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

The Economic Times - - Commodities Plus - Dia.Rekhi@ times­group.com

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

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