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MOSL: TRIDENT | INITIATING COVERAGE-An attractive utilization play-Increasing utilization and entry into bed linen

​TRIDENT | INITIATING COVERAGE: An attractive utilization play; Increasing utilization and entry into bed linen – the key growth drivers

(TRID IN, Mkt Cap USD0.7b, INR82, TP INR114, 39% Upside, Buy)

Trident (TRID) 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% of its overall revenue, while Paper accounted for 18%. 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. TRID also owns the world’s largest compact yarn spinning unit under single roof.

Home Textile contributes 82% of TRID’s revenues. Improving productivity and operating efficiencies are expected to significantly boost utilization in this segment over the coming years (65% utilization in its stronghold bath linen v/s current level of 50%, and 60% utilization in the recently forayed bed linen v/s current level of 29%). The focus on value-added products should help the company improve realization impressively in Home Textile.

Paper accounts for 18% of its revenues. The company has presence in copier paper (~60% of TRID’s Paper sales volume), which is among the top-selling brands in India and commands high margins. TRID plans to implement a debottlenecking project to release capacity of 250-275 TPD, improving capacity utilization and allowing further expansion in the copier segment. Increased focus on copier paper is expected to expand TRID’s Paper margin by 340bp to 38% in FY20E.

We estimate a CAGR of 9% in revenue and 24% in PAT over FY17-20, driven by EBITDA margin expansion of 110bp and lower interest expense. We value the stock at 11x FY19E EPS. We initiate coverage with a Buy rating and a target price of INR114, implying 39% upside.