30-Sep-2019 : Trident is one of the world’s largest integrated home textile manufacturer. It is the flagship company of the US $1 billion Indian business conglomerate and global player, Trident group. Trident has mainly three business segments, Yarn, Textile and Paper. It is the largest terry towel manufacturer and largest wheat straw based paper manufacturer in India. In the last financial year 2018-19, yarn contributes 30% of the revenue. Whereas Textile and Paper contribute 51% and 19% respectively. Home Textile, which is the main revenue contributor of the company, earns 87% of the revenue from export.

Trident is an integrated home textile manufacturer. After procurement of raw cotton, the same is passed through different stages like yarn, grey fabric, finished fabric, printing and then finally dispatched to the customers. Trident has three manufacturing facilities, two in Punjab and one in Madhya Pradesh. It has the following production capacity

Yarn – 1.15 lakh ton yarn per annum

Bed Linen – 43.9 million meters per annum,

Bath Linen – 90,000 ton per annum

Paper – 1,75,000 ton per annum

Chemicals – 1,00,000 ton per annum

Apart from this, Trident also possess a captive power plant of 49.4 MW.

Since the capacity utilization of yarn facility is close to 100%, the board approved expansion project in yarn segment to manufacture approx. 48482 tons per annum at Budni, Madhya Pradesh. The project is expected to begin commercial operations with effect from January 2021. The Board has also approved to implement Captive Cogeneration Steam and Power Plant (Steam 2 X 150 TPH & Power 2 x 30 MW) generating facility for meeting its power and steam requirement for the Yarn, Terry Towel and Sheeting units at Budni, Madhya Pradesh.

In the financial year 2019, Trident’s revenue increased by approximately 14%, EBIDTA increased by 13% and profit after tax increased by 41%. The higher revenue was mainly driven by higher capacity utilization of its bath linen and bed linen segment. This has been further augmented by higher realization from the paper division. Trident also has strong balance sheet. In the past four years, it has brought down its net debt to equity ratio from 1.4 to 0.8 times.

Currently, two main drivers of the revenue i.e. Bath linen and Bed linen are having significant unused capacity. The bath linen is operating at an average capacity of around 49%, whereas the bed linen is operating at an average capacity utilization of 63%. We believe that as Trident acquire new customers in the USA and Europe, the capacity utilization will improve. There is potential to improve both topline and the bottom-line, as the capacity utilization ticks higher.

At the current price of Rs 60, the stock is hovering at price multiple of around 7, which is much lower than its historical average. As midcap stocks are severely beaten down, Trident’s share price also fell drastically. As the situation improves for the midcap stocks, Trident will be one of the major beneficiaries. Its consistent good result, combined with high potential to enhance the topline and bottom-line, make it a good candidate for purchase at the current price band. Over and above, Trident is a very good dividend paying company. In the financial year 2019, it paid a dividend of Rs 3, which is twice the dividend paid in the financial year 2018. At the current price of Rs 60, this gives a yield of 5%. We recommend to purchase the stock for a price target of Rs 86 within the next twelve months.

Risk:

1. Capacity Expansion and other projects may increase the debt burden for the company, which in turn will impact the bottom-line.
2. Trident’s revenue and profit depend on the US economy and its policy in a significant way. Any impact on the US economy or change in its policy may affect the business of Trident.
3. As 57% of company’s revenue comes from export, exchange rate is a crucial factor for Trident.

NSE Code: TRIDENT
BSE Code: 521064

 

 

 

Written by Research Analyst (SEBI Registered) Suvendu Manna

Disclaimer: The research analyst has position in the stock as on the date of writing this article.

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