Bulls may Have a Go at Home Textile Cos Shares of Welspun, Indo Count, Trident turn ripe picks as low raw material costs & strong online presence boost sales
Mumbai: Home textile companies may once again catch the fancy of investors looking to bet on increasing consumption by the country’s growing middle class. After underperforming the broader market so far this year, shares of Welspun India, Indo Count Industries and Trident are ripe picks as lower raw material prices and stronger online presence are expected to boost sales.
Indo Count Industries, one of the largest suppliers to WalMart, JC Penney and other major international brands, is a favourite stock pick among analysts. “With the urban consumption theme set to pick over the next few years, we believe the home textiles space should emerge as an attractive investment opportunity,” said Arun Gopalan, vice-president, Research at Systematix Shares and Stocks.
The US outsources a large amount of home textiles from low cost destinations like India and Bangladesh. India has a natural low-cost advantage of cotton production, labour and spinning capacity that meets US requirements, analysts said.
“Most of the top players have scaled up capacity by tying up with many retailers in the US and Europe in the bed linen, terry towel and other home segments. This is expected to sustain going forward owing to the sustenance of client relationships,” said Dhiraj Sachdev, head of equities at HSBC Global Asset Management,
Analysts are bullish on the companies because prices of cotton, a key input, has been under pressure. Cotton prices in India will be cheaper than in China.
“Cotton prices have been under pressure for almost two years now and this is a big advantage that these companies are benefitting from,” said Siddharth Oberoi, founder, Prudent Equity. “Another advantage is that there is a structural move to outsourcing from India. Indo Count Industries is likely to benefit as it has tied up with companies like Wal-Mart and has a pass through of prices in case of rise in cotton prices.”
Analysts said the recent underperformance in stock price have made their valuations look attractive. Indo Count Industries is trading at a price to earnings (P/E) ratio of 15.89 times estimated earnings, according to Bloomberg estimates. Welspun India is trading at 13.26 times estimated earnings while Trident is trading at 11.27 times estimated earnings. “Though there are many players dabbling in this space, none have tasted remarkable success yet. Growth in the home textiles space has been a languid 8% CAGR, while the broader home décor space has grown at 15% CAGR,” said Gopalan. So far in 2016, Welspun India declined 3.10%, Indo Count Industries fell 9.32% and Trident dropped 10.99%.
Analysts are bullish on the companies because prices of cotton, a key input, has been under pressure