Published on January 20, 2021
– Trident (TRID) reported strong performance on the back of a demand revival in the Home Textiles segment. The demand trend is expected to continue in upcoming quarters on six months of order book visibility. The Paper segment is expected to recover in coming quarters as offices and educational institutions start opening up.
– Although performance was in line with our estimates, factoring in improved demand visibility in Textiles and a recovery in demand in the Paper segment, we have increased our FY22E/FY23E PAT estimates by 16%/11%. We value the company at 15x FY23E EPS to arrive at our TP of INR19. Maintain Buy.
Bath/Bed Linen revenue grew 45%/81% YoY
– TRID reported standalone revenue of INR12.9b, up 19% YoY. EBITDA margin expanded 530bp to 18.3% on 290bp gross margin expansion (to 55.1%) and operating leverage. EBITDA (adjusted for forex) stood at INR2.4b, up 68% YoY. Adjusted PAT increased 2.5x YoY to INR1,027m on higher EBITDA growth and lower interest cost, which was offset by lower other income and a higher tax rate.
– On a QoQ basis, revenue/EBITDA/PAT grew 10%/5%/2%.
– Revenue from the Textiles segment grew 30% YoY to INR11.1b, with EBIT margin expanding 11.7pp to 12.8% (after forex adjustments). Capacity utilization in 3QFY21 for Towel and Bed Linen stood at 62% (v/s 61% in 2QFY21) and 101% (v/s 90% in 2QFY21), respectively. On a QoQ basis, revenue/EBIT grew 12%/22%.
– Capacity utilization in Yarn stood at 97%. The business registered 30% QoQ revenue growth. Around 55% of Yarn produced was captively consumed within the Home Textiles segment.
– Revenue from Paper and Chemicals declined 22% YoY to INR1.8b, with EBIT margin contracting 890bp YoY to 21.3%. Capacity utilization for the Paper segment stood at 87% (v/s 80% in 2QFY21). On a QoQ basis, revenue grew 1%, whereas EBIT declined 20% YoY.
Highlights from the press release
– Net debt reduced significantly as of Dec’20 to INR9.9b on prepayment of loans worth INR5.7b as against INR16.1b as of Mar’20. Net debt-to-equity ratio stood at 0.3x.
– On a full-year basis, TRID is aiming to achieve an EBITDA margin of 18-20% on a sustained basis.
– Demand momentum in Home Textiles sustained in 3QFY21, with the Bath/Bed Linen segment registering a revenue growth of 45%/81% YoY.
Valuation and view
– TRID reported strong operating performance in 3QFY21 led by the Textiles segment. Performance in the Paper segment was impacted by the gradual opening up of educational institutions and offices. Demand is expected to improve going forward.
– Work from home in majority of the big cities across the world has also contributed to the demand revival for Home Textiles, with people spending more on home improvement products as the same has become their primary workplace. Revival in demand was further supported by government stimulus, focus of consumers on health and hygiene, etc.
– The company has seen a strong 2Q and 3QFY21 for Home Textiles. The same is expected to continue in upcoming quarters on order book visibility, which exist for the next six months.
– The management has unveiled its ‘VISION 2025,’ where it is targeting to achieve a revenue of INR250b by CY25, with 12% bottomline. The Board has authorized its Strategy Committee to examine various rapid growth strategies to achieve its vision. The committee would explore various options, including but not limited to the following: i) unlocking value for shareholders through restructuring of existing businesses, ii) capital allocation strategies to improve return ratios, iii) expansion of existing businesses/diversification into new businesses through organic/inorganic growth, and iv) penetration into new markets, product development, e-commerce, and brand building. We await further clarity on how the management would achieve its said vision.
– Although performance was in line with our estimates, factoring in improved demand visibility in the Textiles segment and recovery in demand in the Paper segment, we have increased our FY22E/FY23E PAT estimates by 16%/11%.
– We value TRID at 15x FY23E EPS to arrive at our TP of INR19. Maintain Buy.