Indocount - Textile Stock

(sandeep17) #126

I guess its mostly the shift towards online. Go through this :-1:

Some of these retailers are listed companies so you can get more details from their SEC filings.

(vjm) #127

Do we know how much of their sales/revenue is from online channels like Amazon - and how that has progressed in last two years - that will help to asssess if this market shift will be neutral or negative to the co

(GSApte) #128

I am looking for more details like reason for revenue de-growth of about 16% in Q1 FY17-18.
One of the reasons is de-stocking by its customers in US, thus demand from US seems reducing.
Also, in spite of recent capacity expansion from 68 million meters to 90 million meters in FY16-17, it is going to take time to realize the benefits of this expansion.
Cotton prices going up by about 10% in past few months may put some additional burden on input costs. We need to see if Management can pass on this RM price increase to its customers soon.

Though the business fundamentals still look good, this story will take time to show some real uptrend in revenues. All said and done, things may turn out to be positive from here.

Disc: Invested since 2016.

(Ankit Kohli) #129

(Marathondreams) #130

Cotton prices are going down. This should be good news for companies like Indo count

(Amit Jain) #131

Textile companies have a huge problem of getting paid from their customers, especially if their business is commoditized. But, I guess Indo Count is managing it.

trade receivables
2015 264 cr
2016 288 cr
2017 367 cr

DSO is maintained for the most part.
2015 56 days
2016 51 days
2017 62 days

Non Current trade receivables of more than 6montsh is less than percent.

So far so good.

(Amit Jain) #132

Company is on a good footing. However, we need some strong growth number in sales, which are missing.

Year Ending EPS was 11.55, Sales 1989

whereas, 30/6/17 Q1 EPS was 1.62 (prev 2.47), sales 399

Which pretty much indicates fall in EPS and sales.

So, it is very likely that Indo count share price will continue to take a dive. And if markets, overall, were to sneeze, then Indo Count will surely get very cheap.

The price is nose diving. It has corrected 50% in last six months, and another 50% fall to 2015 low is a strong possibility.

Lets first see where the price settles.

(Amit Jain) #134

Given the tough times, my objective with Indo Count would be to get a good entry price. And leave it at that.

From its website and annual report, and the chairman’s dialogue, it is clear that they are ambitious. And they have the resources: bank funding, position in the market and the know how.

When the time is favourable for them, and they catch a good run-up of two to five years, this share is very likely to do well.

Textiles are usually commoditized businesses, but Indo Count is relying on its own brand. Unlike Kitex, which is a supplier.

(Marathondreams) #137

Further news of bumper cotton crop, although the news is related to unfortunate death of the farmers in Maharashtra. I have copied important paragraph from that news below -

"The Bt cotton crop at this time is standing at least one or two feet taller than previous years and with heavy foliage…. So, the farmers sprayed at head level. The area under cotton, too, has grown from about 37 lakh hectares to about 42 lakh hectares in the Maharashtra. Also, from the past 4-5 years, farmers have been extending the crop beyond December right till February-March to get extra quintals,” Waghmare said.

Entire news can be seen below

Another news related to cotton prices

I think all companies like Ambika, Welspun, Trident, Indocount would be beneficiary of falling cotton prices.

Disclosure - invested in Indocount @105 range

(khushi) #138

i feel contra investors can enter here as downside seems to be limited but good upside possible once company comes out of the current difficulties.

(Dhaliwal) #140

Honestly, I am surprised by lower valuation of Indo Count. I was expecting the stock to stay above Rs 200 level.

There can be many reasons for decline but I think ICIL is a good medium - long term (2-3.5 years) bet. If anyone is having any serious concerns about this company as a long term play, please let me know as I am planning to invest in this stock.

Disc: Invested at 160 (last year) and sold at Rs 190. Planning to reinvest for long term.

(sarangg) #141

Would like to caution investors on buying IndoCount at current levels. As a cyclical stock, you should not look at earnings in the rear view mirror but rather looking forward. Although it looks cheap compared to a cyclical high, this stock is trading at 2.7x book for a business that has frequently seen negative OPMs in the past, and thus is only a buy if you expect current margins to improve.

To track the cycle of the textlie cycle, we can look at GHCL’s earnings, which just came out. GHCL is very similar to ICIL in terms of its product mix (spinning and home textiles).

If you look at ICIL margins over the same time period (excluding Q2 results as they are yet to be seen), you will see that the drop in margins for both companies usually moves hand in hand. A look at GHCL Q2 concall confirms the hypothesis of 1) high oversupply in India 2) competition from China and 3) increased pressure from vendors due to their poor health.

Although there were some GHCL specific factors, most of it can be attributed to general industry conditions, and GHCL management does not see a revival for a couple of years, as is observed in most cycles. Thus there is a strong downside potential for this business to ~1-1.5x P/BV or even lower depending on how margins play out.

Disc. Short position on ICIL using futures/puts. May change anytime without updating post.

(ishandutta2007) #142

why did the company turnaround post 2012, it it because of just cyclical nature of textile or was there some change in companies business model ?

(RICHAJ) #143

Indo Count turned around because of a change of business focus.

It is grossly inaccurate to call the home textile business ‘cyclical’ without clarifying what that means. Further, the comparison to GHCL is also not valid given that different business models and future prospects. The management of GHCL has confirmed that they do not intend to go into the brand label business.

To understand what is happening with the home textile sector we need to look at the fundamentals. Welspun and Trident (and even Indo Count) have not performed as bad as GHCL’s textile division which has apparently reported losses due to issues with a few customers. I strongly believe that the issues plaguing the home textile sector and still not clear (reported reasons do not hold up to scrutiny) and that Indo Count’s stock price has significantly over reacted vs. other players.

(sarangg) #144

I’m very confused by this this statement. Q4FY17 and Q1FY18 margins for Indo Count and GHCL are similar (infact, GHCL has slightly higher margins as you can see from the photo above).

By cyclical, it simply means that too much supply has been added of subsitute goods (GHCL’s bedsheets v/s ICIL’s bedsheets), and thus given higher production, prices will have to decrease for market to absorb all the supply. No player has an established consumer brand in the US (I actually live here, and can confirm).

The textile market has clearly not been growing at the rate of these co.'s earnings, but rather that India has been gaining market share due to cost competitiveness and subsidies. However, the overall market has been fixed so when all these players have expanded capacity more than market demand, clearly theres going to be a price drop.

I don’t know why Trident/Welspun have shown good profits in recent quarters (might be a different sales mix) but apart from ICIL and GHCL, Vardhman Textile has also showed a dip in margins. I expect ICIL to mirror GHCL’s results broadly (I don’t see any counter factual to this data point), and detriorate in margins in Q2

(sarangg) #145

Here’s ICIL margins:

Here’s Welspun India margins:

Look at the growth since 2012. This is the meaning of a cycle @RICHAJ

(Gaurav Agarwal) #146

You was supposed to compare IndoCount with GHCL whereas you have shown OPM of Welspun and IndoCount.

(RICHAJ) #147

I believe that ICIL’s FY2018Q1 operating margin is 15%, while GHCL’s textile division’s is less than half of that. My broad point was that GHCL reported a loss, while ICIL did not.

I understand a cyclical industry to be one that varies (directly or inversely) with the business cycle, and the home textile industry does not satisfy this criteria. My point is that there is a significant difference between commodity industry and a cyclical industry.

I highlighted ‘different business models and future prospects’ as a difference between GHCL and ICIL. This is clearly evident from a cursory analysis of the companies’ textile divisions. Equity valuations are forward looking, however uncertain the future may be, and the future of ICIL is to offer a portfolio of brands (like Welspun where a significant percent of sales 30%? or so comes from branded products). GHCL has no intention to do this.

(Dhaliwal) #148

Keeping in mind your points (which I agree to a large extent), I can understand that ICIL stock has dropped. However, aren’t you finding the valuations attractive ? The stock has almost reduced 50 percent from its high. I also consider that this has happened when the market has gone up quite nicely.

I don’t deny that ICIL can drop further in case markets correct by 10 percent from current level.

However, at the same time, I think around 100-110, this stock is good for adding in small quantities. It is quite possible if the company offers positive news (the management of ICIL always remains upbeat) in terms of actual performance, the stock could jump by 20 percent from current levels.


(ishandutta2007) #150

It holds for almost all textile exporters, just like pharma or IT this sector is also facing headwinds in US market.