Buy Trident; target of Rs 90: Cholamandalam securities

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Cholamandalam securities' research report on Trident

Trident’s revenue has grown by 18.5%YoY to INR 14.05bn; Textile revenue grew by 17.1% YoY to INR 11.3bn, aided by strong in the home textile segment and Paper revenue grew 25.1% YoY to INR 2.74bn. In terms of volumes, Bed linen grew 39.4% YoY and Bath linen by 7% YoY. During the quarter, EBITDA stood at INR 2.59bn, grew 22.4% YoY; EBITDA margins expanded by 58bps YoY to 18.4% (albeit down from 20.8% in 3QFY19); Gross margin improved by 220bps YoY, which got offset by higher other operating expenditures, which was up by 260bps. Interest expenses were higher by 24% YoY to INR 343mn. Depreciation expenses were down by 10% YoY. Other income grew by 366% YoY. PAT grew by 82%YoY to INR 926mn; PAT margin improved by 210bps YoY to 7%. Textile division EBIT margin (after forex gain) stood at 8.3% up 130bps YoY; while Paper division EBIT margin stood at 37% up 940bps on low base. Bed linen capacity utilization improved 100bps sequentially to 74%, while Bath linen capacity utilization improved by 30bps QoQ to 49%.Yarn and Paper division capacity utilization improved marginally to (QoQ) 101% and 89% respectively. Company’s net debt stood at INR 23.44bn with net debt to equity of INR 0.8X. The company is undertaking an expansion project to support backward integration in yarn segment at Budni, Madhya Pradesh, with a total capex of INR 11.4bn (expected at INR 5.5bn in 3QFY19), funded by a debt of INR 8.55bn. The project is expected to be completed by FY21E increasing the installed capacity of yarn segment by 48,842 TPA.

Outlook

At CMP, Trident is trading at 8.4X & 7.1X FY20E & FY21E earnings and we rollover the valuation to FY21E and maintain the target price at INR 90 valuing the company at 10X FY21E EPS, while maintaining the BUY rating.

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