TRIDENT - World’s Largest Integrated Textile Manufacturer

Stock Opportunities Untested - but worth a good look
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TRIDENT

Trident Limited is the flagship company of Trident Group, a USD 1 billion,Indian business conglomerate and a global player. Headquartered in Ludhiana, Punjab.
It’s a 25 year old company with CAGR of 30 %

Trident’s customer base spans over more than 100 countries across 6 continents and comprises of global retail brands like Ralph Lauren, Calvin Klein, JC Penney, IKEA, Target, WalMart,Macy’s, Kohl’s, Sears, Sam’s Club, Burlington, etc. With export turnover accounting for about 50% of total sales of the Company.

Trident is the largest terry towel and wheat straw based paper manufacturer in the world.

TEXTILE:
Fully integrated home-textile operations with terry towel capacity of 360 million pieces of towel per annum
Composite Bed Linen Project is under implementation & expected to be commissioned by second half of FY16
Implemented the world’s largest terry towel project at a single facility in Budni (M.P.)
One of the largest cotton yarn spinning capacity in India with 3.66 lac spindles capable of producing 8400 MT/month of cotton and blended yarn

PAPER:
Agro-residue (wheat straw) and ECF pulp used to manufacture paper Customers across 50 countries including India, Middle East, Africa, US, Latin America and UK, among others

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KEY POINTS

  • Product availability in all major hypermarkets and supermarkets
  • Expanding sales through e-commerce in domestic and international
    market ,Exclusive brand store on Snapdeal
  • Successfully entered new markets like UK, Italy, France, Japan,
    Australia, South Africa and Canada
  • Energy-saving operations initiated to reduce power consumption
  • Company also issued first interim dividend recently
  • TPM Policy has been formulated across the organization to achieve
    zero accidents, zero defects and zero breakdowns
  • Strong management team and strong credit rating (CARE A-)

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Risks

  • Debt / Equity Ratio stands at 1.77:1, Debt level increased due to expanded capacities
  • CMP/BV = 2.29
  • Composite Bed Linen Project is under implementation & expected to be commissioned only by second half of FY16

Company website: http://www.tridentindia.com/content/home.aspx

India is the second largest producer of cotton, textiles & garments and is the only major textile exporting country with a net cotton surplus - constitutes ~20% to the total cotton cultivation area.

As textile sector is currently doing well, i believe this stock will perform better and i took small exposure at CMP 46 and will hold it for long term.

If anyone come across any other risk/concern about this company please share, Thanks

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Trident Concall - Targets 20% growth and 18% margin over next 2 years

· Company targets 20% revenue growth over next 2-3 years and expects revenue to reach Rs 6000-7000cr by FY18/FY19e with sustainable Ebitda margin of 18%

· Growth drivers by a) terry towel biz which will grow 25% growth and b) beyond FY16 bed linen business will start contributing to topline

· Margin drivers will be better product mix i.e. higher proportion of Value added product and lower yarn contribution. Current mix is 60% terry towel and 40% is Yarn. Targets 80:20 by FY18 wherein 55% of yarn requirement will be met through captive capacity vs current 38%

· Current debt of Rs 2682cr (1.77x D/E). Debt will peak at Rs 3300cr by FY16 due to commisioning of Bed Linen plant. Post that company targets to reduce debt to 1.25x by FY18.

· Capex for FY16 will be around Rs 1200cr primarily for setting up Bed Linen project of Rs 1670cr (Rs 400cr already spent). Company to add 500 looms and 1.8 lakh spindles for its bed Linen project.

· Paper biz remains stable and company is moving towards Copier biz vs Writing Paper biz. Current mix is 50:50 and targets it to improve further. Company plans to invest Rs 100cr for debottlenecking plants which will increase volumes by 15-20% over next 2 years.

· Eff tax rate for FY16 will be around 15-20% on account of 15% deduction on investment made in plant & machinery. And FY17 it will be in range of 25-30% as some benefit on captive power plant investment will kickin.

· Branding initiatives: Company appointed ‘Kriti Sanon’ as the brand ambassador to endorse their linen products

· Management tone fairly confident and able to address questions with ease. Asked about how different they are with likes of Welspun India and Indo Count, they said earlier they were majorly into yarn which they corrected and now moved up in value chain by adding terry towel and now bed linen capacities. Expect post stabilization, Bed lined capacity utilization 1st year will be50-60%. Terry towel utilization to achieve 55% this fiscal up from 40% currently.

· With revenue growth, margin guidance and tax benefits, Company to report PAT of Rs 190cr in FY16e, up 60% yoy.

· Business drivers are there with macro like low RM cost, weak INR and lower competition from China helping them to achieve scale and improve margin.

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Chintan Sir.

Thank you for sharing the concall highlights.

I am very much hopeful on the prospects of the company. When it was around 24 level, I tried to speak some people from same industry, Some of the analyst and a guy into textile business at ludhiana (having his own unit). None of them gave satisfactory feedback. But looking at the prospects, there was good scope at 24. I took small exposure due to own conviction by ignoring the feedback that I got from different people.

It seems their focus is on margin expansion.

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Hi Chintan,

Thank you for sharing the concall highlights.

Could you please also share the risks/concerns about this company if you find any.

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Hi srinivasan and chintan

Nice analysis and find.

Would like to know whether there was equity dilution in year FY09 & Fy 12 ( i may be wrong but equity is increasing in those years ).

Cash flow from the operating activity is very healthy.

10 yrs PAT is 453.5 crs ( fy05 - fy14 )

10yrs CFO is 2367 crs

I0 yrs Interest expense is 1264 crs

Working capital is at 550 crs ( isn’t it more )

Company seems good but need to check the trade receivable days and inventory turnover.Sometimes company do very aggressive expansion in good times and then suffer in bad times due to large debt on books.

I am new to accounts so may be wrong, please help to analyze.

Disc : not invested but find interesting. Currently textile sector is market darling.

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Hi Friends,
You can check a good analysis done by CRISIL sharing the link.

Disc : Not invested at present.

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Also there is inconsistency in the dividend payout.

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@chiragjain1976

yes there were warrant conversion during those years

in 2009 - 28000000 shares have been allotted at a premium of Rs.11.30 per share to Madhuraj Foundation Ltd(17700000 shares) and Prudent Traders Pvt Ltd(10300000 shares) on conversion of warrants.

again in Mar’12 - 30000000 shares have been allotted at a premium of Rs.7.05 per share to Trident Capital Ltd(15000000 shares) and Glaze Ventures Pvt Ltd(15000000 shares) on conversion of share warrants.

and again in Oct’12 - 5000000 shares have been allotted at a premium of Rs.7.05 per share to Trident Capital Ltd on conversion of share warrants.

in Oct’14 they did preferential allottment of 60000000 shares allotted at par on preferential basis.

need to check AR for any warrants left for conversion or not…will update further on it.

discl: not holding, tracking

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Any views on Trident , I am seeing a fast improvement on their financials as compared to a year-ago
Comparison of 2016 Over 2015
Positives

  1. NPM Jumped to 6% from 3% and is 7% for the first two quarters
  2. OPM Jumped to 20% from 18.5%
  3. Increase in Promoter Holding by over 1% over last 5 qtrs.
  4. Net Profit Increased from 118 Cr to 228 Cr and looks like it will go towards 300 Cr this year
  5. Revenue is more or less flat at 3700 Cr but they have already crossed 2300 Cr so we can expect 4500 Cr this year around 20% or so
  6. ROE has improved to 13% from 8%

Negatives

  1. CashFlow has dropped to 529 to 576 .
  2. Debt has increased to 3000 Cr from 2200 Cr but they have added capacity in bedding segment so there is a rationale . Still D/E of 1.7 is a concern

Also more importantly they have best chance to grab Welspun’s business which is a big plus and can use their capacity expansion to good effect. They are also in Paper business which is in revival stage and posting good returns for all players

Can this replicate the Welspun Turn Around. Pls share your thoughts as I want to understand the negatives

Disclaimer : Already Invested and planning to increase my Allocation post a thorough analysis

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Trident management thro their press meets/ concalls have reitrated they would reduce debt @100cr every Qtr for next 8 qtrs.All the capex is completed and no more capex in immediate future. As per the management, result of capex will be seen in the coming Qtrs.

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Hello all,

so i was just scanning through the consolidated numbers on screener.in. The interest cost has indeed come down from 205 cr in '15 to 136 crs in '16. That’s pretty huge, i scrolled up to the balance sheet and found that the while the interest cost has come DOWN by 34% the debt has gone UP by 31% from 2580.14Cr in '15 to 3368.12Cr in '16. Anyone can throw some light on how this magic has happened?

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@bheeshma For the textile sector Govt has brought an incentive scheme of lending to promote with interest cost approx 5-6% . -Type INTUC in Google for more details .

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right… thanks for that input

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Here is what I found in the AR2015-16

The interest cost
for the year stood at C1,364 million
compared to C2,059 million in the
previous year, a reduction of 33.8%. The
decline in interest costs was largely due
to reduction in base rates, prepayment
of high-cost debt and improvement in
working capital utilisation. The Company
paid back a significant portion of its highcost
debt worth C905 million ahead of
the repayment schedule. Furthermore,
the Company stands to benefit from the
Interest Equalisation Scheme promoted
by the Central Government to support
exporters.

More on the cost of debt.

more than 70% of longterm
debt still carries lower interest rates
as it is falls under the purview of TUFS.

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Management commitment and intent is good.If you see the past posts, you will get an idea of their goals and future outlook in 2015 for 2016 and 2017 - they all have been aligned mostly-
Attending their latest concall, they have achieved major targets set in 2015 concall posted above by chintan -

  • End of capex
  • Debt Peaked out
    *Growth of terry towel
  • Copier biz gaining larger share than writing paper

These are all good signs in terms of quality of management and execution perspective.

Key take away from latest concall -

** New Sale center already in place for both Europe and US - expects sales to be much higher
** Target of debt reduction every quarter.
** Entering big time into bed linen.
** There is a small risk of margin reduction because the cost of cotton will go up as its cyclical - but that will affect next quarter by a small margin.Good thing is that they accepted it with ease (again a sign of good management).

Over looks pretty stable and robust - If someone could get the actual sales records of terry towel and bed linen etc. overall in US and Europe or any such report link, it would be a great scuttlebutt.Also, if someone can help on getting some ground reality on how much trident gained from welspun fiasco.

BTW Dolly Khanna entered this counter recently.

Disc - I have recently entered into this after tracking it for about a year.

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was going through annual numbers on screener. My observations as follows:

  • Over the last 10 yrs operating margins have hardly recovered to the levels seen in 2005-07. So there is no real benefits of scale visible so far.
  • Interest cost reduction is a result of govt. support. Yes, it has resulted in faster deleveraging but should not give too much credit to the mgmt.
  • Impact of cotton on margins should not be underestimated. While I agree that better marketing and product mix will enable them to pass on inflation in cotton. Their margins have fluctuated in line with movement in cotton prices.

Few things I like.

  • Mgmt. seems transparent and capable. New segments will aid financials
  • Tailwind of India emerging as a solid alternative to China in tech driven value added textiles.
  • Valuation is reasonable. Though one must apply EV/EBIDTA for peer comparison when leverage is high.

Disc: No holding.

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This company seems to have a lot of levers in place which got me interested-

  1. Debt reduction
  2. Capex cycle is over
  3. Shift from yarn to value added to lead to margin expansion
  4. High operating leverage . currently less than 50% capacity is utilised in both towel and linen
  5. Sectoral tailwinds both in textiles and paper segment with favorable supply dynamics
  6. Increasing roce

Issue of warrants and therefore dilution is a big concern. Have the promoters increased their stake from the open market recently?

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There is a small increase in promoter holding in Q2 2016.

Not much dilution since 2014.

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Diluted EPS as of Dec 2016 is same as basic at Rs 1.54.

biggest benefit of this this company is that Capex is over and company is still in good financial condition and sales outlook so it can actually use all that capacity to make and sell stuff. KPR went though the same expansion 3-4 years ago with good results.
Disc: 15% of portfolio.

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they acquired from the market.

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Disc: is 8% of my portfolio. Wish I could have added more at lower levels.

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