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MOSL: INDO COUNT INDUSTRIES (Neutral) - Multiple headwinds hinder recovery

INDO COUNT INDUSTRIES: Multiple headwinds hinder recovery; Re-stocking and stable cotton prices to heal the ailing textiles sector

(ICNT IN, Mkt Cap USD0.2b, CMP INR84, TP INR95, 13% Upside, Neutral)

 

• Results below expectations: ICNT's revenue declined 17.4% YoY to INR4,237m (est. of INR4,975m) in 4QFY18. EBITDA margin shrunk 350bp YoY to 14.1% (est. of 13.6%). EBITDA declined 34% YoY to INR596m (est. of INR677m). Accordingly, adj. PAT fell 45% YoY to INR268m (est. of INR356m). For FY18, revenue declined 13% to INR19,582m, the margin contracted 560bp to 13.4% and adj. PAT fell 46% to INR1,253m.
• FY18 plagued by multiple headwinds: ICNT's revenue fell 13% in FY18 on account of (i) destocking by major US retailers in 1HFY18, (i) strengthening of INR against USD, (iii) revision in government incentives (duty drawback, ROSL, MEIS) and (iv) increased in-house consumption of yarn. Further, margins shrunk led by volatile raw material cost and significantly higher power, fuel and job work charges (+250bp YoY rise in other expenses).
• Volume recovery expected; guidance steady: Management's guidance remains strong going into FY19. With expected pick-up in demand, the company has guided for volumes of 58-60m mtrs in FY19 (v/s 54m mtrs in FY18). Also, led by a stable outlook for cotton prices and a stringent check on power & fuel cost, the company expects margins to be in the range of 14%-16%. With key moving parts (currency, raw material, demand) returning back to stability, the company should post volume CAGR of 6% over FY18-20, in our view.