Buy Trident; target of Rs 85: JM Financial

JM Financial's research report on Trident

Trident reported 2QFY19 PAT at INR 1.1bn, significantly higher than JMfe/street estimates, primarily driven by robust performance in terry towel segment. EBITDA margin expanded 330bps YoY to 18.8% driven by a) operating leverage due to higher towel volumes, b) sheet segment turning EBITDA positive in 1QFY19, and c) YoY increase in yarn EBITDA on a low base in 2QFY18 (inventory loss). Bed sheet and terry towel volume increased 32.5% and 29.6% YoY, respectively. a) INR depreciation (15%+ YTD-CY18), b) settling of market place disruption in the US and c) extension of MEIS (4% export benefit) have provided a welcome relief to the company. Change in export subsidies (MEIS/ROSL) and cotton price movement remains the key monitorable.

Outlook

The Board has declared second interim dividend of INR 0.6/share. We roll forward to FY21E and ascribe a P/E of 12x FY21E to arrive at our revised fair value of INR 85/share. Maintain BUY.