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You are here : IndiaNotes >> Research & Analysis >> Companies >> Trident Ltd. >> Research

Pick of the Week: Buy Trident at CMP and add on declines

HDFC Sec | 30 Jan, 2017  | Follow Author | Add to my Favourites 
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Trident is the world’s largest terry towel manufacturer and the world’s largest wheat straw-based paper manufacturer. It was originally incorporated in 1990 as Abhishek Industries Ltd, promoted by Mr Rajinder Gupta; the name was changed in 2011 to Trident. Trident Ltd has business interests in Home Textiles, Yarn, Paper & Chemicals and Energy.


Investment Rationale:


Home Textiles (Terry Towels/Bed linen)


- Vertically integrated operations with pan global presence,


- Focus on value added products to boost margins going forward,


- Focused to expand its presence in overseas markets,


- Will benefit out of major capex of Rs.2700 cr between FY14-FY16 and no major capex lined up now.


- Gradual increase in capacity utilization will result in operating leverage benefits,


- Could be possible beneficiary of fresh large order wins post termination of Welspun contract by Target Corp,


Paper


- Received environment clearance for expansion of its paper mill could help to grow its paper business going forward,


- Launched copier brand in South in FY16 and expanded dealers/MBOs, all of which could help lift volumes


General


- Plans to cut interest cost by reducing its long term debt going forward,


- With sound financials, company is on track to significantly improve return ratios.


Concerns:


- High working capital requirements,


- Competition, Environmental norms/regulations,


- Shortage of Raw material, Change in Interest rate,


- Economic slowdown, Currency fluctuation risk.


View and Valuation:


The home textile business growth (out of the capex incurred over FY14-FY16) combined with steady contributions from the paper and yarn segments will lead to a healthy revenue and profit growth over FY16-FY19. The benefits of increasing scale of operations, highly integrated manufacturing process in both home textiles and paper, and continued access to low-cost raw material for paper division will ensure healthy and sustained operating profitability in the medium term.


Trident's financial risk profile will improve significantly over the medium term given the absence of major debt-funded capital expenditure (capex), progressive retirement of debt and improvement in liquidity. Its credit rating was revised upwards by CARE and CRISIL in Oct 2016 to ‘A’.


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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor IndiaNotes.com accept any liability whatsoever arising from the use of any of the above contents.




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