Trident Ltd Research Reports By Motilal Oswal, Edelweiss & IDBI Capital

TRID appears to be at the onset of a high growth cycle, driven by:

1. Growth in bed linen segment: The company is expected to turn EBITDA profitable in the recently ventured bed linen segment by 3QFY18 as utilization touches 40%. In the first year of operations, bed linen witnessed utilization of 29%, which is expected to increase to 60% in FY20. Also, the segment’s share in overall revenue is expected to increase from 4% in FY17 to 9% in FY20.

2. Higher utilization in bath linen: TRID used to run at high utilization of 74% in the towel segment in FY13. However, utilization declined thereafter as the company almost doubled its capacity in the segment from 42MT in FY13 to 90MT in FY15 to make itself future-ready. Going forward, the company is expected to witness higher utilization (65% in FY20E v/s 50% in FY17), which would not require further addition of spindles as yarn capacity would be utilized in-house.

3. TRID’s rising share in global market: The share of Indian companies in the global textile market is on the rise as the country is becoming highly competitive in terms of raw material cost, labor cost and level of automation, leading to improved quality. TRID has been proactive in capitalizing on this opportunity, leading to an increase in the company’s share in global towel exports to the US (from 10% in CY14 to 13% in CY16). Also, the company’s share in Indian towel exports to the US has also increased from 28% in CY14 to 32% in CY16.

4. Paper biz margin driven by branded copier paper: TRID has consistently increased its share of copier paper over the years. Copier paper contributed 45% of the company’s overall Paper sales volume in FY13, which increased to 60% in FY17. Since, copier paper commands high margins, we expect Paper business margin to expand 340bp to 38% in FY20.

We believe TRID is set to benefit from multiple factors, including industry growth and expanding share of bed linen/copier paper. Hence, we estimate 9% sales CAGR and 24% PAT CAGR over FY17-20, with improving RoCE and RoE (from 7.5% and 13% in FY17 to 13% and 17.1% in FY20, respectively). IND AS adjustment recognized on fair valuation of PPE to the tune of INR7,582m has resulted in a depressed return ratios, with RoE and RoCE standing at 18.3% and 8.6% in FY17 pre-adjustment v/s 13% and 7.5% in FY17 post-adjustment. Consequently, pre-adjusted RoE and RoCE is expected to increase to 21.4% and 15.1% in FY20E respectively. We value TRID at 11x FY19E EPS, arriving at a TP of INR114, implying 39% upside. We initiate coverage with Buy.