As worries over the spread of the new Covid-19 variant Omicron grow, increased global awareness on health and hygiene and work from home trends are seen augmenting demand for home textile companies. Several analysts have identified Trident and Indo Count Industries as the best play on the textile sector at this point.
In the past year, shares of Trident soared over 400 percent while those of Indo Count gained close to 60 percent. The former zoomed near 690 percent in the past three years and the latter jumped 345 percent during the same period.
About Trident:
Ludhiana-based Trident is a vertically integrated textile (yarn, bath and bed linen) and Paper (wheat straw-based) manufacturer and is one of the largest players in the home textile space in India.
The company operates in two major business segments: Textiles and Paper, with its manufacturing facilities located in Punjab and Madhya Pradesh.
The Punjab-headquartered company reported its highest-ever quarterly revenue in Q2 FY22 amounting to Rs 16,726.7 million and also posted its highest-ever quarterly net profit of Rs 2,288 million in Q2 FY22 with a notable 15 percent sequential fall in net debt.
About Indo Count:
The company is one of India’s largest home textile manufacturers and exporters with an extensive product range that spans across bedsheets, quilts and bed linen. It has a presence in the top 9 out of 10 top big-box retailers in the US.
Indo Count exports to nearly 54 countries with the US being the prime market.
Indo Count’s consolidated net sales came in at Rs 738.71 crore in the quarter ended September 2021 which was up 2 percent Year-on-Year (YoY). While quarterly net profit stood at Rs 84.87 crore, up nearly 4 percent YoY.
Recently, the bedding solution provider acquired home textile business of GHCL. With this, ICICI Direct Research believes Indo Count would become the largest home textile bedding company globally, with an annual capacity of around 153 million metres.
This acquisition could incrementally add potential revenue of Rs 1,300-1,500 crore over the next two to three years, the brokerage said.
Expert views:
“As a ‘sector’, we do see home textile as an investment bet due to the COVID effect and consequent pent up demand. India is not just amongst the largest producer but also the largest consumer of home textiles. In fact, as per our data, our nation is the second largest producer of home textile with a 6.9 percent share in the entire global market,” Salonee Desai, Head of Research, Moat Financial Services.
“So we’re definitely betting on the sector as a whole through individual companies like Trident and Indo Count,” Desai added.
Further, she believes the sector is undervalued which makes these stocks attractive.
Some analysts are of the opinion that the uniform 12 percent GST rate on manmade fibre, yarn, fabrics and apparel would further support earnings per share numbers and cash profits eventually leading to higher valuations for Trident and Indo Count.
Meanwhile, Nirav Karkera, Head of Research at Fisdom, says that there are more developments in favour of the home textile segment versus downside risks which largely emanates from the profitability of a resurging pandemic.
“As home furnishing retail sales pick up in the US and Europe especially during the upcoming festivities, we can expect domestic manufacturers to scale operations aggressively in response,” Karkera explained.
From a medium to long term perspective, the 'China plus One' play could augur well for Indian home textile exporters, Karkera firmly believes.
Several market participants also said that the US banning import of cotton products from China’s Xinjiang region will benefit Indian textile companies.
“The US and the European Union are the two largest markets for Indian textile exporters, followed by various Asian countries and the Middle East. With the ban, China and Pakistan both have lost around 5 percent market share in US cotton sheets since 2020,” said Neha Nagar, Financial Influencer and Founder of Taxationhelp.in.
India’s market share in US cotton sheets has increased to 59 percent from January to August 2021. In the terry towel segment, India’s share has risen by 200 basis points to 44 percent in CY21 till October end, Motilal Oswal Financial Services said citing Office of Textiles and Apparel data.
This industry will see its revenue shooting up because of easing logistics issues, global work from home trends and growth in exports, Nagar added.
Technical levels to watch out for:
For Indo Count, the scrip could rally up to Rs 350 which means a 36 percent upside from the current level of Rs 258. Treat Rs 220, a level which provides strong support to the stock, as the stop loss level, said Kkunal Parar, Vice-President Research at Choice Broking.
He said that Trident shares could gain another 22 percent from the current level of Rs 49. Parar added that the stock will take support at Rs 44.
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