I have been reading and re-reading the recent reports from Motilal Oswal and Edelweiss on Trident.
It took me almost a week to get some perspective out of all the data and estimates that were shared in them. I believe that is because I am a total novice in this (this is only the second company ever on which I have done any sort of serious research). Being from non-commerce background doesn’t do any favour either. But hopefully I will get better in future.
From what I understood, this particular company is a complete utilization play we have in our hand here.
They have just completed their massive expansion plan and their capacity in the bath linen (terry towel etc) segment is the highest among industry peers (25% greater than their closest peer Welspun) and their facilities in both bath and bed linen have full vertical integration.
According to the reports, the expansions were done by the management in order to make the company ‘future ready’, as the home textile market is expected to grow at a good pace in the next few years both globally and in the domestic arena.
However, I thought that having capacity is one thing, but utilizing it is a different thing altogether and that’s where I am concerned about, because their current utilization is around 45% (before the capex it was 74%).
I guess this is where experience comes into play.
Maybe someone who has seen utilization plays like these in the years past play out would have been in a much better position to judge the potential here than I am.
But one thing which I clearly understood is that, to increase the utilization the company will need to expand their client base and acquire more orders.
Maybe they can do that, maybe not. I guess that’s what we are betting for here.
However, I learned that in FY18 so far Trident has already acquired 10 clients which includes large replenishment clients like IKEA and Amazon. So that is a good news.
I have been also reading about the management and it looked to me that the board has a good lot of people and they are pretty open with the shareholders about their plans etc as well.
Also there are a lot of small pointers here and there in those reports which suggested that the management is fairly reliable.
Now about valuation, Edelweiss has mentioned that they have started coverage from Rs. 85 and in a recent report from CRISIL the fair value is mentioned as Rs. 93 and in the Motilal Oswal report they are saying that the fair value is around 90, taking 8x of FY19E PE. In another website I saw it is Rs. 104.
So looks like the fair value is between Rs. 85-95. Unfortunately I have to rely on these because I am not someone who can do DCF etc and the CMP is 100, so it’s slightly overvalued per se at the moment.
This is pretty strange as well, in a market like we have today, a stock is available near it’s fair value. Dont know how that happened.
At the moment my conviction about the stock is at best medium and since the valuation is ‘reasonable’ (if the reports are to be believed), 5% is what I am planning to invest in it (I am following the capital allocation framework suggested by Donald Francis in the forum). I have currently invested 1%, waiting for the price to come down.
Disc - As mentioned I have invested a small amount mainly for tracking purpose. So maybe my views are biased
