Indo Count Industries Limited (ICIL.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Indo Count Industries Limited Q2 and H1 FY '26 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 the conference over to Mr. Mohit Jain, Executive Vice Chairman. Thank you, and over to you, sir.

Thank you. Good afternoon, and a very warm welcome to all of you joining us for the Indo Count Industries Limited Q2 and H1 FY '26 Earnings Call. I'm also joined by our Group CFO, Mr. Muralidharan; Manish Bhatia, our CFO; and Strategic Growth Advisors, our Investor Relations adviser. We hope all of you have had the chance to review the financial results and the investor presentation available on the stock exchange and on our company website. Let me start by giving some broad highlights before we dive deeper in some of the business areas. For our Utility Bedding segment, we are very pleased to announce the signing of a licensing agreement with the Tommy Hilfiger brand. This marks our sixth licensed brand with 4 added in the last 2 years. This continued expansion underscores Indo Count's strong brand equity, manufacturing capabilities and trusted global partnerships. Tommy Hilfiger is a globally recognized brand with a legacy of over 4 decades across apparel, accessories, home textiles and lifestyle products. We are also happy to share that the recent relaunch of Wamsutta in the U.S. has seen encouraging early traction. Within a short span, we have sold the products within all 50 states in the U.S. market, reflecting strong brand recall and customer acceptance. This progress is in line with our strategic focus on premiumization and improving margin profile. This is an important step for us in strengthening our brand-led growth strategy and advancing our positioning in the value chain, particularly through our evolving direct-to-consumer model. On our 2028 guidance, we reiterate our earlier guidance of achieving approximately USD 275 million in revenues from the Utility Bedding segment and the U.S. brand business over the next 3 years. The momentum from both Wamsutta and the addition of Tommy Hilfiger reinforces our confidence in delivering on this guidance. Let me now talk on the core business. The tariff challenge persists in our core business. The 50% tariff imposed on India in late August 2025 has impacted India's export competitiveness in the U.S. market. However, given India's long established leadership in the U.S. home textile, Indo Count has been able to maintain its market share. Despite the challenging environment, we delivered sequential volume growth with volumes increasing by approximately 7% quarter-on-quarter to 25.2 million meters. Importantly, we have not witnessed any major order cancellations, which underscores the strength of our long-standing customer relationships. We have been observing product mix shifts and down trading since Q4 2025, and we have proactively navigated these changes to support our partners and maintain business continuity. With the additional Russian oil penalty of 25%, we made a strategic decision to temporarily partner with our customers on a case-to-case basis to protect long-term relationships and to maintain market share. This has temporarily affected margins, and we anticipate the situation to prevail until the tariff structure stabilizes. We remain optimistic about the ongoing U.S.-India trade discussions and expect tariff rates to eventually settle at levels below the current structures. During this period, our focus remains on balancing market share and profitability while reinforcing strategic customer partnerships and protecting our long-term market share and positioning. Let me share updates on the new business. Our utility bedding and USA branded segments continue to scale with the combined contribution increasing to 17% of revenues in Q2 FY '26 compared to 13% in the previous quarter. This implies a quarter-on-quarter increase of approximately 40% and is now at a run rate of approximately USD 85 million per annum as we stand. The tariff impact on this portfolio is limited as the utility bedding is manufactured in the United States and the branded segment is relatively less price sensitive and the products, including all the raw materials can be imported from various countries. Despite the challenging backdrop, we maintained approximately 60% capacity utilization across both our existing U.S. manufacturing facilities. Regarding our third manufacturing facility in North Carolina in the United States, which was initially scheduled to commence operation in September 2025, there's been a minor delay. The facility is now expected to become operational during late Q3 FY '26 or early Q4 FY '26. This greenfield project represents an investment of approximately USD 50 million and is being built with an annual production capacity of approximately 18 million pillows. Once fully ramped up, this facility is expected to generate USD 85 million to USD 90 million in annual revenues at optimal capacity utilization. We remain confident in our previously stated guidance of achieving approximately $175 million in annual revenues from the utility bedding business by 2028. Coming to the domestic market. In the Indian market, we are witnessing an encouraging uptick. The uptick is increasing, led by value-added offerings, a segment where Indo Count holds inherent strength in design, product development and quality execution. Just to give you some flavor, during the Diwali festive period, we executed focused marketing campaign to strengthen brand visibility and drive consumer engagement. We amplified our digital presence through performance-led campaigns across social and digital channels, which supported higher traffic and conversions on our own e-commerce platforms, boutiquelivingindia.com and layersindia.com. Our influencer-led and festive storytelling campaigns helped deepen brand connect and reinforce our digital-first positioning. On the front -- on the offline front, we continue to enhance the retail visibility of our premium brand, Boutique Living across leading retail destinations such as Shoppers Stop and At Home. We have also expanded our retail footprint for both Boutique Living and Layers, adding 700 new counters during Q2, which has enabled deeper penetration in key domestic markets. Additionally, we broadened our product portfolio with new introductions in the bath and top of bed segments. This has strengthened our presence in the bed and bath home fashion category and increased our overall retail wallet share in the domestic market. We believe the domestic market remains promising, and we anticipate strong growth opportunities ahead. To sum up, near-term volatility has impacted our performance in the first half of FY '26 and continues to present challenges for the quarters to come. Along with monitoring the current situation and in view of the challenging external environment, we will adopt a judicious mix of volume and price for sales in the United States. That's it from my side. Now I request Mr. Manish Bhatia, our CFO, to share financial highlights of the company.

Good afternoon, everyone, and thank you for joining the Q2 and H1 FY '26 earnings call. I will first provide a brief overview of our performance, following which we will open the floor for questions. At the outset, I would like to highlight that Q2 FY '26 and H1 FY '26 are not directly comparable to the corresponding period last year. This is largely due to 2 key factors. First, there was no U.S. tariff situation in the base period. Second, revenue contribution from the new business portfolio commenced only from Q3 FY '25. Coming to volume. Sales volume for Q2 FY '26 stood at 25.2 million meters versus 23.6 million meters in Q1 FY '26, a growth of around 7% quarter-on-quarter, showcasing a steady performance in this uncertain environment. Total income. Total income for Q2 FY '26 stood at INR 1,882 crores compared to INR 967 crores in Q1 FY '26, reflecting a growth of 12% on a quarter-on-quarter basis. This is due to higher contribution from new businesses and volume growth in core business. Coming to EBITDA. EBITDA for Q2 FY '26 stood at INR 123 crores compared to INR 119 crores in Q1 FY '26, a growth of 3% quarter-on-quarter. EBITDA margin for the quarter was 11.4% versus 12.3% in the previous quarter. We expect margin pressure to continue until the end of this year. PAT for Q2 FY '26 stood at INR 39 crores, almost similar to INR 38 crores in Q1 FY '26. As volumes in the core business scale up and new business show more traction, we expect stronger EBITDA to PAT conversion over the next 2 years. EPS for Q2 FY '26 is INR 1.97 per share. On the balance sheet side, we have also reinstated the balance sheet number for March 2025. This is due to finalization of the purchase price allocation of 2 units which we acquired in U.S. last year, which was earlier done on a provision basis. Accordingly, the provisional values of assets and liabilities recognized at the time of acquisition have now been retrospectively adjusted to reflect the final allocation. Coming to debt side, there has been around INR 175 crores of debt reduction in H1 FY '26. Net debt-to-equity ratio stood at 0.34x in September '25. With this, I open the floor for question and answer.

[Operator Instructions] The first question is from the line of Saransh Gupta from SVAN Investments.

I have a few questions. So what is our current cotton mix like how much do we source locally and how much is imported?

So approximately our imported component at Indo Count is anywhere -- it varies, but anywhere between around 30%, 35%.

Okay. Sir, a follow-up on this, like are we seeing any extension of the duty-free import of cotton that has been -- that is till 31st December 2025 till now? So is there any news on that?

So most of the cotton that we import at Indo Count is 32 millimeter in length and above, which was anyway duty-free from before. However, cotton below 32 millimeter in length is duty-free up to 31st of December this year. We do expect it to continue, but there's no news as of now. It should come out soon.

Okay. So sir, as we see that we have done better from Q1 in terms of volume. So how much of this is being contributed through U.S. and with the tariff impact, if the tariff -- taking an assumption like the 50% tariff situation sustains, so are these numbers sustainable or we can see an impact on that?

At this point of time, the increase in volume from Q1 to Q2 is in all markets, including the United States. Of course, in Q2 and Q3, we also have shipments for the holiday season that start going out. So there's an impact of that also in this, which is specific to the U.S. market also. Only time will tell once prices get recalibrated, retail get recalibrated how markets behave in the United States for future demand.

So taking the current situation into remark, we can say that the rest of H2 margin impact, though our top line is going to remain or maybe we can grow but our bottom line will be seeing a margin impact?

Yes, yes, because the full tariff impact is now just setting in now, because this happened end of August.

The next question is from the line of Nishita from Sapphire Capital.

Am I audible?

Yes, yes.

Yes. So I just wanted to know what is the total CapEx that we are doing in FY '26 and if we have any CapEx plan for FY '27?

Sure. So if you go to our investor deck, we had a total CapEx plan this year of approximately INR 200-odd crores out of which INR 100 crores or INR 99 crores was our greenfield project in North Carolina, where we spent half of that money right now. And then -- so basically, out of approximately INR 200-odd crores, we spent around INR 80 crores, INR 85 crores at this point of time. So -- and for next year, there's really not -- other than maintenance CapEx, there's really nothing else planned at this point of time. Some of the CapEx from this year might flow into next year, especially our zero liquid discharge at Bhilad because we are in the final stages of closing the technology that we want to use in the next couple of months. And that execution will go between -- some of that expense will go between this year and next year. But there's no other major CapEx at this point of time.

Okay. Understood. And if you could just reiterate what is the total revenue that we can do from the North Carolina capacity at full -- once it's fully ramped up? Actually, I couldn't hear you when you mentioned it in your starting comment.

No problem. It's $85 million to $90 million.

Okay. And when do we expect the full ramp-up to happen by?

So the facility will be fully up and running by end of this year, December or January. That's the expectation. So basically, you have to look at the utility bedding with all 3 facilities put together and not individually going forward because as we acquire facilities and as we set up new ones, as and when that happens, we've given what is the potential of each facility. But finally, you have to look at it all put together. So we have a capacity of 31 million pillows and expect to do a revenue of $175 million within a 3-year period, including this year.

The next question is from the line of Prerna Jhunjhunwala from Elara.

Am I audible?

Yes.

So just wanted to understand the impact of tariff in this quarter, like what would be the quantum of impact on EBITDA coming in because of tariffs?

So Prerna, I mean, we've taken a call on what discount to give to which customer on a -- predominantly on a case-to-case basis. And due to business sensitivity, we would really not like to get into further details. But of course, you can see between Q1 and Q2, there is an impact of almost 100 basis points to 84 basis points in the margin and it's predominantly due to tariff reasons. But we don't want to get into any specifics. There is going to be an impact. I mean, as we're giving -- recalibrating specifically for the Russian oil tariff.

Okay. And this impact will further increase only going forward because the Russian oil tariff was only for a month or 15 days’ time period? Is that correct?

Correct. The month is there. Of course, as a company, yes, the understanding is correct, and we are trying all ways and means with operational excellence, supply chain to see wherever some cost savings can also be done to offset whatever best can be done.

Okay. And sir, how is the demand in the U.S. now? Because what we understand is there could be a risk of demand slowdown given the inflationary environment that could kick in when full tariff products are -- full tariff is being passed on to the consumer. So how are the retailers behaving on order books and how is the utilization levels likely to be seen in the next half, especially second half?

Sure. So as we see it right now, we are seeing the retailers being very nimble-footed and trying to find what is the new normal. This is new for everybody, for whatever product portfolio they are selling. And they're continuously evaluating their product mix and inventory levels. So it's a very fluid situation, I would say. When the first 10% tariff came in all over the world, there was not that much of a drop in demand. But these are new tariff levels as the holiday season, we are just getting into November, December, extremely important months. So how these play out, how new retails come in, what impact that has on overall retail demand. This has nothing to do from an India perspective. This has to do with global supply chain and a global perspective. Only time will tell.

We would have some clarity about a quarter or 2 because that's how your factories will be functioning. So it would be great. I mean some sense, I don't want to [indiscernible], but whether it will be -- can we expect a decline in volume going forward? Some qualitative color would really help us to understand how Q3 should be assumed.

Sure. At this point of time, our third quarter looks very similar to our second quarter in terms of volume. So they are similar numbers. As we get into Q4 and forward, as I said, once the holiday season pans out, only time will tell once -- the full impact of retail price increases are not there in the market at this point of time. So once that kicks in, then how do the retailers react, how do they level set the inventories. This is very fluid at this point of time.

Understood, sir. This is really helpful. At least some color is available to us now. Last question is how do we see the brand business moving in future now that you have acquired utility product franchisee for Tommy Hilfiger also. So the brand portfolio is continuously seeing expansion and the revenue share will keep increasing. So can you help us understand how the brand business in U.S., brand business in India, where do you see -- what kind of numbers are there in both the geographies? And how do you see them growing in the next 3 to 5 years?

So I think right now, we've been very consistent, Prerna, that from a 3-year perspective, which includes '25, '26 -- and of course, all these brands are coming on stream as we speak. I think these are all marquee names that we expect to do a revenue of $275 million. And you'll appreciate that we are at a run rate of $85 million now with Q2 out of $275 million. So you're almost 30% there. So hopefully, this keeps growing. It's not like every quarter might grow 40%. No business can do that. But I think we are on the right trajectory. And this helps us also deleverage our business out of India to a great extent and escape the risk of loss. So we are very positive. I think also addition of Tommy Hilfiger will help us utilize our utility bedding facility of pillows at a faster pace, hopefully.

[Operator Instructions] The next question is from the line of Shradha Agrawal from AM Securities.

Am I audible?

Yes.

Sir, congrats on a good quarter despite challenges that we are seeing at the macro level. Sir, we've been stating that adverse product mix has been one of the reasons for margin impact, and this has been around for 3, 4 quarters. So by when do you think it would be in the base and we would not see further impact on margins because of this reason?

This reason is -- I mean, for whatever changes that we started seeing in quarter 4, Feb and March specifically, I mean, that product mix, which also translates into our average selling price has continued in the last 6 months, too. We don't see that going down any further. I mean we see that pretty constant. But what happens is today, they're used to making a certain margin on a specific product mix and your costs and expenses are all on the basis of that. So that's how we've seen also a little bit of a margin decline in percentage terms. As markets stabilize, hopefully, in the next, I would say, 6 to 9 months, then margins will go back to 15% to 16% levels on our core business. That's our expectation.

And sir, what are the expenses we are currently incurring on ramping up a branded business? So any quantification as to what is the kind of sales and promotional activity expenses that we've incurred on Wamsutta and other brands?

It's a regular -- like today, we have a showroom. We've doubled the showroom size in our New York office. So we now have a 20,000 square feet showroom. Earlier it was 10,000 square foot. Then we've got a lot of human talent, like I mentioned even on the last couple of calls. So it's like you've got to put the infrastructure in place first as well as now as we are on Wamsutta, there's a fair amount of money being spent on performance marketing, which is as a direct-to-consumer brand. So all of that is being done as well as for other brands to get the visibility out there. We will not be able to give exact number, but this is part and parcel. And none of these businesses are a burn rate model, including our direct-to-consumer business. So we are acquiring customers by spending money using -- doing performance marketing, but we are not burning money doing that.

Right. And in our total utility and U.S. brand business, which is at a run rate of $85 million now, so would it be possible for you to give the split of utility and U.S. brand numbers?

I mean just from a thumb rule perspective at this point of time, approximately it's 2/3, 1/3. I mean utility is 2/3 of that number and 1/3 is brand roughly.

And brand would be predominantly Wamsutta or Waverly? And brand would be a...

It's a good question. So the way we have classified and if you go back to our Q1 deck and it's also in our current investor deck, and I would highly recommend everybody on this call to go through it because it's very important to understand the classification. So what we've done is we've divided the business into 3 parts, the core business, the utility bedding business and the brand business. So under brand business, only 4 brands fall under that business, which is Fieldcrest, Waverly, Gaiam and Wamsutta. So any business done, whether it's selling towels, bed lenin, pillows, anything that we are selling to a customer under these 4 brands will fall under the branded business. For example, we have brands such as Beautyrest and Tommy Hilfiger now for utility bedding, that will fall under the Utility Bedding segment.

Sir, just one suggestion. I mean, we are -- we've been acquiring brands and then they were split of total branded business and U.S. branded business. So rather than doing this split up, would it be possible to just give the branded business because from our perspective, it gets difficult to make a recall on what is U.S. branded business and what is utility branded business, what is B2B, the bedding branded business. So, it will make things simpler from our perspective.

Sure. So, we'll evaluate that. We went through a lot of thought process and did it this way, but maybe end of the year at March, we can relook at it. Also, what we are giving a figure is our overall branded business as a company as a whole across all categories is 20%. So that is also something that we have stated on Slide 5 of the deck.

Sure. And sir, just last question. This Tommy Hilfiger brand that we acquired, that's only for the utility segment, right? It's not for bedding.

Correct. Correct. So, it's only for white goods, which we call pillows, mattress pads, down alt comforters, mattress protectors, pillow protectors and toppers.

Got it. And I know it's early in the day, but any indication on what is the number that we did in Wamsutta this quarter?

No, we just started off. So, it will all fall under the brand segment, but we have a great traction in the first 45 days, we sold in every state, which is 50 states of the U.S. And again, the website is called www.wamsutta.com, please go and see the customer reviews. You have access, its public information. You can go and see what kind of -- what are customers saying who used to buy Bed Bath & Beyond and in the past. So, there's a lot of great reviews that I would encourage you to go and read. So that shows how well loved the brand is.

The next question is from the line of Pratiti from Param Capital.

I just wanted to understand that generally we would have the order book ready for the next quarter in 1 quarter prior or 2 quarters prior. And if we could have some numbers on how the order book looks for the next 2 to 3 quarters.

Sure. So Pratiti normally, our customers place orders approximately 50 days before shipment. We get like -- we have a rolling forecast and then we get purchase orders roughly around 50 days before shipment. So, we have visibility for this quarter. And so that's what I said that our third quarter looks similar in terms of volume as to our second quarter.

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

Great set of numbers in challenging environment. So just to get a number breakup because I think last 2, 3 quarters, this new segment has come in. So as I understand, as you've given in the presentation, this utility bedding in new brand is INR 181 crores, which was INR 130 crores in Q1, right?