Business Resilience and Exports Make Up a Case for Trident Limited

Summary

E-commerce vertical and exports should continue to act as principal growth accelerators. India’s superior quality of textile should continue to provide edge to Indian companies and major portion of India’s export of textiles is done to US & UK. Significant availability of raw material and manpower provides advantage to Indian companies in global textile space.

About Trident Limited

Trident Limited is flagship company of Trident Group, which is a USD1 billion Indian business conglomerate and global player. The company evolved over years into one of world’s largest integrated home textile manufacturer. It manufactures wide variety of yarn, bed & bath linen, paper, chemicals and captive power. Trident’s manufacturing facilities are situated in Barnala and Budni. The company is being counted amongst largest exporters of home textile products, having significant market share. Excellent quality and differentiated growth strategies led to strong clientele across global textile arena. In FY20, the company saw ~44% of total revenue flowing in from exports and ~56% coming in from domestic markets.

Growth Enablers of Trident Limited:

• Strong Business Resilience Should Continue: Despite increasing commodities prices, inflationary issues, and supply chain issues, the company delivered resilient performance in 4Q22. It expects this resilience in the business to continue and industry growth should support in upcoming months. Total revenue for FY22 came in at ~INR69,415 million, with growth in sales of 53% against FY21 due to higher demand in FY22. Net debt has reduced by 44.7% in past three years.

• Removal of Restrictions Should Lend Some Support: Global home textile market is being led by demand from USA and Europe. Indian export home textile market is known because of few large players. These organized and larger players principally address to export demand being made from large global retailers and these companies face intense competition from countries such as China, Pakistan, Vietnam, etc. This pandemic gave rise to disruption in operations of manufacturers and resulted in demand slowdown, in both Indian and export markets. Lockdown impacted operations of manufacturers and their supply chains.

• Exports Should Continue to Make Up Majority Share of Revenue: India should continue to have advantage of being largest producer of raw cotton and major cotton surplus & cotton exporting country, giving distinct advantage to Indian home textile manufacturers. The company plans to consolidate its business and leverage investments done on scale and technology & systems. It plans to leverage capabilities with cost-efficient manufacturing & strong market presence and adding new customers to portfolio. Share of exports has increased to 65% in FY22. This share should continue to increase because of India’s position and competitive edge the company has. US continues to be a leading consumer of home textile, with next name in this list being Europe.

• Disciplined Financial Risk Profile: The company saw healthy improvement in financial risk profile after significant reduction in debt over past couple quarters principally because of ramp up of operational performance in home textiles division. Net debt saw a reduction from INR1614.5 crores as on Mar 31, 2020 to INR1423.2 crores as on Mar 31, 2021. The company made total repayment of INR1034 crores in FY21, including prepayment of term loans of INR650+ crores. Home textile division gathered strong interest, with both bed sheets and towels segments reaching reasonable capacity utilization. Strong demand for home textiles was because of increased stay-at-home period due to lockdowns and focus on hygiene for consumers. This should remain healthy in this fiscal year as second wave of COVID-19 engulfed India and there are some regional lockdowns.  

Diversification in Revenue Should Result in Lower Volatility

The company has an established market position in textiles and paper businesses, with bath & bed linen business making up ~54% and yarn business making up ~26% of revenues in FY20. Its paper business made up ~20% of total revenue in FY20. In upcoming years, the company’s bath and bed linen business should continue to lend support to its revenues as it is a leading player in terry towel capacity and in home textile space in India. Its paper business continues to have highest operating margin among main listed companies in India. Since the company’s revenue is diversified and not dependent on any one business, fluctuations in its revenues and net profits should be managed well. It has seen its capacity utilisation in bath linen business being improved from 29% in 1Q21 to 61% in 4Q21 and in bed linen business from 38% in 1Q21 to 92% in 4Q21.

In FY22, ~58% was contributed by Bath & Bed Linen, while Yarn made ~28% of total revenues. Its Paper business made 14% of total revenues.

Conclusion

Trident Limited has a total market cap of ~INR23,64,523.43 lakhs and a free float market cap of ~INR5,87,308.89 lakhs. The company has compounded its sales at ~7.2% and PAT at ~19.8% over FY11-FY20. Since the company has sound financial risk profile, its credit-related measures should continue to improve as they have in prior years. The company’s net debt /EBITDA saw an improvement from 1.72x as on 4Q21 to 0.86x as on 4Q22. Credit measures should continue to seek support from healthy cash flows and moderate capex plan. The company should be able to fund its capex plan through internal cash flows which should result in better management of debt.

Trident Limited’s stock has seen strong run up since Jun 7, 2021 and has delivered strong return of ~176.9% between Jun 7, 2021- Jun 5, 2022. Simply put, an investor who would have invested INR1,00,000 on Jun 7, 2021, would have seen capital grow to ~INR2,76,944.9 on Jun 5, 2022. The company’s financial risk profile and strong market presence should continue to provide competitive edge which should further lend support to its performance. Home furnishing demand under wellness category should continue to get enhanced customer focus and e-commerce sales creation as separate vertical should be able to address increased demand of products through digital mode.

The company is planning to move to higher retail price points products, and is focusing on higher thread count sheets and higher GSM Towels. Plans are there to develop new and innovative products leveraging consumer sentiments and behavior so as to earn premium. The company continues to increase capacity utilization of plants with help of digitization of processes.