Indo Count Industries
BSE SENSEX
34,951
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
S&P CNX
10,524
ICNT IN
Robust volumes without earnings vigor as currency/mix/RM cost haunt
197
Expect continued margin pressure
12.6 / 0.2
139 / 53
Operating performance disappointing:
ICNT’s revenue declined 1.4% YoY to
4/-24/-47
INR4,860m (our estimate: INR5,273m) in 2QFY19. EBITDA fell 30% YoY to
108
INR498m (our estimate: INR770m), with the margin contracting 420bp YoY
41.1
5 November 2018
2QFY19 Results Update | Sector: Textiles
CMP: INR64
TP: INR72(+13%)
Neutral
Financials & Valuations (INR b)
2018 2019E
Y/E Mar
Net Sales
19.6
20.5
EBITDA
2.6
2.5
PAT
1.3
1.1
EPS (INR)
6.4
5.8
Gr. (%)
-45.7
-9.5
BV/Sh (INR)
48.4
53.0
RoE (%)
14.0
11.4
RoCE (%)
11.9
10.3
P/E (x)
10.0
11.1
P/BV (x)
1.3
1.2
2020E
21.7
2.7
1.3
6.6
13.6
58.4
11.8
10.8
9.7
1.1
Estimate change
TP change
Rating change
to 10.2% (our estimate: 14.6%). Adj. PAT declined 39.4% YoY to INR218m
(our estimate: INR395m) in the quarter.
1HFY19 performance:
Revenue grew by 2% YoY to INR9,429m. EBITDA
declined 17% YoY to INR1,139m, with the margin contracting 270bp YoY to
12.1%. Adj. PAT declined 25% YoY to INR506m. In 2HFY19, we expect
revenue growth of 11% YoY, with margin contraction of 100bp.
Steady volume growth, but expect pressure on profitability:
ICNT delivered
volume growth of 9% YoY in 2QFY19 and 15% YoY in 1HFY19. The company
is well on track to meet its volumes guidance of 58-60m mtrs in FY19, with
30.2m mtrs already achieved in 1HFY19. However, revenue growth and
profitability were impacted in 1HFY19 on account of currency volatility
(hedged at exchange rate lower than realized translation), product mix
changes and raw material (RM) cost pressure. Going forward too, RM cost
pressure (cotton prices at INR46k/candy v/s expectation of MSP level prices
of 43-44k/candy) and currency volatility are likely to persist.
Valuation and view:
Due to the strong miss on earnings (45%) in 2QFY19
and the likely gross margins pressure in 2HFY19, we cut our
revenue/earnings estimates by 3%/24% for FY19 and by 5%/24% for FY20.
We also note that strong volumes have not translated into robust revenue
growth and operating performance. We value the stock at 11x FY20E EPS
(~10% discount to its five-year average P/E) on account of the continued
muted performance and likely pressure on margins. Our target price of
INR72 implies a 13% upside. Maintain
Neutral.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Sumant Kumar – Research Analyst
(Sumant.Kumar@motilaloswal.com); +91 22 3078 4702
Aksh Vashishth – Research Analyst
(Aksh.Vashishth@motilaloswal.com); +91 22 6129 1553