ICICI Securities has reiterated its BUY recommendation on Indo Count Industries Ltd (INDCOU), assigning a revised 12-month target price of Rs.400, implying a 27% upside from the current market price of Rs.314. Indo Count Industries, the world’s largest bed-linen manufacturer, has weathered a turbulent Q3FY26 marked by elevated US tariffs and operating leverage pressures. While consolidated revenues declined 8% YoY and adjusted PAT dropped 56%, management remains resolute in its ambition to double revenues by FY28. A recovery in US tariff structures—from 50% to 18%—combined with scaling utility bedding and branded segments, is expected to revive margins and volumes from FY27 onward. ICICI Securities maintains confidence in structural growth drivers, projecting EBITDA margins to normalize at 14–15% by FY28 and reiterating a BUY with a Rs.400 target.

Q3FY26: Tariff Headwinds Mask Underlying Resilience

The December quarter underscored the impact of global trade friction:

Consolidated revenue declined 7.7% YoY to Rs.1062.8 crore, primarily due to a 10.5% drop in volumes to 24.8 million meters.

Core business revenues fell 18.6% YoY as the company absorbed US tariff shocks to defend market share.

Gross margins expanded 159 basis points to 53.4%, aided by a higher mix of new businesses (20% vs. 9% YoY).

However, EBITDA margin contracted 324 bps to 9.4% due to tariff absorption and incubation costs.

Adjusted PAT declined 55.8% YoY to Rs.31.3 crore.

Despite headline weakness, margin resilience amid full tariff pass-through signals structural competitiveness.

Strategic Reset: Tariff Relief and Visibility Beyond FY26

A pivotal development is the US tariff rollback from 50% to 18%, materially improving cost competitiveness.

Management expects:

Volume recovery beginning Q1FY27.

Core business utilization improving from ~65% to above 70% in FY27.

Operating leverage to meaningfully restore profitability.

Additionally, previously signed FTAs with Japan, Australia and the Middle East are beginning to yield incremental export traction.

Three Growth Engines Driving Revenue Doubling by FY28

Management’s confidence in doubling revenues by FY28 rests on three pillars:

1. Core Business Normalization

Tariff normalization and volume recovery are expected to stabilize realizations and improve plant utilization.

2. Utility Bedding Expansion

The North Carolina pillow facility has added 18 million pieces, taking total pillow capacity to 31 million pieces.

Peak revenue potential: US$85–90 million (~Rs.750–800 crore).

Utility bedding targeted to deliver US$175 million (~Rs.1550 crore) over three years.

3. Branded Business Scale-Up

Wamsutta and licensed brands are witnessing encouraging traction. Combined new businesses aim to achieve US$275 million at peak utilization.

EU FTA: A Structural Long-Term Catalyst

The European Union’s home textile market is valued at ~US$30 billion. India’s share remains in low single digits.

Post FTA implementation:

Duty-free access improves price competitiveness.

Client migration from alternate sourcing geographies likely.

Non-US revenue mix (currently 30%) expected to increase structurally.

Management indicates active engagement with EU clients, though material impact is expected post FTA execution.

Margin Trajectory: Recovery Blueprint

The EBITDA margin compression in FY26 is transitional rather than structural.

Projected trajectory:

FY26E EBITDA margin: 9.6%

FY27E: 13.1%

FY28E: 14.6%

Key levers:

Tariff rollback benefits.

Reduction of 150–200 bps incubation costs from Q4FY26.

Improved capacity utilization across facilities.

Operating leverage from scaling new businesses.

Management expects normative margins of 14–15% by FY28.

Financial Outlook: Earnings Inflection from FY27

Below is the projected earnings framework:

EPS is expected to compound meaningfully, rising from Rs.6.4 in FY26E to Rs.26.3 in FY28E.

Balance Sheet Strengthening and Capex Discipline

Net debt reduced by Rs.215 crore in 9MFY26.

FY26 capex guidance: ~Rs.150 crore.

FY27 capex projected at Rs.125–130 crore.

Debt-to-EBITDA expected to decline from 3.3x in FY26E to 1.3x in FY28E, reinforcing solvency comfort.

Valuation Framework and Target Justification

ICICI Securities values the stock at:

15x FY28E EPS of Rs.26.3

Resulting target price: Rs.400

At CMP Rs.314:

FY27E P/E: 18.5x

FY28E P/E: 12.0x

EV/EBITDA FY28E: 7.7x

Given expected earnings CAGR of 27.5% (FY25–FY28E), valuation appears undemanding relative to growth prospects.

Key Risks to Monitor

Reversal or re-escalation of US tariffs.

Demand slowdown in US and EU markets.

Currency volatility impacting realizations.

Slower ramp-up in new business segments.

Investment Verdict

Indo Count’s Q3FY26 numbers reflect cyclical pressure rather than structural erosion. The convergence of tariff normalization, FTA tailwinds, diversified revenue mix and margin recovery sets the stage for a pronounced earnings inflection from FY27.

With improving operating leverage, expanding branded footprint, and strengthening balance sheet metrics, the stock offers a compelling risk-reward profile.

ICICI Securities maintains its BUY rating with a 12-month target of Rs.400, positioning Indo Count Industries as a recovery-driven mid-cap opportunity in the textile export space.