Indo Count new business scale-up drives growth and margin recovery

Investment View and Growth Thesis

Motilal Oswal Financial Services reiterated its Buy view on Indo Count, supported by the expected scale-up in emerging businesses and a recovery in the core business. The broker expects revenue, EBITDA and PAT to record CAGRs of 21 per cent, 45 per cent and 90 per cent, respectively, over FY26-28.

The core portfolio is expected to grow at an 11 per cent CAGR, while the new business is expected to grow by about 58 per cent over the same period. The outlook is supported by a favourable base and strong client relationships.

1QFY27 Financial Performance

Indo Count reported consolidated revenue of Rs 12,070 million in 1QFY27, up 26 per cent year on year. Growth was led by a 198 per cent year-on-year increase in the new business, while the core business remained flat. Reported revenue was 12 per cent above Motilal Oswal's estimate of Rs 10,738 million.

New business contributed 32 per cent of 1QFY27 revenue. Utility bedding capacity utilisation reached 60-65 per cent during the quarter.

New Business and Core-Business Outlook

Management expects new-business revenue to double to Rs 15 billion in FY27, including about Rs 5 billion from the US branded business. It expects the core business to generate FY27 revenue of Rs 40 billion, based on bed-linen volumes of 105-110 million metres.

Management considers 1Q seasonally weak and expects 2Q and 3Q to be the strongest quarters, supported by US festive demand. Motilal Oswal expects the core business to recover while the new business scales up on the back of higher utility-business utilisation and the ramp-up of the US branded business.

Core Operating Trends

Core bed-linen volumes declined 3 per cent year on year to 23 million metres in 1QFY27, although they increased 12 per cent sequentially. The decline was attributed to container unavailability, which management indicated would persist into 2Q. Core bed-linen capacity utilisation stood at 60 per cent during the quarter.

Core-business realisation increased 3 per cent year on year but declined 9 per cent sequentially because of product mix. The Bhilad unit, which has capacity of 45 million metres per annum, was temporarily shut from July 23 because of floods and had partially resumed operations by the report date.

Margin Outlook and Estimates

Management expects FY27 margins of about 13 per cent, including other income, and maintains a long-term margin target of 15-16 per cent. Motilal Oswal expects gross margin to improve to about 55 per cent and EBITDA margin to rise to 13-14 per cent, driven by improved utility-business utilisation and the US branded-business ramp-up.

Valuation and Key Risks

Motilal Oswal's target price of Rs 550 values Indo Count at 15 times FY28E EV/EBITDA.

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