Dynamic Levels recommend Trident on fundamental grounds
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Trident Group is a leading diversified group of businesses. As a USD 1 billion Indian business conglomerate and a global player, Trident Limited (Trident) is the flagship company of Trident Group.
The flagship operates in two major segments namely home textiles and paper – with manufacturing facilities in Punjab and Madhya Pradesh.
Trident has acquired wide and varied global scale capabilities in the production of terry towel and bedsheet. From a variety of fibres and yarns to a range of colours, both in piece dyed and yarn dyed, plains and jacquards, to a complete collection of performance finishes and surface decorations, the range of products keeps expanding to meet the unique needs of the customers.
The Company has a strong client list comprising global retail and institutional brands across 60 countries like J.C. Penney, Wal-Mart Stores Inc., Ralph Lauren, Calvin Klein, Carrefour S.A., H&M, IKEA, Marks & Spencer, ITC Hotels, Taj Hotels Resorts and Palaces and Oberoi Hotels & Resorts, among others.
Trident- Enhancing Profitability
Business transformation- Trident transformed itself business from being a standalone yarn manufacturer to one of the largest integrated home textile manufacturers in the world. Yarn used to account for 60 per cent of our total revenues, whereas in FY16 higher margin Home Textiles accounted for 60 per cent of the total textile revenues. By the next two years, we expect high margin Bath and Bed Linen products to contribute about 80 per cent of the same.
Value-addition- Trident has progressively trended its paper output towards value-addition. Five years ago, 100 per cent of its paper manufacturing capacity comprised maplitho as well as writing & printing paper. There has been a big transformation since; copier paper, fetching higher realizations over the conventional varieties, now accounts for about 50 per cent of its capacity and is projected to increase to 60 per cent to 70 per cent of all its paper output two years from now.
Efficiencies- Trident continues to enhance operating efficiency that makes it possible to sweat its global scale assets and infrastructure. The Company intends to enhance capacity utilisation, improve product quality and optimise the consumption of utilities and consumables.
Welspun’s loss, Trident’s gain:
After Welspun lost the Target Corp’s contract to Trident and market’s trust, Trident has gained a lot in business, most of which earlier belonged to Welspun. Having lived up to the trust and expectations in the field of its business, Trident has been giving out good returns on the back of all the business it gained from Welspun’s loss.
• India, the world’s second largest producer of textiles and garments, accounts for 63% of the market share of textiles and garments.
• India accounts for about 14% of the world’s production of textile fibres and yarns (largest producer of jute, second largest producer of silk and cotton; and thirdlargest of cellulosic fibre).
• The textile industry contributes around 14% to the IIP, 5% to the country’s GDP, 27% to the Company’s forex inflows and about 13% to the country’s total exports earnings.
• Further, it accounts for 21% of the total employment generated in the economy, providing direct employment to over 45 million people.
• Indirect employment including the manpower engaged in agro-based raw material production like cotton and related trade and handling employs around another 60 million. It contributes to around 8% of the total excise revenue collection.
• The textile sector accounts for about 24% of the world’s spindle capacity and 8% of global rotor capacity.
• Consistent long term demand because of a rising middle-class in emerging markets
• A shift towards manmade fibres due to comparatively less volatile price trend for cotton or wool.
• The textile industry is projected to grow at a CAGR of 9% to USD 141 billion by 2021.
• India’s home textiles market is projected to grow at a CAGR of 10.5% to USD 9.9 billion in 2017 on account of increased exports growth at a CAGR of 8.4% to USD 6.0 billion in 2017.
• Bed and bath linen together constitute about 67% of the home textile industry.
• Profitability undermined due to volatile raw material prices and rising wages
• Intense competition weighing on margins that are further being stressed by e-commerce
• Changing consumer behavior (e.g. changing fashion) forcing terms and conditions to become even more flexible.
• EPS has shown a jump from 1.18 to 1.54 almost 30.5% on the yearly basis.
• Bottom line in YoY has shown tremendous growth where operating profit has gone up by 33.82% and Profit after tax jumped by 25.54% YoY.
• Employee Cost has gone up by 37.86% on the yearly basis.
• The company’s share price is trading almost twice its Book value.
• Company has a huge market capitalization.
• Net Debt to Equity Ratio declined to 1.4x from 1.9x in FY16
• Board declared 2nd Interim Dividend of 6% on equity shares
• Net Revenue at Rs. 1,139 crore in Q3 FY17, up 26% compared to Rs. 905 crore in Q3 FY16
• EBITDA increased by 30% to Rs. 233 crore during Q3FY17 from Rs. 179 crore in Q3 FY16
• Company's total current assets have increased from 4503.89 to 5623.77.
• Indian promoters have increased their holdings in the company in September quarter from 66.49% in June to 67.77% in December.
Concerned areas to look in the company
• Company's long term borrowings have gone up from 1.396.10 in March 15 to 2136.50 in March 16.
• Total non-current liabilities stand at 2317.62 in March 16 from 1560.82 in March 15.
• Fluctuating value of the Indian rupee
• Increasing energy costs
• Continuous technology upgradation for quality and innovation entailing investments.
• International competition: Competition from countries like China, Pakistan and Turkey is fierce in the home textiles segment. With the country progressing on the path of overall development, the cost-competitiveness that Trident enjoys might deteriorate.
• The biggest challenge faced by the Indian textile industry is competition from the other up and-coming Asian economies which may attract more business from the international markets because of their lower production costs, ease-of-doing business and availability of cheap labour.
On 30th January, 2017 at 2.00 pm, Trident share price was trading @ 69.65. We recommend BUY in Trident ltd @ 67 with the target of 80 the stock is trading at PE Multiple of 11.81 having book value of 33.74 per share
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