Motilal Oswal has initiated coverage with buy rating and target price of Rs 114 (implying 39 percent upside) on Trident, citing an attractive utilisation play.
The brokerage house believes Trident is set to benefit from multiple factors, including industry growth and expanding share of bed linen/copier paper.
Trident is set to deliver CAGR of 9 percent in revenue and 24 percent in earnings over FY17-20, driven by revenue CAGR of 44 percent in bed linen and 12 percent in bath linen, the research house said.
According to the research firm, the recently ventured bed linen segment is expected to turn EBITDA profitable by Q3FY18 as utilisation touches 40 percent. The segment's share in overall revenue should increase from 4 percent in FY17 to 9 percent in FY20, it believes.
The company most recently ventured into bed linen, with installed capacity of 43m meters. In the first year of operations, bed linen had 29 percent utilisation, and the company expects to ramp-up operations by adding new clients. Trident has already added more than 10 clients in FY18 so far, including large replenishment clients like IKEA and Amazon.
Motilal Oswal said after significant capacity expansion in bath linen (towel) in FY15, Trident is expected to reap its benefits and witness higher utilisation (65 percent in FY20 versus 50 percent in FY17), which would not require further addition of spindles as yarn capacity would be utilized in-house.
The research house feels the rising share of copier paper should lead to paper business margin expansion of 340bp to 38 percent in FY20.
Copier paper is among the top selling brands in India and commands high margins. Copier paper contributed 45 percent of paper sales volume in FY13, which increased to 60 percent in FY17.
The brokerage house said the share of Indian companies in the global textile market is on the rise as the country is becoming highly competitive in terms of raw material cost, labour cost and level of automation, leading to improved quality.
Trident has been proactive in capitalising on this opportunity, leading to an increase in the company’s share in global towel exports to the US (from 10 percent in CY14 to 13 percent in CY16). Also, the company’s share in Indian towel exports to the US has also increased from 28 percent in CY14 to 32 percent in CY16, it added.
Trident is one of India's leading diversified group of businesses headquartered in Ludhiana, Punjab. The company is one of the world's largest manufacturers of integrated home textile (bed and bath linen) and the largest manufacturer of wheat straw-based paper.
In FY17, the home textile business contributed 82 percent of its overall revenue, while Paper accounted for 18 percent. It has manufacturing plants at Budni (MP) and Barnala (Punjab) with combined installed capacity of 115mn kg of yarn, 175k MT of paper, 90MT of bath linen and 43m mtrs of bed linen. Trident also owns the world's largest compact yarn spinning unit under single roof.
At 11:01 hours IST, the stock price was quoting at Rs 87.25, up Rs 0.65, or 0.75 percent on the BSE.
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