Indo Count Industries Limited (521016) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Indo Count Industries Limited Q1 FY '27 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand over the conference over to Mr. Mohit Jain, Executive Vice Chairman. Thank you, and over to you, sir.

Good morning, and a very warm welcome to all of you joining us for the Indo Count Industries Limited Q1 FY '27 Earnings Call. I'm also joined by Group CFO, Mr. K. Muralidharan; Manish Bhatia, our CFO; and Strategic Growth Advisors, our Investor Relations advisers. We hope you had the chance to review the financial results and investor presentation available on the stock exchange and on our company website. Before I begin with the business update, I would like to take a moment to pay a tribute to late Mr. Kailash Lalpuria, who is an integral part of Indo Count and a highly respected leader in the textile industry. For more than a decade, Mr. Lalpuria played a pivotal role in shaping the strategic direction and growth of Indo Count. He was instrumental in making several important strategic choices that has helped in building Indo Count into a strong institution. I now come to the business update. Q1 FY '27 marks a strong start to the year, achieving several important milestones. We delivered our highest ever quarterly revenue, reflecting the growing scale and momentum across our businesses. A particularly encouraging development has been the rapid scale-up of our new business, which has nearly tripled over the past one year. This demonstrates the strength of our diversification strategy and gives us increasing confidence in its contribution to our growth going forward. Importantly, our EBITDA margin is on a recovery trajectory, supported by improving operating leverage and better volumes across the business. While there are still some cost pressures as we scale, the underlying operating performance continues to strengthen. Our performance for Q1 is in line with our stated guidance for the year of INR 5,500 crores with approximately 13% EBITDA margins. Our U.S. manufacturing operations also continue to perform well. Overall, utilization has remained around 60% to 65% despite the recent addition of our greenfield facility in North Carolina in January 2026. The ability to maintain these utilization levels while absorbing significant new capacity is a strong indicator of our capabilities. Overall, we believe these developments provide a strong foundation for sustained growth and improved profitability through FY '27 and beyond. Before I move to further details, I would like to highlight a couple of important developments that reinforce our confidence in the opportunity ahead. We recently participated in Bharat Tex 2026, India's largest textile trade fair and received an encouraging response from both global and domestic customers across our product portfolio. We engage with distributors, direct retailers, LFS partners, corporate gifting and hospitality buyers. Another important milestone has been our continued progress on sustainability. Sustainable and responsible growth remains firmly embedded in our strategy with a strong focus on energy efficiency, responsible sourcing and integrating ESG principles across our operations. These efforts have been recognized through three prestigious awards by the Confederation of Indian Textile Industry during Bharat Tex 2026. These recognitions reinforce our commitment to building a business that delivers growth while creating long-term value responsibly. On a long-term basis, India is firmly emerging as a preferred global sourcing partner with a strong track record in quality, innovation and delivery. The FTAs with the U.K. and EU, along with positive progress on the U.S. trade deal are creating a more favorable and level playing field for Indian textile exporters and are expected to accelerate the shift in global sourcing towards India. Let me talk about core business performance now. Our core business was impacted by the U.S. tariff situation last year. We are now seeing early signs of recovery. Q1 FY '27 volumes stood at 23 million meters compared to 20.5 million meters in Q4 FY '26, representing a 12% sequential growth. Volume throughput was impacted by container availability constraints arising from the West Asia conflict. With the external environment stabilizing, we expect this momentum to strengthen through the year. Q1 volume should not be viewed as a benchmark for the full year as Q1 is typically a softer quarter for us, while Q2, Q3 are stronger, driven by the U.S. festive period. Core business revenue stood at INR 837 crores in Q1 FY '27, up 4% sequentially. The change in product mix impacted quarterly realizations. However, the underlying volume trajectory remains steady and EBITDA margins improved. It is also important to highlight that quarterly realizations can fluctuate depending on the product mix. On a full year basis, however, we expect realizations to remain broadly intact. We remain confident of delivering our FY '27 volume guidance of 105 million to 110 million meters and core business revenue of approximately INR 4,000 crores. Non-U.S. core business. Our non-U.S. core business contributed to approximately 30% during the quarter. The U.K. FTA restores a level playing field for Indian exporters, while the expected EU FTA will further open a large market on duty-free terms. Together with the existing duty-free access to Australia, Japan, New Zealand and the Middle East, these arrangements significantly strengthen our global opportunity. As mentioned in the previous earnings call, we expect strong traction from non-U.S. markets going forward and anticipate revenues from non-U.S. markets to grow by 20% plus in FY '27. New business performance. Coming to our new business comprising utility bedding and the U.S.A. brand business, momentum continued to strengthen with Q1 FY '27 revenue reaching INR 387 crores. This performance was supported by established facility in Ohio and Arizona, the newly commissioned greenfield facility in North Carolina and the launch of Wamsutta in July '25. We remain firmly on track to achieve our FY '27 business revenue target of INR 1,500 crores. On an annualized basis, Q1 FY '27 revenue represents nearly 60% of our targeted USD 275 million new business ambition for 2028, providing a strong foundation for the next phase of growth. Update on our Bhilad plant. Our Bhilad, Gujarat manufacturing facility was temporarily impacted by heavy rainfall and flooding from 23rd July 2026. The facility has partially resumed operations from 12th August 2026 with normalization expected in a phased manner. A preliminary survey has been conducted by the insurance company appointed surveyors and the insurance claim process has been initiated. We are adequately insured to cover the losses. To conclude, Indo Count is well positioned to capture the next phase of global home textile growth, combining trusted quality, sustainability, strong brands and increasing direct consumer connect. Looking further ahead, we remain committed to our INR 8,000 crore revenue aspiration by CY 2028, supported by continued core business growth and our USD 275 million new business ambition. With this, I will now hand over to Manish to take you through the financial numbers.

Good morning, everyone, and thank you for joining Q1 FY '27 earnings call. I will first provide a brief overview of our performance, following which we will open the floor for questions. So quarterly highlights, Q1. Volume. Sales volume for Q1 FY '27 stood at 23 million meters compared to 20.5 million meters in the previous quarter, reflecting a 12% quarter-on-quarter growth, supported by an improvement in overall demand as the uncertainty surrounding U.S. tariffs eased. Sales volume for Q1 FY '27 declined 3% Y-o-Y, primarily on account of container availability constraints, a temporary logistical issue that impacted dispatches. Total income. Total income for Q1 FY '27 stood at INR 1,224 crores compared to INR 1,088 crores in the previous quarter, registering a 13% growth, driven by higher volumes in the core businesses and continued scale-up of new businesses. On a Y-o-Y basis, the total income grew 27%, largely led by increasing contribution from the new business. EBITDA. EBITDA for Q1 FY '27 stood at INR 160 crores compared to INR 116 crores in the previous quarter, registering a 38% quarter-on-quarter growth driven by improved operating leverage as utilization level increased across both the core and new businesses. The strong performance was partially offset by higher employee costs, primarily due to the commencement of the operations at the Greenfield facility and the continued ramp-up across other facilities. EBITDA margin improved by 241 bps to 13.1% from 10.7% in Q4 FY '26. On a Y-o-Y basis, EBITDA grew 34% with EBITDA margin expanding by 74 basis points from 12.4% in Q1 FY '26, reflecting better operating leverage. PAT for Q1 FY '27 stood at INR 63 crores compared to INR 24 crores in the previous quarter, representing a 2.5x sequential increase driven by improved operating efficiency, lower finance costs and the absence of the one-off GST refund related expense incurred in the previous quarter. PAT margin expanded by 294 bps to 5.2% from 2.2% in Q4 FY '26. On a Y-o-Y basis, PAT grew 62% with PAT margin expanding by 114 bps, reflecting stronger operational performance and improved flow-through from the top line to bottom line. EPS for Q1 FY '27 stood at INR 3.19 per share. With this, I open the floor for questions.

[Operator Instructions] We do have our first question line of [ Abhishek ].

Congrats on a good set of results. And my question was regarding the Bhilad plant. So you called out that there is some disruption to the operations. So I just wanted to know whether what is the impact on the -- what would be the impact on the volumes considering that the plant has been closed for about, say, 15 to 20 days now. And you also called out that Q2 and Q3 are good quarters. I assume that there will be inventory with you. So considering the disruption in operation, how do you look at Q3 and Q4? Is there any deferment in shipping the orders?

On the Bhilad facility, let me tell you that we are fully insured. It's only increasing our scale of operations in every department out there. over the next couple of quarters, we are confident to serve each and every customer for all their orders. So we should be able to make up our lost ground.

Okay. So I assume that you were able to kind of offset the production loss in Bhilad, in other plant?

That's the endeavor.

Okay. Okay. Okay. And just another bookkeeping question. So I see the other income has on Y-on-Y basis, it's slightly on the higher side. So like what's the reason? Is some ForEx gain or something?

What is on the higher side, come again, you were not clear.

Other income.

Our other income is in line. If you see last year it was INR 80 crores, right now, it's INR 20 crores.

I might have missed something, sorry.

Next question is the line of Raman Kerti from Sequent Investment.

Sir, I just have two questions. One is I just want to understand what's the margin difference across our core business, which is bed lining versus our new business, which is like utility bedding and branded business. How much of a margin difference these two businesses have?

No. As we have mentioned, Raman, that our objective, once our utility bedding business achieves full scale, we expect to do 15% also on the utility bedding business. Of course, as we scale up more than our new greenfield project has just started. So any new facility that starts, there's a gestation period. So keeping that in mind, that's why the margins on that facility is on the lower side. But otherwise, our bed linen business, you can get a respective idea from our stand-alone numbers. So we've done slightly better than 15% in this quarter. But over a period of time, we expect both businesses to do similar margins.

So bed lining and utility business are like a 15% margin business. So my assumption is our branded business should be a much better -- higher realization business. So is there any margin difference?

So again, as we mentioned, I just want to be clear that from a long-term perspective, we expect our bed linen business to do 15%. We expect our utility bedding business to do 15%, and our brand business should do 100 to 200 basis points better than 15%.

Understood. Yes. That was my main thing. And second question is from the revenue perspective, how much revenue was from U.S.A. during this quarter versus last quarter?

From the new business or from the U.S. I did not follow.

Overall. So I was asking on a consolidated basis, how much revenue was from U.S. during this quarter versus the last quarter?

So I can tell you our core business, 70% of our revenue comes from the U.S. and 30% comes from non-U.S. countries. And the new business is all U.S. So the INR 387 crores is all U.S. So you can do the math.

Our next question is from Naveen Baid from Nuvama AMC.

I just wanted to sort of clarify whether there was any tariff refund in the quarter? And if yes, then how did be accounted for?

There's no tariff refund in the quarter, Naveen, at this point of time.

Our next question is from the line of [indiscernible] from AlfAccurate Advisors.

So like as you mentioned in your initial remarks that there was some container issues in 1Q. So how is the situation now? And like are you confident of volumes shipping out the volumes in the next two, three quarters?

So as we speak, we are confident of achieving our guidance of 105 million to 110 million meters and INR 4,000 crore revenue. The container issue continues.

Okay. And on the new business, so 2Q and 3Q are usually stronger for the new business?

No. The new business is very new for us. So it will take us some time to get the -- watch the variability in the business. From a core business perspective, I would say that Q2 and Q3 have historically been the higher quarters.

Okay. So you expect this run rate to continue in the next two, three quarters?

What run rate?

The INR 370 crores that we have done in the new business?

So for the new business, we have given a guidance of INR 1,500 crores for the full year. So we should be able to be on track for that.

Our next question is from the line of Bhavin Chheda from Enam Holdings.

Overall, very good numbers and very strong guidance also in the presentation. Sir, a few questions. First, to continue on the tariff refund, though you said that there is no tariff refund in the quarter. Can you guide us whether you are expecting any tariff refund, any filings made or any filing made by distributor on client for the goods supplied by Indo Count and how the discussions are going around with the clients on the same?

Bhavin, we do not expect any material financial benefit from the potential U.S. tariff refund, Bhavin. Nearly 80% of our exports are on FOB basis where the tariff is borne by the importer. As the process is still evolving and discussions with customers are going on, it would be premature to quantify the amount or the proportion that might ultimately come to the company. In our view, we'll have a greater perspective and clarity by the end of the year, and we'll keep all the investors updated on the same.

Sure. Sir, my second question is on the bed linen realization was approximately INR 357 a meter, which I see on a Y-o-Y basis was just higher by 1.5% despite rupee depreciating by over 9%, 10% and tariff coming in Q1 much lower than what it was last year, why we don't see it getting reflected in rupee realization because even assuming dollar realization being same. So has there been an impact of product mix or we are still to take price hikes upon the clients?

So we have seen an impact on product mix in first quarter. But as I've mentioned that look at our realizations on a yearly basis. So on a yearly basis, we'll be absolutely fine. And as far as your question on price increase, as we had mentioned last year -- last call also that, of course, as we are aware that post -- as the war took place in February and -- sorry, all raw material prices have gone up. So on a case-to-case basis, we've gone back to all our customers, and we've concluded all our price conversations. So those are -- those impacts will come from Q2 onwards.

Okay. So in the rupee terms, we'll keep on seeing price improving as the impact of the client negotiation that comes in through, right?

Yes. Yes.

Right. And my last question on the non-U.S. business. Obviously, the U.K. tariff FTA has come through. So how much of the business we have in U.K.? And how we are seeing on the client interaction, whether clients have started sourcing more -- has there been new client inquiries, if any update on that? Because we obviously will have 9% to 10% benefit there now.

Our U.K. business is anyway has been between 8% and 10%. Having said that, we have a very active office in the U.K. with the team there. And our interaction has -- let's say, we were interacting with a client, I'm making it up 4x in a year, that interaction has gone up 8x in a year. So the interaction, whether it's the U.K. or the EU has gone up, whatever we've seen from the past with FTA, it's not that -- it's not a switch on and off, right? As soon as the FTAs happen, something happens dramatically the same quarter or next quarter. It takes, I would say, 12 to 18 months to pan out. So we are seeing that visibility going forward on the positive side.

Sure. And obviously, you've also given a guidance of over 20% revenue growth you're seeing in the non-U.S. business. So is that partly reflecting new business in U.K. plus EU area?

Absolutely, those countries and other parts of the world also.

We'll take the next question from the line of Kaustubh Pawaskar.

This is Kaustubh here. Congrats on a good set of numbers Sir, I have one question. Your stand-alone EBITDA margins for this quarter, it has improved to around 13.9%. So if we look to the pre-tariff as well, your stand-alone EBITDA margins was around 14% to 14.5%. Going ahead, considering the fact that there are certain supply disruption and the cost has gone up, also this Bhilad facility, which was nonoperational for around 20 days. So considering that, should we expect some decline in margins in quarter 2, quarter 3 at standalone. Hello?

Members of the management team?

Yes, yes, I can hear you, ma'am.

Yes, sir. Please proceed.

Kaustubh, can you hear me?

Yes, sir.

Yes. So what I said is that I'll not be able to guide you at such a precise level, but our endeavor is to maintain our 13% blended margin on a consolidated basis. So look at it from that perspective, some quarter here and there a little bit does not matter. So for the full year, that's our endeavor.

Right. Sir, just from the understanding point of view, are we expecting any onetime losses because of this disruption what you have seen in the Bhilad facility. Anything on that front, if you could help us?

Sure, sure. No, all our facilities are adequately insured, whether it's for property, whether it's for inventory, whether it's for loss of profit. So as a company, we are adequately insured in all our locations, including Bhilad, of course.

We'll take the next question from the line of [ Jatin Damaniafrom SVAN Investments ].