Buy Trident; target of Rs 81: Cholamandalam Securities

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26 Aug, 2025 12:21

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Cholamandalam Securities' research report on Trident

Trident revenue de-grew by 6.1%YoY to INR 11.85bn; Textile revenue de-grew by 8% YoY to INR 9.66bn, due to continuous de-stocking of bath linen by large retailers in US and Paper revenue down 3% YoY to INR 2.19bn.  In FY18, Textile revenue de-grew 2% YoY to INR 37.19bn, due to multiple headwinds in the home textile business (adverse currency movement, reduction in drawback duty and de-stocking by large retailers in US). Bath linen volume de-grew 12.3% YoY and bed linen volume grew 56.2% YoY. Domestic home textile business grew by 25% YoY. Paper revenue de-grew by 2% YoY to INR 8.58bn.   During the quarter, EBITDA stood at INR 2.17bn, up 3.1% YoY; EBITDA margins improved by 160bps YoY to 3.1%; Gross margin improved by 86bps YoY, Employee cost was down 120bps YoY and other expenses (+40bps YoY). Interest expenses were down 14% YoY to INR 277mn. Depreciation expenses were down by 2.8% YoY. Other income at INR -29mn, on account of forex loss to the tune of INR 100mn. PAT de-grew by 48.9%YoY to INR 509mn, on account of forex loss and higher tax outgo and PAT margin fell by 230bps YoY to 4.9%. Company has repaid INR 3.6bn of long term debt in FY18 and net debt stood at INR26.2bn with net debt to equity of INR 0.9X.

Outlook

Trident is the second largest Terry towel manufacturer and largest wheat straw based paper manufacturer in India. We expect Trident's bottom line to grow at a CAGR of 25.2% between FY18-20E as the operating and financial leverage play out. As the company has completed all major capital expenditure, we estimate the cumulative FCF generated between FY18-20E would be around INR 21.8bn i.e. ~71% of current market capitalization, which provides a good margin of safety. Amongst the comparable peers, Trident has relatively better earnings quality and trading at an inexpensive valuation i.e. 25% discount to its peers average. At CMP, Trident is trading at 8.9X & 7.5X FY19E & FY20E earnings and we maintain a BUY rating, while reducing our target price to INR 81 (earlier: INR 95) valuing the company at 10X FY20E EPS, representing an upside potential of 33.6%.

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