My notes from the Q4'17 concal -
Other income component is higher due to the following reasons -
- Highest export in q4
- Change in accounting method, so forex gains are shown under other income. Earlier, they were under other operating income, so weren't visible like now.
You are right about the lower margins for q4 (16%)...slide from 20%. Reasons were considerable inr appreciation, expensive cotton. Going forward, management has guided for 18-22% EBIDTA margins for next 2 years. Mgmt said cotton prices are going to moderate going forward due to higher acreage. Another point which will be aiding margins in 2018 is higher bed linen component in the overall mix... and better product mix within bed linen segment to value added products. Rebate of State Levies (ROSL) is also going to improve margins for exports division by 2 - 2.5% for home textile exporters). Another factor in margin improvement will be more captive yarn consumption. So overall, net effect on EBIDTA margins will be positive going forward.
Paper - He said there were fewer number of days in q4 (if you look sequentially), and plant was closed for maintenance for some time in q4, so effected paper segment. Going forward, paper production and utilization would improve sequentially.
Bed linen division should break even in q2'18. (at around 40% utilisation). Currently operating at ~29%.
In Q4, utilization per segment
Yarn - 96%
Bath - 54%
Paper - 88%
Bed - 29%
in 2018, target is to improve bath segment utilization by 55-60% and bed segment by 40-50%
4-5 month hedging policy. I think 40% is covered.
Net debt reduced from 3420 cr to 2714 cr by March '17. Of this, around 1500 cr is at 3%. Average interest rate is 4%, which will go down due to -
- Debt repayment (300-400 cr for this fiscal).
- Raising money through NCD/CP to retire higher cost debt earlier than scheduled. Approvals are in place.
No capex planned for next 2-3 years. Depends on utilization levels. Said, once they attain 70% utilization, they will think of any further capex. Regarding yarn segment, no capex planned (usual 50-100 cr will be spent this year to clear bottlenecks). Paper division, pondering upon 100-200 cr capex which will increase capacity by 15-20%. Nothing concrete yet.
Added one big customer. Impact would be visible from June.
Growth in US/Europe is around 3-4% pa.
1. Currency fluctuation (INR appreciation)
2. Higher cotton prices (forms 50% of the costs)
Trying to mitigate the currency risks by hedging receivables. New contracts are negotiated based on current currency and cotton prices. Overall, in yarn there is a lag of 40-45 days to pass on the prices, and in bed/bath, 90-135 days. Being vertically integrated, they are able to moderate any drastic price impacts much better than other players.
What i like about Trident is that they are sort of walking the talk as far as improving the Balance Sheet is concerned. They are continuously adding new customers to fill in their capacity. Management is prudent enough to negotiate and fill the capacity by lowering margins upfront and then gradually work up the ladder on the margin front.
Indian textile industry is still much more competitive than Chinese and others due to various factors discussed already on the forum. I am hopeful of them maintaining 15-20% growth on this higher base for next few years. At 11.5 p/e trailing, with Free cash flows close to 750 cr per annum, they will be able to clear the debt as planned, which will result in better net margins. Some operational leverage will kick in as well with better bed linen capacity utilization and better product mix.