rise with a lag and trail the cotton price rise in %age terms. I think (but I can't recollect) that they had mentioned that Cotton cost forms 40% of their total RM costs (that would make it 20% of sales last FY16). Don't know about Yarn cost though.
Another thing to understand would be the impact of cotton to polyster price ratio, as when this is higher then it has the potential to impact the sales of the company. I think this is driven by the crude price factor which we all know is down. I think cotton to polyster price ratio factor was already discussed somewhere at VP (can't recollect if it was on this thread or some other thread). I think impact due to this would be more difficult to assess or quantify as compared to calculating the impact of RM price rise once composition is known.
Mgmt. has said earlier that it can pass on the price rise to customers but I am not sure as to how easy it is to do it in case of a steep RM cost increase and hence would like to discount this.
Just some thoughts that I had in mind.
Discl: No holding as of today. Few things stated above are interpretations on the basis of what I have read etc. and hence the same can be wrong. Please do your own due diligence and form your own views.