ICIL - Indo Count Industries Ltd Share Price

Management provided an optimistic outlook amidst significant challenges during the Q1 FY26 earnings call. They highlighted the relaunch of the Wamsutta brand as a direct-to-consumer offering, expecting it to pave the way for increased revenue streams beyond bedding, including towels and other soft home products. The company's strategic reclassification into core and new business segments aims to enhance clarity for investors, with core bed linen delivering a 16% CAGR from FY23 to FY25 and new businesses expanding nearly four-fold in the same period.

Despite facing headwinds, especially due to uncertainties surrounding U.S. tariffs, management is unwavering in its commitment to achieving a 2x growth target. They reported a year-on-year revenue growth of just 2%, with EBITDA margin contraction largely due to incubation costs affecting new businesses. Management noted that margins are expected to improve as the new businesses gain traction and scale.

Key financial metrics include total income of INR 967 crore for Q1 FY26, a decrease in sales volume to 23.6 million meters, and an EBITDA of INR 119 crore (down 23% year-on-year). The company aims for a revenue contribution from the utility bedding business to reach $175 million over three years, projecting a gradual increase in capacity utilization which currently stands at 50%.

Management emphasized that entering new markets through FTAs, especially with the U.K. and EU, could significantly enhance competitiveness, as the elimination of tariffs presents an advantage over countries like Bangladesh. They foresee their non-U.S. revenue contribution reaching 30%, further diversifying their market presence. In summary, while near-term volatility is anticipated, management's strategic initiatives and market positioning indicate a solid foundation for future growth.

Major Questions and Answers from the Earnings Transcript Q&A Section

1. Question by Prerna Jhunjhunwala: "How are the U.S. retailers behaving in terms of order placements and negotiations with respect to 25% tariff or 50% tariffs?"

   Answer: "Currently, it's business as usual for us. Retailers are watching the situation closely, but orders continue as projected. We're still receiving purchase orders and shipping as planned."

2. Question by Prerna Jhunjhunwala: "What impact does the increased tariff have on gross margins?"

   Answer: "The impact is case-specific; if orders are FOBC, it hits gross margins directly. The specifics largely depend on the sensitivity of the business scenario we are facing."

3. Question by Prerna Jhunjhunwala: "What cost control measures have been taken, and are they sustainable?"

   Answer: "We've benefited from lower raw material costs and have implemented operational efficiencies. These measures will continue as they correlate with volume and specific operational expenditures."

4. Question by Prerna Jhunjhunwala: "Where do you see your non-U.S. exposure going in the next 3 to 5 years; will this be a growth driver?"

   Answer: "Currently, non-U.S. exposure is about 30% of our core business. With existing FTAs and growing presence in markets like Australia and the U.K., we anticipate significant future growth."

5. Question by Ashwini Agarwal: "Will you manufacture the towels and window treatments, or will they be outsourced?"

   Answer: "Today, these products are designed by our teams and sourced globally from vendor partners. We have no immediate plans for in-house production for these categories."

6. Question by Ashwini Agarwal: "What is the expected margin profile for the U.S. brands business?"

   Answer: "We aim for margins between 16% to 18% for this segment, which should exceed our core business margins with time as we manage uncertainties in the current environment."

7. Question by Surya Narayan Nayak: "Are you optimistic about sustaining volumes in FY '26 despite tariff headwinds?"

   Answer: "We're cautiously optimistic and aiming to maintain our market share while navigating uncertainties. Our goal is to manage any volumetric declines effectively."

8. Question by Surya Narayan Nayak: "What revenues do you expect in U.S. operations that are not affected by tariffs?"

   Answer: "It's challenging to project exact figures now, but we strongly believe our U.S. utility bedding business could achieve $175 million over the next three years, starting this fiscal year."

9. Question by Jayesh Shah: "How are you handling potential losses of orders in the U.S. due to tariffs?"

   Answer: "We are not looking to replace U.S. business by discounting in other markets. Our business model relies on consistent replenishment, not seasonal fluctuations."

10. Question by Raman K.V.: "Is your new U.S. business EBITDA breakeven or is it expected to be by year's end?"

    Answer: "Currently, we are recovering our costs even though we face a 150-200 basis point margin hit. We expect this to stabilize as capacity ramps up by the end of the year."

These questions and answers provide insight into Indo Count Industries' strategy and performance expectations amidst the current tariff challenges.